Harvest pressure

The good old days of seasonal harvest pressure are seemingly back. Markets are busy removing risk premium associated with production concerns, political bun fights, pandemics and general uncertainty. Today, that “what if” has become a “won’t happen” and price is re-basing accordingly. The global consumer is certainly interested to buy.  There’s a raft of tenders and enquiries, including GASC back in the market on a quick turnaround. US broker wires are filled with observations around the historically low premium. The US is now commanding a dominance over traditional rivals – a good point but one that takes time to exert any material pressure. The fact is, global price action has been confusing. Russia is the dominant exporter in the world and, given late rainfall, has managed to shore up production.

US competitive

However, Russia is not leading price lower. In fact, it’s been the US which has led the charge, significantly closing the gap against Russian cash values. EU, the one region with production cuts, has been treading water; watching the external fun and games but is not a driver of value. Australian FOB levels have largely been a function of the stubborn Russian cash values based on relative value into Asia. So what next. Russian values have held up better than an 80Mt crop would suggest.  The reason, be it lack of grower selling, government intervention, or something more complicated, will eventually set the world price. These are uncertain times and COVID is still throwing punches so traditional mean reversion is struggling to take over.

Dalian corn higher

Interestingly Dalian corn futures traded in China’s commodity exchange, continue to ratchet higher, making highs not seen since 2015. Domestic Chinese corn values have been on a steady climb, fuelled but their lack of import alternatives. The lack of Australian barley to temper the local values combined with reports of a faster than anticipated hog herd recovery post-African Swine Fever. Whatever the cause, the available solution is the interesting part. Let’s assume that there is a genuine shortage of feed grains, and particularly at this stage of the calendar, China has to look to the US to cover this shortfall. First, this potentially goes some way to satisfying their Phase 1 requirements and second, gives China a moral high ground leg-up against the US. It’s easy to assume the tension between the US and China would restrict their trading relationships but the hard reality is China has to buy US product.