This little piggy went to market

Peter McMeekin, February 12, 2019

THE big news in agricultural markets last week was the release of a plethora of data by the United States Department
of Agriculture (USDA).

Most of the reports had been delayed due to the partial shutdown of US government agencies.

The biggest of these reports was the World Agricultural Supply and Demand Estimates (WASDE), which incorporated
two months of data.

The January report could not be collated as USDA employees were furloughed throughout the
record 35-day shutdown.

Surprisingly, there weren’t any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million
tonnes (Mt) to 267.5Mt. Nothing there to scare the market.

They left the United States (US) and European Union (EU) wheat exports unchanged at 27.2Mt and 22Mt respectively, but they did decrease Australian wheat exports to 10Mt. This is now roughly in line with most domestic trade estimates.

Russia tightens

Interestingly, the USDA increased Russian wheat exports by 500,000t to 37Mt.

There has been much speculation around the unsustainable pace of Russian exports, and possible restrictions as internal wheat prices soar. Ruble-
denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014.

Growers are holding back sales given shrinking stocks and continually rising prices.

Russian export wheat prices increased around US$4/t last week, closing at a four-year high. Russia is now largely uncompetitive in the world wheat market.

This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.

GASC purchased a total of 300,000t of wheat in its snap tender last Friday.

The US sold 120,000t of Soft Red Winter wheat, the French also sold 120,0000t, and the remaining 60,000t was traded by Ukrainian exporters.

The US was the lowest free-on-board (FOB) offer by around $10/t, and despite its $10/t freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was approximately $2/t lower than the late January tender.

Back to work in China

The Chinese will be back at work this week after their traditional Chinese New Year festivities.

There are 12 Chinese zodiac animals used to represent years, and 2019 is the Year of the Pig.

The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries outside China such as North and South Korea and Vietnam celebrating it as well.

In China, you will also hear the New Year referred to as “chunjie”, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter-crop harvest and summer-crop planting season.

With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?

Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the 1 March deadline. This is when the US tariffs on more than $200 billion worth of Chinese imports are scheduled to increase from 10pc to 25pc.

Early in the trade-negotiation process, China stated that it would purchase 5Mt of US soybeans as a goodwill gesture while the negotiations were taking place. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period.

With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10Mt since the talks began.

Risk of northern exposure

For the northern-hemisphere winter crop, unusually warm weather and heavy rain across many parts of the Balkans and western Europe has reduced its protective snow cover.

The weather forecasts are kind in coming weeks, but any return to cold conditions could have serious winterkill implications in the absence of adequate protection.

In the Black Sea region, extremely mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia.

There have been no reports of crop losses, and local Ukraine estimates have stated that 96-99pc of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.

A large part of the US winter wheat area received heavy rainfall to start the month, and subsequent minimum night-time temperatures have been close to theoretical winterkill thresholds.

This follows the extremely low temperatures through many of the Midwest states in late January.

Up to 20pc of wheat land had limited or no snow cover. Any damage will only become evident once the crop breaks dormancy in early spring and recommences its growth phase.

One USDA number that did disappoint last week was the area sown to winter wheat in the US. They rolled out a planted area of 12.6 million hectares. This is a 110-year low, and is 4.3pc lower than last year’s area.

Australian extremes

Unseasonable weather conditions seem to be a global norm these days, and Australia is no exception.

While the prolonged dry continues in southeastern Australia, many parts of North Queensland are the complete antithesis.

Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.

Unfortunately, the flooding will be no help to the ailing Murray-Darling Basin, on which so many Australians depend.

Peter McMeekin is a consultant to Grain Brokers Australia.



Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.


Get Grain Central's news headlines emailed to you -