STRONG LIVESTOCK DEMAND SUPPORTS CORN FEED USE
Based on USDA’s current projections this year’s corn crop
forecast at over 1,028mt, will only just cover current demand
which is projected to rise by 58mt to 1,017mt, driven by feed,
food and industrial use up by over 27mt and 31mt respectively.
The bulk of the increase for feed expected to occur in the US
8mt, China 7mt and Brazil 2mt to support rising livestock
demand, with US and global corn stocks expected to rise.
LARGE SUPPLIES OF FEED WHEAT EXPECTED TO REDUCE CORN
Global corn trade is 3mt lower at 134mt, driven by reduced
imports into China, EU,Vietnam and South Korea, as they are
expected to draw on larger supplies of competitively priced
wheat for use in livestock rations at the expense of imported
corn; feed use in Indonesia is forecast lower, with corn imports
forecast to drop by 800,000/t to 2.2mt reflecting delays in
issuance of licences and permits creating uncertainty for
importers, the drop in corn imports expected to be partially
offset by larger imports of feed-quality wheat. Larger corn
imports are forecast for Mexico raised 500,000/t to 13.5mt on
expected feed demand,Turkey 1.5mt, Zimbabwe 1.4mt and
Venezuela up to 2.1mt. US corn exports, are projected higher
this year at 55mt on reduced supplies and less competition from
Brazil 20mt, with larger exports forecast for Argentina 24mt and
TIGHTER CORN SUPPLIES IN BRAZIL EXACERBATED BY CROP
A smaller Brazilian safrinha crop highlighted the tight supply corn
situation, where following a sustained period of weaker currency
values, encouraged farmers to forward sell more of their corn
than normal to overseas markets, leaving livestock (pig and
poultry) producers struggling to source corn supplies. Brazil is
forecast to import 1.1mt of corn including some imports from
Argentina and Paraguay in a bid to cover the shortfall, while
rising corn prices prompted government intervention.
Agricultural Minister Blairo Maggi confirmed he was working for
a solution, to lift import restrictions on genetically modified
(GM) varieties of corn from September to November 2016; this
would permit shipments from the US to take place, pending
approval by the National Biosafety Technical Commission, an
independent agency responsible for GMO approvals. A decision
is expected by September 1.
DROUGHT IN BRAZIL IMPROVES US CORN PROSPECTS
Favourable crop ratings, enhanced the prospect of record corn
supplies in the US, contributing to downward pressure on prices,
quotes for US corn 3YC FOB Gulf fell $26/t to $167/t (Aug 12).
By contrast, in South America, weather-induced damage to the
Brazilian crop and harvest delays in Argentina saw higher prices-
Argentine feed corn (up River) quoted at $181/t and Brazilian
feed corn (Paranagua) $190/t (Aug 12); while Black Sea quotes
are slightly lower at $198/t on tight nearby supplies.
RISING DEMAND FOR MEAT SUPPORTS FIRM PRICES
All meat products covered by the FAO Meat Price Index in July, saw prices firm, in particular pig meat, underpinned by limited availabilities — including a shortage of pigs for slaughter and lighter slaughter weights in the EU and reduced output of sheep and bovine meat in Oceania, caused by herd rebuilding. At the same time, international demand for meat remains firm, supported by a recovery in purchases by China, and sustained imports by several countries elsewhere in Asia.
BEEF AND POULTRY TO EXPAND BUT PIG MEAT OUTPUT TO FALL
FAO forecast that while production of beef 68.4mt and poultry meat 116.2mt are expected to expand, pig meat output is expected to fall to 116.4mt, smaller output in China due to a slowing economy and environmental regulations and in the EU low prices spur herd contraction, more than offsetting higher gains by the US, Brazil, and Russia. Increased exports and improved market access to increase Brazil’s production while moderate expansion in Russia due to lower prices. Overall global meat production is anticipated to rise by 0.3% to almost 321mt. Beef herd expansion in the US, India, and Brazil where production is expected to rebound, to offset lower production in Australia as producers rebuild herds. Increases in output are expected in the US, Brazil, the EU, India and Russia, while reduced production is foreseen for China,Australia and South Africa.
GROWING DEMAND FOR MEAT SUPPORTS RECOVERY IN GLOBAL TRADE
Global meat trade is expected to recover growing by 2.8% to 31mt in 2016. Trade in poultry meat is expected to reach almost 13mt — low international prices and rising domestic consumption stimulating import demand in a number of markets, including Saudi Arabia, South Africa, Japan,Vietnam, Cuba and the United Arab Emirates. Pig meat trade is expected to rise by over 4% to 7.5mt, supported by larger sales to Mexico, China, Russia, US, Japan, the Republic of Korea and Australia. While trade in beef meat is expected to rise by 1.3% to 9.3mt driven by growing demand in Asia, especially in China, Malaysia, Iran, the Republic of Korea and a limited recovery in Russia. The increase in demand expected to be met by Brazil, the US, Mexico, Uruguay and Argentina. Restocking in Australia and New Zealand is expected to see trade in sheep meat fall by over 0.9mt, smaller supplies reducing imports into China, the main market.
SMALLER BARLEY HARVEST BUT FEED DEMAND STRONG
Smaller crops in Turkey, Argentina and US mostly responsible for the cut in global barley production projected at 145mt, 3mt below last year. Rain has delayed the harvest in the key growing regions of France and UK, with EU spring crops faring better. Larger barley imports into Saudi Arabia,Turkey, Jordan, Syria, Tunisia and Morocco offset by smaller imports into China. Feed use at 100mt is almost the same as last year. Like other feed grains, barley values are lower than last year-Quotes for French feed barley FOB Rouen ($160/t – Aug 11); UK Feed Barley Merchant Nov 2016 £102-110/t ($134/t-$144/t – Aug 11).
DEMAND RISES DESPITE REDUCED SORGHUM EXPORTS TO CHINA
Better crops in the Sudan, Ethiopia, Mexico and a number of other countries boosted sorghum output to over 65mt, 5mt up on last year, offsetting a large reduction in the US crop down by over 3mt to 12mt. The decline related to changes in China’s support policy for feed grains. In 2014/15 global exports to China peaked at over 10mt, this year sorghum imports are almost halved at 5.5mt. Even with the drop in China’s imports, global feed, food and industry use of sorghum is expected to increase by over 4mt to 65mt. Quotes for US sorghum-FOB Nola (Oct) have crept up over the week from $169.88/t to $175.88/t (Aug 11).
RECORD-HIGH GLOBAL SOYBEAN PRODUCTION FORECAST IN 2016/17
Despite the prospect of a record soybean harvest in 2016/17, with even larger crops expected for key producers, the US, Brazil and Argentina, adding to burgeoning supplies of food and feed grains, Chicago’s soybean (November) contract closed up at $9.966/bu ($366.19/t) Aug 15, strong
growing demand for soybeans and South American crop
shortfalls, providing support.
RECORD OUTPUT FOR MOST MAJOR OILSEEDS EXCEPT
Oilseed production is forecast by USDA to rise to a record of
544mt in 2016/17, 25mt above last year’s harvest. Record crop
for soybeans forecast at 330mt and better crops for sunflower
43mt, cottonseed 39mt, palm kernel 17mt, groundnut 41mt and
copra 6mt; partially offset by lower rape crop 67mt, due to
smaller crops in China and in the EU, where a lower planted
area and persistent rain reduced output. Global crush is
forecast at a record level of 465mt driven by soybean demand
with greater uptake of oil meals projected to rise by 10mt to
311mt, reflecting rising protein demand mostly in China and in
some other countries.
NORTH AMERICAN AND BLACK SEA OILSEED PROCESSING
Drew Burke, Bunge's chief financial officer, forecast a diverging
soybean crush environment.With forward oilseed processing
and grain handling margins in North America and the Black Sea
being solid, reflecting big harvests and strong demand, while
noting that smaller than expected crops in Brazil and Argentina
are slowing farmer selling, which will damage processing margins.
While margins for Canadian canola and European sunflower
seed are attractive, European rapeseed crush margins remain
depressed due to excess industry capacity and weak biodiesel
Global trade in oilseeds is forecast to increase by 2mt to
159mt with ample oilseed stocks expected to end the year
slightly lower at 81mt; this includes lower soybean stocks of
71mt with tighter stocks for rapeseed 3.9mt sunflower seed
LOWER RAPE OUTPUT STIMULATES DEMAND FOR SUNFLOWER
Record sunflower seed production is expected to rise to over
43mt, an increase of almost 4mt from the current year. The bulk
of the growth is projected in Ukraine and Russia, which accounts
for 54% of global production.
Record supplies, especially in both Ukraine and Russia, are
expected to sharply raise global crush, boosting meal production,
a record at 17.8mt primarily used to substitute for reduced rape
meal in EU animal feed, with global consumption forecast to rise
by 8%; and record oil production 16.6mt with strong demand in
the EU, India, the Middle East and North Africa expected to lift
global consumption by 4%;
US PROSPECTS BRIGHTEN ON RECORD SALES AND LESS
Larger soybean crops forecast for the US111mt, Brazil 103mt
and Argentina 57mt are expected to lift output to 330mt in
2016/17. Planting progress for the US soy crop in May was
faster than the prior five-year average, allowing the plants to take
advantage of favourable conditions in June and July, raising crop
ratings, while rain in August is essential for the plants to reach
full yield potential.
With a large crop in the making, prospects for US soybean
exports have brightened considerably since the start of the year.
Weather hindered crops in South America, hot, dry weather in
Brazil and flooding in Argentina, prompting a significant rise in
prices there; buyers switched to US soybean supplies leading to
record export sales from May through August revised up to
51mt, leading to a smaller US carryout. Because of the supply
problems in South America, the US is expected to be the main
source for soybeans from August through to February 2017, with
exports forecast to increase to 53mt beans and 11mt meal in
2016/17, with soybean stocks just below 9mt by the end of the
season. South American exports are expected to rise with
exports from Brazil 60mt beans and 16mt meal;Argentina under
11mt beans and 33mt meal.
LIVESTOCK PRODUCTION DRIVES CHINESE SOY IMPORTS
China’s demand for meat continues to grow, as a growing middle
class consumes more meat. Higher demand for industry feed
and protein meal as a result of a recovery in swine production
and steady growth in the poultry sector is forecast with imports
of soybeans expected to rise to 87mt this year.
India’s oilseeds prospects improve with normal monsoon after two years of drought
India remains the world’s second-largest consumer of edible oils at close to 21mt (million tonnes) next only to China where the market is around 35mt, writes Kunal Bose. This is despite the per capita disappearance of oils and fats in India which, at 16.7kg, trails the world average of 27.6kg and China’s 26kg. The cumulative use of oils in India, which is the fastest growing among the world’s major economies is hugely big because of its over 1.25bn population. Dr BV Mehta, director general of Solvent Extractors Association of India (SEAI), says the country will need an extra 1mt of oils every year to meet its growing requirements. From a health point of view, the oils demand growth is a welcome development. But what niggles the government is that while domestic production of nine major oilseeds during the summer and winter harvests has remained within a narrow band yielding oils of 6mt to 7.25mt, the country has become increasingly dependent on imports.
India’s edible oils imports rose to 15.103mt in 2015 from 12.188mt in the previous year. Such a sharp rise in imports resulted from the toll that two consecutive years of drought took on Indian oilseeds crops. The trade estimates that India’s oilseeds production was down 18.63% from 33.679mt in 2014/15 to 31.816mt in 2015/16. The one that suffered the most was soybean seeds where production was down 12.90% from 8.5mt to 7.21mt. But SEAI puts 2015/16 soybean production higher at 7.75mt. However, the rape/mustard/toria crop could make gains of 8.40% to 5.92mt from 5.08mt. After two years of the earth being scorched by serious rains deficit in many parts of the country, the country is having more than a normal south-west monsoon this year improving the prospects of all crops, including oilseeds.
According to one trade estimate, soybean this time is planted on larger area of 11.27m hectares up from 11.4m hectares in 2015/16 and the crop is found to be in either normal, good or very condition in almost all growing centres. Similarly, farmers are growing groundnut and sunflower on bigger areas this season. Prospects of a good soybean crop in the current season on the back of 2015/16 drought-related setback in production are a good development for India. This is because soy oil finding increasing favour with the Indians now has a share of 20.28% in the country’s oils consumption basket. Any price fall in soybean is always a fillip to higher consumption of this oil.
According to the US Department of Agriculture (USDA) report of August, the global oilseeds production for 2016/17 is projected at 543.5mt, up 7mt from the month earlier in which the share of soybean is placed at a record 330.4mt. The report says:“The US production increase is partly offset by reductions for both India and Ukraine with the latest planting data for both countries indicating lower forecasts for harvested area.” The Indian part of the report will call for revision as both soya acreage and production outlook look encouraging. Confirmation of this comes from government agencies and SEAI. The US oilseeds production for 2016/17 is projected by the agency at 120.2mt, up 4.8mt from July due to a higher soybean production forecast. Soybean output for the current season is forecast at 4,060 million bushels (one bushel equals 27.2155kg), up 180m due to yield improvement. The US harvested area remains unchanged at July forecast level of 83m acres.
The US soybean crop benefits from yield forecast of 48.9 bushels per acre which is 0.9 bushels above last year’s record. Whatever the size of the US and Indian crops, two developments will have a bearing on soybean prices. First, in a presentation a few months ago, the world-renowned oilseeds expert Dorab E. Mistry said the lack of carryover bean stocks in Argentina was now in the open.“Thus far we had been led to
believe that Argentine farmers were holding back large tonnages of old crop beans. Today we find those stocks are much lower — possibly non-existent,”
he said. The USDA agreed and “slashed the 2016/17 carryover to just 300m bushels.”
Secondly, earlier this year rains pounded hard enough the soybean growing centres in Argentina such as Cordoba, Entre Rios, Santa Fe and Buenos Aires, leading experts to lower crop estimate by 6mt to 55mt. Rains have muddied the roads and
fields so much that farmers could bring combine harvesters to
the field causing damage to growing areas.Along with Brazil and
the US,Argentina is one of the world’s leading exporters of
soybeans, soy oil and soy meal.
In the meantime, a report says that Brazil’s till recent
insatiable appetite for growing soybeans in increasingly big
quantities appears to be fading. Chicago-based commodities
consultancy AGR Brasil says the estimated 2% rise in land under
soybeans to 83.5 acres during 2016/17. This is seen by many as
the smallest in soybean acreage rise in Brazil in the past decade.
What is not to be lost sight of is farmers’ juggling of land space
between corn and soybean depending on price expectation. The
world has seen major disappearances of oilseeds, principally
soybeans since 2012/13. China being a strong importer of
soybeans year after year remains a factor in oilseeds
disappearances. Mistry raises an important point:“We are
fortunate that world production has also been rising at a
dramatic pace. However, as I have repeatedly pointed out, we
have enjoyed five back-to-back bumper bean harvests... But
what happens when this sweet music stops?”
The Hamburg based magazine Oil World says the major bullish
factor for oils and fats is to be found in substantial reduction in
world stocks by 4.2mt in the first eight months of 2016.
Continuing, it says while the recent price rise was led by palm
oil, most vegetable oils have reversed the declining trend. Palm
oil is the price leader which appreciated by US$ 130–140 a
tonne or by 21% to 23% in the three weeks to 18 August. Also
lauric oils rebounded with palm kernel oil up 12% and coconut
oil 10% during this period. Soya oil was also pulled higher with
Argentine prices up US$ 90-100 a tonne and US export prices
were up US$110–120 a tonne. The demand for oils would have
been higher but for the generally weaker world economy and
shortages of petrodollar in big palm oil and vegetable oil markets
such as West Asia, north and west Africa.
What also acted as some check on oil prices moving forward
was China’s active auctioning of oil from the state reserve of old
rape oil vintage 2011 mainly and also 2012. This is a common
Chinese practice with almost all commodities: build inventories
when prices are low and then unload when the market favours
to book profits. Indonesia and Malaysia also have to reckon with
rising subsidy bill to support production of biodiesel caused by
low petrol prices. Mistry’s revised estimate for Malaysian palm
oil production in 2016 is between 18.4m and 18.8mt. The
reason for giving a “fairly broad range,” as he explains, is because
of the proportion of young new hybrid palms in the south-east
Asian country is increasing and “we don’t have enough reliable
data on how well they perform.” At the same time, it is claimed
that hybrid palms are highly drought resistant and recover from
dryness quickly. The upper end of Mistry forecast will come
good if during September to November, Malysia makes 2mt each
Mistry thinks the combination of mature area and impact of
new young palms will limit the shortfall to 1mt. But he is also
aware that a leading Indonesian producer is sticking to a 2mt
shortfall. If that happens that will be a positive for palm oil
prices. What about palm oil outlook for 2017? According to Oil
World, production in Malaysia and Indonesia will still be partly
curbed by the lagged effect of the previous El Nin~o, keeping
yields below potential in 2017. According to the magazine, the
number of fruit bunches available for harvest will still be less
than normally. However, with improved rainfall, oil palms will be
regaining strength and the bunch weights should be considerably
higher than in 2016. A recovery in yields (though still staying
below 2015 and 2014) and further growth in the mature area
are likely to boost Malaysian and Indonesian palm oil production
to new record highs.
In the hope that duty difference between crude oils and
refined oils will be big enough to allow profitable working of
refineries, Indian groups went on building refining capacity close
to ports. But since New Delhi in its wisdom has kept the
difference in import duties between crude and refined oils at
only 7.5% instead of 15% pleaded by the local industry, the
refineries in India are using 40% to 50% of their capacity. The
difference in landed cost of crude palm oil and refined, bleached
and deodorized palmolein should ideally be around $50 a tonne.
That alone will lead to better use of the local refining capacity.
India, the world’s largest user of palm oil, imported 9.496mt in
2015 compared with 7.931mt in the previous year. If major part
of this oil comes in crude form then that will prove to be a
blessing for the Indian refining industry. The highly rewarding
Chinese experience has encouraged Dr Mehta to intercede with
New Delhi for reduction of import duty on oilseeds from 30%
to10%, if not 5% in order to encourage imports of high oil
content oilseeds such as rape and sunflower seeds. India is in
such big deficit in local oilseeds supply that imports will not in
any way compromise the interest of local farmers.