World grain trade

LARGER PLANTINGS BOOST EXPECTATIONS FOR HUGE HARVESTS IN 2013

In commodity markets, following last year’s catastrophic drought that reduced supplies in North America, Europe and the Black Sea region, higher prices for major crops are encouraging a strong supply response with larger plantings forecast for wheat, corn and soyabeans. Assuming normal yields, large global harvests in 2013/14 are forecast to replenish global stocks and moderate prices, although the weather, which had a critical impact last year remains a key uncertainty, and until production levels are better known, commodity markets are expected to remain volatile.

GLOBAL WHEAT SUPPLIES POISED TO EXPAND IN 2013

Driven by both firm prices and a recovery from adverse weather conditions, producers had strong incentive to increase wheat plantings. Early indications suggest the global wheat area could be 2% above last year. All the major exporting countries including the EU, Russia and Ukraine, are expected to have larger crops with the possible exception of the US. While planting conditions have been favourable in many areas adverse weather in some key producing areas especially those recovering from drought, has limited the sown area and or crop emergence. With the focus shifted to condition and development of northern hemisphere crops, the International Grains Council’s (IGC) preliminary estimate points to a larger global wheat crop in 2013 forecast at 682mt (Abares 688mt, Informa 701mt), boosted by an increase in the sown area and a rise in yields, although the potential increase in global output is expected to be absorbed by higher demand.

SMALLER US WHEAT CROP FOLLOWING SEVERE DROUGHT

US wheat area is projected to increase to 56m/acres, with a smaller Hard Red Winter (HRW) wheat area (29.4m/acres) due to drought, and an increase in the Soft Red Winter (SRW) wheat area (9.7m/acres). Spring wheat area including durum is projected to decline due to more profitable returns for corn and soyabeans.

US wheat production is forecast at 57mt, lower than last year, as much of the acreage in states such as Kansas and Nebraska, which bore the brunt of the drought, were rated in very poor condition. Recent heavy snowfalls have provided much needed moisture to replenish the deeply depleted reserves, but spring rains will be especially important.

The Canadian government forecast Canada’s wheat plantings to increase with a wheat crop of 28.5mt, and adds to other forecasts that global wheat supplies are poised to expand, potentially helping to curb prices that rallied 21 in Chicago over the past year as inventories dropped.

The EU planted area is projected to rise to 23.5m/ha, with production for 2013 forecast at a four-year-high of 291mt (soft wheat 131/mt durum 9mt) up almost 19mt on last season’s — boosted by the accession of Croatia to the EU, which typically has a harvest of 3mt. While some areas in central Europe have experienced low soil moisture, late sprouting in autumn and excessive wet weather in France and the UK, will reduce yield quality and has already led to downward revisions to output. Persistent rainfall, 50% higher than normal between September and February, saturated UK soils and prevented farmers from a late catch-up on winter sowings. Strategie Grains forecast the EU crop at 139mt (soft wheat 131mt Durum 8mt) this includes a UK crop of 12.4mt, while UK merchant Gleadell, forecast a UK wheat crop of 11mt.

BLACK SEA REGION OUTPUT RECOVERING STRONGLY

Despite a dry autumn, which left an estimated 12% of winter- sown grains in poor condition, the Russian wheat crop is seen rebounding and forecast at 55mt this season, well above the drought-depleted harvest last year, with wheat crops in neighbouring Kazakhstan also forecast higher at 16mt and Ukraine 20mt.

Elsewhere crop conditions in North Africa, Asia were reported as being generally favourable. In China, the area is similar to last year; Pakistan is expected to have a record crop; plantings in India are reported to have been lower with the crop forecast at 92.5mt.

SOUTHERN HEMISPHERE — AUSTRALIAN CROP FORECAST AT 25MT With planting a month away, Abares forecast the Australia’s wheat area at 13.3m/ha (33m/acres) with a wheat crop of 25mt, after a heat wave curbed summer plantings in parts of Queensland and northern New South Wales, and farmers switched to planting winter sown crops.

REDUCED IMPORTS IN SEVERAL WHEAT COUNTRIES

Global grain trade is expected to fall by13mt to140mt in 2012/13, reflecting reduced purchases by several wheat importing countries, some reduction in feed wheat import demand and tighter exportable supplies. Egypt ,the largest single buyer of wheat on the global market, may import less than the 9.5mt forecast this season, due to political tensions, budget deficits and falling currency reserves. Egypt typically imports around 10–11mt of wheat and consumes 18–19mt. The Egyptian government says that while finance for wheat imports remains a priority, it expects a better domestic harvest of 4.2mt this year and have sufficient supplies for several months. Traders remain sceptical and point to a drop in wheat stocks-from seven to about three months’ supply-and to a smaller number of grain ships arriving at Egyptian ports.

INDIAN WHEAT EXPORTS SURGE OVER 8MT IN 2012/13

A much smaller harvest, and fear of an export ban, prompted a surge of early-season shipments from Russia, which reduced stocks, and resulted in a hike in the domestic price for wheat to $385/t. Black Sea wheat exports are forecast to fall to 23mt (Russia 10.5mt, Kazakhstan 6.5mt and Ukraine 6mt) in 2012/13. In their absence, several countries including Thailand, South Korea and the UK turned to India to secure competitively priced feed wheat boosting India’s exports, forecast to rise to 8.5mt. Thai feed millers-bought 40,000/t of Indian wheat at $315/t (C&F) in February and, due to an exceptionally poor crop, the UK imported 1.34mt of wheat from several origins in the July–December period, compared with 461,000/t last year. Traders say Indian wheat was selling below the market price because of slower demand and in order to clear large stocks before the next wheat harvest. Wheat exports from other countries are forecast to increase — Canada 19mt, US 29mt — helped by recent sales to Brazil and a 50,000/t sale of US soft red winter wheat for feed to Japan. EU 19mt supported by Algerian buying activity — AgriMer revised French end-season stocks higher, due to weaker trade within the EU and poor feed demand, while noting that India’s rising presence in export markets may need to be re-evaluated by the US and EU, especially in relation to Asian destinations.

Wheat’s discount to corn, is giving feedlots and other end- users a reason to think about replacing corn with wheat. Ethanol group Poet confirmed that an Indiana plant was seeking soft red winter wheat to use as a feedstock, replacing some corn.

CBOT WHEAT

May 2013 rebounded on reports of positive news especially wheat to increase/replace corn-before falling back on better global wheat prospects to close at $7.021/2/bu (4 March).

DRAMATIC RISE IN GLOBAL CORN OUTPUT FORECAST IN 2013

Elsewhere, corn plantings in China, are expected to match last year’s 34.8m/ha, with upside potential from higher-yielding hybrids. Plantings in the EU and Ukraine are expected to be above average at 9.4m/ha and 4.0m/ha respectively. Ukraine has also entered into a co-operation agreement with China, regarding the supply of corn — Ukraine received a US$3bn loan to boost corn production and, in return, China has a reliable supplier of corn.

Addressing an outlook conference in Europe, Steven Vogel of Alfred C Toepfer International GmbH, forecast global corn output to rise 14%, based on a recovery in corn yields, to 976mt in 2013/14, compared with the dramatic situation last year, where output fell especially in the US, Russia, Ukraine and other countries to 854mt.

GLOBAL COARSE GRAIN CROP HIT BY DROUGHT IN 2012/13

Expectations of a large global coarse grain crop keenly anticipated to ease feed prices and rebuild coarse grain stocks, were marred by a savage drought, which cut global output to 1,124mt in 2012/13, still the second largest crop on record. Record high and volatile prices, curbed demand in several countries, as consumption fell to 1,142mt coarse grain for feed use increased by 16mt (mainly due to the switch from wheat) to 671mt, food/industrial use declined by 29mt to 471mt, with global coarse grain trade lower at 125mt, and slight improvement in stocks to 146mt.

Even with the worst US drought in more than 50 years, US farmers still managed to harvest a corn crop of some 274mt; elsewhere, a bumper crop in China 208mt, better crops in Ukraine 21mt, Mexico 22mt and potentially large South American crops, are expected to boost global corn output to 854mt in 2012/13. While hot, dry weather has cut the Argentine crop by 7mt to 20mt, Brazil’s crop is forecast at a record 73mt, including a second or ‘safrinha’ corn crop, which is planted as a follow-on crop after soyabeans. This year the safrinha crop may be reduced following delays in harvesting soyabeans in some areas, and while it is viewed as a risky crop, having much of its growing period during the dry season, the extra crop produced vastly improves corn supplies for export, being almost half the corn output in Brazil.

RECORD CORN CROP IN 2013/14 TO MODERATE PRICES

IMPROVING DEMAND FROM ETHANOL AND END-USERS SUPPORT US CASH MARKET FOR CORN Slow farm selling and improving demand from US ethanol plants and end-users are responsible for a strong cash market for corn. Prices of ethanol RINs — paper credits assigned by producers to ethanol batches that can be used by blenders as a substitute for the real biofuel — have risen to $0.80/gallon (3 March), well above their traditional price of some $0.02/gallon, improving the benefit to ethanol producers, hit by record high corn prices and squeezed margins. The ‘RIN rollover’ reduces the demand for physical biofuel to meet the Renewable Fuel Standard (RFS), and also the associated demand for biofuel feedstock such as corn for ethanol. The Environmental Protection Agency (EPA) estimate the amount of RINs available to rollover in 2013, to be in a range of 2.4bn to 2.7bn RINs, implying much greater flexibility for corn use for ethanol in 2013.

USDA forecasts further growth in corn use for ethanol over the next few years, to be hindered by declining use of gasoline in the US (more efficient cars/fewer miles due to the slow economic recovery), ethanol penetration rates remain at 10% as growth in higher blends (E15 and E85) remains limited — this implies a blend wall of fewer than 13.4bn gallons. Ethanol output in excess of that amount would need to be held as stocks, as export prospects unlikely to improve due to greater competition from Brazil and restrictions on exports to the EU — where a recent decision imposed an $83.03/t tax on US ethanol exports, imported into the EU over next five years.

LIVESTOCK PRODUCERS CONTINUE TO BE CHALLENGED BY HIGH FEED PRICES Despite record corn prices, feed use is forecast to increase by 16mt mainly as a result of the switch from wheat to 520mt especially in corn producing countries like China, Russia, Brazil and Argentina. With global meat prices close to record highs, livestock producers continue to be challenged by high feed prices not expected to ease until later in the year, and falling profitability, with output slowing and growth in world trade also decelerating.

Demand for animal protein particularly in China, Brazil, India and in other countries, continues to stimulate global poultry production as a competitively priced option, forecast to increase by 1% to a record 83.5mt. Higher feed costs for poultry, over the past few years have eroded profit margins, as larger producers have consolidated for cost-savings synergies and to help maintain margins. China is expected to be the most significant contributor to this growth, despite the high feed prices. The industry is facing huge challenges adjusting to the new feed cost plateau from 2007 and has moved into 2013 on a weaker footing although China is showing strong consumption growth. Global pig meat production growth is likely to be relatively constrained in 2013. China continues to dominate the global market but is expected to record only a modest increase in production in 2013 as slower economic growth dampens consumer demand. Brazil is expected to maintain steady production growth, supported by improving export markets despite a weakening domestic economy; while Russian production is also expected to grow with strong government support, despite continued problems with African Swine-Fever. Beef consumption remains robust, particularly in Asia and South America, with beef prices increased in most regions, reinforcing the meat’s position as the most expensive mainstream protein, strong expansion by India, up by 14%, and to a lesser extent Brazil, Argentina, Australia and China. India’s expansion drives exports expected to be 29% higher this year, with plentiful supplies and competitive prices.

GLOBAL CORN TRADE IS FORECAST LOWER IN 2012/13

Global corn trade is forecast to fall to 98mt, due to reduced imports by a number of countries — including Egypt — imports lowered to 4.5mt, due to sluggish pace and difficulties in the livestock sector, while Mexico’s large domestic crop reduced imports forecast at 8.5mt. Additionally, reports from Chinese feed mills imply potential mould problems in farmers’ unsold grain in some areas in Northern China, may increase the need for imports beyond the 2.5mt forecast. Lower imports were partially offset by record 10mt imports into the EU due to a poor domestic wheat crop, and unusually, increased US imports to 2.5mt. Brazil is expected to replace the US, as the world’s largest corn exporter this season, with exports forecast at 24.5mt, followed by the US 24mt, Argentina 20mt and Ukraine 13mt. Global corn stocks are expected to fall to 118mt, with US stocks at an historic low of 16mt. Average export prices for Corn (yc3) FOB $309/t (4 March); CBOT Corn May 2013 closed up at $7.10/bu (4 March).

EU AND CANADA BARLEY ACREAGE TO RISE WITH RECORD SPRING BARLEY PLANTINGS IN UK The IGC pegged the global barley area at 53.1m/ha, a rise of 700,000/ha year-on-year. Canadian farmers are expected to increase barley plantings to 3.2m/ha with output expected to rise to 9mt, with domestic barley prices averaging C$220–250/t (US$214–244). Canadian farmers’ more favourable view of barley comes on the back of the USDA forecast that prices of corn will average $4.80/bu in the US market in 2013/14, down 33% year-on-year. EU acreage is also expected to increase to 12.4m/ha. Excessive wet weather in most areas in the UK, have prompted a large increase in spring barley plantings, expected to replace flood-damaged wheat fields. And, due to shortage of quality seed, only some 39% would make the malting quality grade, the remainder as feed barley, increasing the UK’s potential exportable surplus to 200,000/t, well above the 15,000/t this season.With lower winter-kill rates in France and Germany, spring sown acreage is forecast down by 40%, reducing scope for malting barley output. Germany is expected to double malting barley imports to 580,000/t for the beer industry. The EU’s exportable malting barley surplus is expected to be just short of 800,000/t in 2013/14.

THIN STOCKS SUPPORT FIRM BARLEY PRICES

Barley output fell in 2012/13 to 130mt, due to poor harvests in the CIS countries but also in Australia, Morocco and Turkey. While feed barley increased especially in Saudi Arabia, the EU, Australia among others, overall, consumption and trade were lower at 133mt and 18mt, respectively, with global barley stocks at a five-year low of 24mt, especially in major exporting countries. Export prices remain firm EU Barley (France) FOB Rouen $289/t (Mar 4), around $13/t higher than last year. Matif Futures Malting Barley May contract closed at $315.20/t (5 March).

SMALL INCREASE IN SORGHUM ACREAGE IN 2013

US sorghum acreage is forecast to increase to 6.4m/acres in 2013, due to a switch from other crops in areas recently suffering from drought and the impact of EPA approval of sorghum as an advanced biofuel. Production of sorghum increased by 5mt to 59mt in 2012/13, helped by a bumper harvest in Sudan, and better harvests in Argentina, Brazil and the US. Consumption is up by over 4mt to 60mt, especially in the Sudan, Mexico and Brazil. The increase in industrial use in the US (mainly ethanol) offset by a cut in feed use of 0.6mt. Trade is forecast higher at over 6mt, with larger imports to Japan, Mexico and the Sudan-Sorghum export prices FOB-Nola $314.35/t (1 March).

SOYABEAN ACREAGE IN THE US TO INCREASE IN 2013

USDA forecasts US farmers will increase the planted acreage for soya to 77.5m/acres in 2013. Based on yields of 43.9bu/acre, implies a record soyabean crop of 92.5mt (3.40bn/bu). Tight US stocks 3.4mt (125m/bu) are projected to increase to 6.8mt (250m/bu) in 2013/14, while the average farm price is expected

to decline from $14.30/bu to $10.50/bu. In the CIS countries, Russia and Ukraine may reduce the area to sunflowers. This will mostly affect Ukraine, where the area will be reduced by 7–10%, mainly due to the clamour for corn.

RECORD GLOBAL OILSEED OUTPUT IN 2012/13 Global oilseed output for the major oilseeds, is forecast to increase to a record 467mt, due to bumper crops forecast for South America, which will become available over the coming months. Soyabean production is forecast to rise by 31mt to 270mt, with increases for groundnut 37mt, palm kernel 14mt and Copra 6mt, with smaller crops of rapeseed 59mt, cottonseed 45mt and sunflowerseed 36mt. Global oilseed consumption is forecast to rise by 5mt to 267mt with trade also increased to 116mt.

While soyabean output in the US fell, both Brazil and Argentina are expected to produce record crops forecast at 84mt and 53mt respectively. Safras Mercado downgraded the Brazilian soy crop to 82mt, while Informa pegged Brazil’s crop at 85mt (Mar 1) and maintained the estimate for Argentina at 51mt; while Lanworth and the Buenos Aires and Rosario grain exchanges, estimate the Argentine soy crop to be below 50mt.

STRONG DEMAND FOR SOYA BUT DELAYS PUT BRAKE ON BRAZIL’S EXPORTS Demand for South American crops surged, after last year’s drought, pushed up prices in the US. While Brazil is poised to overtake the US as the world’s leading soyabean exporter this season, with its vast supplies, potential flaws in the transport network (from field to ship), have become apparent, as it struggles to make deliveries, with shipments held up at Brazilian ports. “The talk is of the logistical backlog in Brazil,” said Sal Gilbertie, chief investment officer of Teucrium Trading LLC. “Brazil has, for quite some time, needed to improve its loading facilities.” With Brazil’s main port of Santos, severely clogged, and waiting times at the port of Paranagua averaging 51 days in February, triple those recorded last year, according to AgResource, a Chicago-based research group.

Global soyabean trade is forecast to increase by 9mt to a record 99mt in 2012/13. While China’s soyabean imports are expected to rise to 63mt this season, minimal increases are anticipated in the EU-27, Japan and South Korea. With positive crushing margins world-wide, recent sales of US soyabeans to China in February and a sale of 775,000/t soyabeans (5 March), out of dwindling US supplies, underlines the idea that Brazilian logistical problems are driving trade to the US — which may itself be forced into imports before supplies from the 2013 harvest come on stream. “Demand is improving for shrinking US supplies,” Don Roose, the president of US Commodities Inc. said with exporters and crushers competing for last year’s drought-reduced supplies. Average export prices for Soyabeans No 2 FOB Gulf $567/t (Mar 6) some $55 more than last year. Current high price levels, suggests further weakness in soyabean contracts likely. CBOT Soyabeans-March closed at $15.03 1⁄2/bu, with May soyabeans ending up $14.731⁄2/bu (7 March).

Larger crops of soyabean, groundnut, palm kernel and copra expected to boost crushings by 2mt to 396mt; soyabean crush margins throughout the world are very positive, and soya crush is expected to rise by 5mt to 232mt, matched by a 5mt increase in global oilmeal consumption forecast to rise to 267mt, by the end of 2012/13. China’s oilseed crushings are forecast to rise by 4mt to 100mt to meet rising food and feed demand for poultry and pigs.

CHINA’S CRUSH CAPACITY PROVIDES OPPORTUNITY FOR SOYAMEAL EXPORTS China’s rising consumption of oil meals up to 71mt and vegetable oils 22mt, is driven by food demand and growth in rapidly maturing animal husbandry and expansion in crush capacity. Private sources estimate China’s current soyabean crushing capacity to be 139mt per year. State controlled companies COFCO, Sinograin and Chinatex have contributed to the rapid expansion. The industry has grown despite severe problems of overcapacity with utilization rates estimated to have ranged 60% and lower. Rabobanks see the spare crushing capacity as a way for China to export more soy meal to nearby markets in Southeast Asia.

So far, despite having excess processing capacity and advantages to nearby markets, China has not been a dominant meal exporter, constrained by strong domestic demand and higher internal prices, limiting exporters’ ability to compete with Indian meal. India is a competitive supplier to the same Asian markets. However, rising domestic use in India could potentially exceed production growth and erode exportable supplies. This would present an opportunity for exports by China. Southeast Asia accounts for about 20 percent of world soyabean meal trade, while over 70% of the region’s imports come from Latin America.