The International Monetary Fund’s (IMF) most recent assessment confirmed that global economic activity strengthened last year with further improvements likely, largely due to the recovery in the advanced economies, with global growth forecast slightly higher in 2014, rising to 3.9 percent in 2015, with downside risks remaining in both advanced and emerging economies. But this assessment came before geo-political tensions surfaced — Ukraine ousted its pro-Russian president and Russia deployed troops to seize control of key military installations in the Crimea region of Ukraine, provoking international outrage. This serious conflict so far contained, but unresolved, increased political and financial risk for global investors, prompting an emerging-market sell-off. Stocks around the world fell, the rouble plunged to an all-time low-propped-up by a 12 billion sale of Russia’s central bank reserves.Treasury bonds, gold and the yen rose as investors sought safety, while prices for oil, gas, wheat and corn, climbed higher. Russia and Ukraine are major exporters of wheat and corn onto the global grain market. Since the crisis began stocks have staged a recovery on the major exchanges, prices of corn and wheat have remained firm.
Against this backdrop, the preliminary outlook for grain and oilseed crops for 2014 is generally favourable; large crops expected to allow a further rebuilding of global grain and oilseed stocks, and a further moderation of crop prices with global demand expected to remain strong and to continue to keep pressure on supplies. While global stocks have improved over the past crop year, they remain tight and prices are likely to remain sensitive to market conditions, and vulnerable to supply shocks.
In the northern hemisphere, most of the winter wheat crop is in the ground and prospects for the wheat harvest in 2014 are mostly favourable. The International Grains Council (IGC) forecast the global wheat area to expand by 5.5 million hectares (m/ha) to 224m/ha, and expect the area sown to wheat to increase in the major producing countries including, China, India, Pakistan, CIS Countries, and the EU; some countries have yet to plant the 2014 wheat crop, but with wheat production remaining relatively more profitable to other crops wheat plantings are expected to increase. While the lack of snow cover in some areas, increases the threat of winterkill, the IGC forecast the global wheat crop at 697mt (million tonnes), the second highest crop on record, reflecting a 2% decline year-on-year, as yields are unlikely to match last year’s exceptional level.
USDA forecast lower wheat sowings at 55.5m/acres in 2014, due to a 1.1m/acre decline in Soft Red Winter (SRW) wheat seedings grown largely in the Midwest; even with an increase in spring wheat plantings up by 0.5m/acres to 13.6m/acres, will only partially offsets the drop in the winter wheat area. Hard Red Winter (HRW) wheat is expected to take acres away from corn in the Plains, due to price differential (wheat $6/bu/corn low-mid $4/bu); Hard Red Spring (HRS) acreage is expected to grow slightly in 2014, especially in the key areas of the Dakotas, Minnesota and Montana. Preliminary estimates forecast a US wheat crop of 59mt; Canada is also expected to harvest a smaller area (9.9m/ha) than the 10 year high achieved in 2013 (10.4m/ha).
The EU wheat planted area is expected to rise, at the expense of corn and barley, by 0.4m/ha to 26.1m/ha, mainly due to an increase in the UK planted area up to 1.9-2m/ha. Both the EU Commission and Strategie Grains forecast the EU crop at c. 145mt (soft wheat 137.5mt, durum 7.6mt); the threat from winterkill and damage to crops from heavy rains in western areas, limited. Exports are expected to fall to over 23mt including durum; while EU livestock producers are expected to increase wheat for feed use by 5mt at the expense of corn and barley, with a modest rise to EU wheat inventories to just under 12mt, by end 2014/15.
CIS SPRING PLANTINGS EXPECTED TO REBOUND
Winter plantings are lower this season due to adverse wet conditions in central regions, while low snow cover in the south has left crops vulnerable to cold weather, and plantings are reported to be down in both Russia and Ukraine; while ‘moderate frost-kill events’ in some parts of southern Russia and central Ukraine are highlighted, the threat of winterkill diminishes as spring approaches. The IGC expects spring plantings will rebound, however recent reports confirm that Ukraine’s winter wheat crop, which accounts for the vast majority of its production of the grain, faces severe drought prompting a downgrade of wheat production prospects, besides a warning over the impact of civil unrest on their spring sowings programme.
CHINA AND INDIA PLANTED AREA TO INCREASE
In Asia, the winter wheat area is forecast to increase in China to 24.3m/ha and in India to 31.5m/ha some 6% higher than last year, helped by abundant monsoon rains. In North Africa, conditions mostly favourable for winter wheat planting but more rains needed across the sub-region to ensure optimal crop establishment and development.
‘EL NIÑO’ CASTS SHADOW OVER 2014 AUSTRALIAN CROP
With wheat planting not beginning until May in Australia, the preliminary outlook highlights concern for soil moisture following soaring temperatures and drought in the south and southeast areas, and the heightened threat, especially to wheat, from “...an even stronger probability of El Niño, developing this year,” according to Paul Deane,Australia & New Zealand Bank’s senior ag economist. El Niño forming later in the calendar year is typically linked to lower wheat yields in Australia’s eastern areas, where tight supply is already evident. Commerzbank expects US wheat prices to increase further in the months ahead, due to the risk of winter damage and El Niño effect in 2014/15.
WHEAT PRICES FORECAST TO FALL TO $5.30/BU IN 2014/15
Looking ahead to next season, USDA forecast global wheat stocks, by end of 2014/15 to be broadly similar to this crop year, due to a fall in world wheat output and rise in food use; trade is expected to fall from this season’s peak, predominately on lower needs from China, with prices lowered to $5.30/bu down 22% from last year. Rabobank, forecast rising wheat stocks by the end of 2014/15, and cut their forecast for wheat to $5.60/bu with prices continuing to decline throughout the year.
RECORD WHEAT PRODUCTION RISES TO 712MT IN 2013/14
Global wheat production rose by over 56mt to a record 712mt in 2013, lower prices for wheat accelerating overall global consumption, expected to rise to 703mt; food/industrial use is forecast higher by 26mt to 569mt, while global feed wheat fell by 1.5mt to 135mt, due to more competitive feed ingredients, including corn.
RUSSIA/UKRAINE CRISIS CREATES UNCERTAINTY
Exports of wheat from the Black Sea region are forecast to rise this season to 33mt (Russia16mt, Ukraine 10mt, Kazakhstan 7mt). The Russian/Ukraine conflict has created uncertainty about exports and future supplies. So far, there is little evidence of disruption to grain exports — Ukraine has shipped the bulk of its exports with some 8–9mt remaining to be exported by end of the crop year; however, reports confirm that many
producers are possibly holding stocks as a hedge safeguard, should the Ukrainian currency collapse — dollar-denominated crops offers a hedge against a falling hryvnia; additionally financial constraints, lack of credit, lack of adequate soil moisture, may affect output in 2014. Elsewhere, record wheat exports are expected to rise in the major exporting countries including, the US 32mt, EU 27mt and Canada 23mt, with smaller exports from Australia 19mt. With India’s agricultural policy subject to international scrutiny, following last year’s exceptional exports of 8.5mt; despite the potential of another large crop, exports are forecast lower to 5.5mt this season.
LOW INVENTORIES ENCOURAGES RECORD WHEAT TRADE IN 2013/14 Global wheat trade is forecast at a record 156mt in 2013/14, as importing countries replenish wheat stocks that were drawn-low due to higher wheat prices last year. Egypt will be the largest
single buyer importing 10.5mt while China is forecast to triple imports to 8.5mt, larger imports are forecast for to Iraq 5mt and Mexico 4.5mt. Despite a recovery in global wheat futures prices, Egypt's General Authority for Supply Commodities (GASC), bought 235,000/t of wheat from Russia and 60,000/t from Romania in February, at an average price of $292/t CIF (cost, insurance, freight) ($289-$293), the lowest since September helped by lower shipping rates and a weaker rouble. Shipping rates have tumbled some 45% this year, undermined by jitters in emerging markets and their impact on commodity demand; freight from Romania offered as low as $10/t down from $15.73/t and from Russia between $11–13/t. Following record global wheat exports, wheat stocks are expected to rise by 8mt to184mt, while major exporters stocks are forecast lower at 47mt by the end of this season.
BLACK SEA CRISIS DRIVES WHEAT FUTURES HIGHER
The crisis and ongoing unrest in Ukraine and potential problems in moving grain into export channels as local currencies are driven to record lows against the dollar, drove wheat prices, which had been drifting-up, on reports of damage to crops, cold weather and transport logistics, much higher. May CBOT wheat futures contract soared to $6.458/bu before falling back only to rise again to close up $6.46/bu (Mar 6).
While on the EU and UK futures markets, prices rose — UK May 14 wheat futures settling at £162/t (Mar 3) up £5.25/t ($8.78/t) in one day, rose further to close at £165.50p (Mar 7). Export prices markets have risen further over last month US (HRW) FOB Gulf $318/t; French wheat FOB Rouen $293/t (Mar 6).
RECORD PLANTINGS, RAISES PROSPECTS FOR BUMPER GLOBAL CORN CROP IN 2014
The global planted area for corn is expected to rise 1m/ha to a record 175.5m/ha, due to increased sowings in China and the Ukraine, and less sowings in the US and EU; assuming normal weather conditions, the IGC does not expect yields to outperform last year, and forecast the global corn crop at 954mt down from 967mt but still a record crop. While US corn acreage is forecast to fall to 92m/acres (harvest 86.4m/acres), and with a return to more normal yields for spring-planted crops, USDA expects corn yields to jump by 4.1% this year, potentially producing another record US crop of 355mt (13.985Bn/bu) similar to last year; boosting US corn stocks to 54mt, by the end of 2014/15, some 43% up on this season; corn prices are projected to fall to $3.90/bu down by $0.60/bu, the lowest season average price for corn since 2009/10.
STRONG DEMAND FOR FEED DRIVES CONSUMPTION IN 2013/14
While record high prices boosted plantings at the start of the season, global output of coarse grains, rebounded significantly on-track to rise to a record 1.26Bn/t in 2013/14, mainly due to a huge corn crop but also better crops for barley, sorghum and other small grains. The combination of a steep fall in prices, strong demand for feed, food and bio-fuels, is expected to drive consumption up by 100mt to 1.23Bn/t; food/industrial use to rise by 28mt, to 495mt; while feed use is expected to rise by 70mt to 738mt buoyed by robust demand for livestock feed. Global coarse grain trade is expected to increase by 11mt to a record 143mt as buyers take advantage of competitive prices, while global stocks, including those held by the major exporting countries, are forecast to rebound.
LARGE SUPPLIES AND COMPETITIVE PRICES BOOST CORN USE
Global corn production is expected to rise to a record 967mt due mainly to a huge bin-busting US corn crop 354mt, better crops in China 217mt, and sizeable crops in Brazil 70mt, Argentina 24mt, EU 65mt and Ukraine 31mt. The steep 35% fall in prices of corn, accelerated consumption to a record 943mt; feed use expected to grow by 58mt to 574mt; with food industrial use starch and sweeteners, to rise by 24mt to 370mt, including a 9mt increase in ethanol use. Demand for corn has rebounded due to robust demand in many countries, and, the competitive price of corn relative to other feed ingredients has made it one of the cheaper feed ingredients, available. US corn feed use is forecast to rise by 25mt to 135mt following the drought; China up by 12mt to 156mt, and in countries like South Korea, corn prices have made it attractive to import more corn and less feed quality wheat.
STRONG ETHANOL DEMAND BOOSTED BY EXPORTS UP TO 1BN GALLONS IN 2014/15
Despite on-going discussions regarding the Environmental Protection Agency’s (EPA) decision, on the volume of renewable fuels to be established for 2014, under the Renewable Fuel Standard (RFS). So far, proposed volumes for total and advanced RFS categories, implies smaller corn-based ethanol volumes. Although, USDA forecast strong ethanol export demand to rise to 750M-1Bn gallons in 2014/15, likely to keep corn used for ethanol at127mt (5Bn/bu), and also produce 38mt of high-quality livestock feed (35mt DDGS and 3mt Corn gluten feed and meal) in 2014/15. The Renewable Fuels Association (RFA) confirmed there has been a brisk start to ethanol exports at the start of 2014; last year exports to a large number of countries totalled some 630Bn gallons with Canada and Brazil importing around two-thirds of US ethanol. Changes within the US domestic market are also shaping the ethanol market-favourable blending economics and higher RIN values encourage blending and sales of E85; while an increase in the number of retail outlets selling E15, contribute to increase the penetration of ethanol beyond the ‘blend wall’.
RECORD US CORN EXPORTS MARRED BY REJECTED CARGOES TO CHINA
With global export prices tumbling from last year’s summer peaks, and seasonally slower exports from Brazil 21mt and by Argentine government policies limiting new-crop corn sales forecast at 13mt. US corn exports have become more competitive on the global market and are expected to more than double to 41mt this year. Sales are forecast to rebound in Asia, reflecting comparative advantages in price and freight, but in recent months US exports of corn have stalled following the rejection of shipments due to the presence an unapproved insect resistant MIR 162 gene, found in cargoes of US corn and corn products. USDA reported (Feb 6) there were 1.5mt of undelivered contracts for China. And, with no resolution in sight, until China’s Ministry of Agriculture reviews the safety of MIR 162, a number of major US grain companies including, Consolidated Grain and Barge Co, ADM, Cargill and Bunge, confirmed they will not accept crops containing Syngenta’s Duracade product for export contracts;ADM has extended that remit to apply also to domestic processing. Corn seeds containing Duracade, engineered to fight rootworms, were cleared by US authorities in 2013, and available for planting in the US this year, but have not been approved for import by China or the EU, both major buyers of US crops and products.
CONCERN FOR UKRAINE’S FUTURE CORN OUTPUT
While Ukraine is forecast to export 18.5mt of corn this season, questions have been raised over whether grain output and exports can be sustained at their present level. The Macquarie bank flagged that falling prices has led farmers (like those in Argentina) hoarding grains during the crisis as a dollar-denominated hedge against a tumbling local currency, and warned the crisis would wreak longer-term damage to Ukraine agriculture through a weaker hryvnia, lifting the cost of imported inputs including, fertilizers, such as potash, and agrichemicals. Global corn stocks are expected to rise to 157mt in 2013/14, with US stocks almost double those of last year to 38mt. Average export prices for Corn (YC3), have risen since January on brisk demand FOB $237/t (Mar 6) almost $75/t lower than last year; a rebound in other grains, uncertainty about the availability of Ukraine’s grain supplies, are the primary reasons for the strong recovery in corn futures CBOT May corn closed at $4.91/bu (Mar 6).
CANADA’S LOGISTICAL ISSUES LIMIT BARLEY SALES
Barley output rose to 145mt in 2013/14 due to much improved harvests in the EU, CIS countries, Canada and Australia with overall demand expected to rise to 142mt; mainly due to feed demand up by 8mt to 98mt in major producing countries. With better crops in several countries and corn more competitive, trade is forecast lower at 20mt — Argentine farmers are reluctant to sell their barley due to the ongoing currency problems; Canada’s logistics caused by ice and snow are further limiting export activities; while China continues to cover its needs primarily from Australia. Global barley stocks are increased to 24mt. Like other coarse grains, barley export prices have strengthened since the conflict in the Black Sea, EU Barley (France) FOB Rouen $259/t (Mar 6), $29/t lower than last year. Paris Futures Malting Barley May contract closed at E215.00 ($298.21) (Mar 6).
CHINESE IMPORT 3MT OF SORGHUM IN 2013/14
Production of sorghum increased by 5mt to 62mt in 2013/14 helpedbyabumperharvest in theUS,Sudan,Nigeria,Indiaand Mexico. Consumption rose by 5mt to 62mt, especially in China, US, Mexico and Brazil. Trade is driven higher to 7mt, with rising imports to China of 3mt for feed, up from 600,000/t last year; Sorghum export prices FOB-Nola $256.28/t (Mar 7).
US SOYABEAN ACREAGE TO INCREASE IN 2014
Soyabean planted acreage to rise to 79.5m/acres in 2014 at the expense of corn. Based on typical yields would imply another record US soyabean crop of 95mt (3.49Bn/bu), which should improve extremely tight stocks of 4mt in the current season. USDA forecast the average farm price to fall to $9.65/bu, the lowest season average price since 2009/10.
RECORD HARVESTS OF SOYA LIFTS GLOBAL SUPPLIES IN 2013/14
Much larger soyabean crop forecast at 284mt, lifts global oilseed output for the major oilseeds, to a record 506mt, with increased output expected for rapeseed 70mt, sunflowerseed 43mt, palm kernel 14mt and Copra 6mt and smaller crops of cottonseed 44mt and groundnut 39mt. Global oilseed consumption is forecast to rise by 9mt to 269mt with trade driven by strong feed demand up by 11mt to 129mt.
SOUTH AMERICAN SOYA OUTPUT MARRED BY DROUGHT CONDITIONS
While overall soyabean output is expected to increase, led by the US with a 90mt crop, analysts differ on the crop output for Brazil and other South American countries. USDA forecast almost 159mt (Brazil 90mt Argentina 54mt, Paraguay, Uruguay, Bolivia combined 15mt); while Oilworld cut their forecast to almost 151mt (Brazil 84mt,Argentina 53.5mt — Paraguay, Uruguay, Bolivia combined 14mt), citing considerable irreversible losses due to drought conditions, in Brazil’s eastern areas cutting yields, with further downward revision likely. For several months persistent heat and dry conditions, during the growing season, raised fears that the country’s soyabean crop expected to set a record, would damage yields and come in lower than expected. While excessive rainfall has caused delays and hampered the harvest in Mato Grosso, raising further quality issues and field losses; but even with the downgrades the crop is still likely to be a record.
ARGENTINE LIMIT SALES OF NEW CROP SOYA
Argentine soyabean producers continue to build stocks, and to limit sales, in the current inflationary environment, only to meet current expenses. This has inflated the March 2014 carryover to a record 9mt. The absence of large commercial sales has been one of the contributing factors in keeping soyabean and meal prices above earlier forecasts. However, as stocks climb, the potential grows for producers to flood the market with soyabeans if/when market conditions improve.
RECORD ASIAN DEMAND AND TIGHT US STOCKS DRIVE SOYABEAN PRICES Global soyabean trade is forecast to increase by 9mt to a record 109mt in 2013/14 mainly due to increased soyabean imports to China, expected to rise to 69mt this season and to other Asian destinations (Taiwan,Thailand, Indonesia,Vietnam, South Korea), combined imports expected to increase by over 0.7mt to 9.1mt. Poultry feed has progressed more rapidly than other meats, driving feed demand, despite damaging outbreaks of Bird flu strains H5N9 and H5N1 in China and also in other Asian countries like Vietnam, where according to the Ministry of Agriculture recent Bird flu outbreaks have raised food safety concerns leading to a drop in poultry consumption and prices by over 20%.
Soyabean complex has been supported by tight US supplies, limited South American availability due to delays/logistical problems in Brazil and limited sales in Argentina. Average export prices for Soyabeans No 2 FOB Gulf $570/t (Mar 6);Argentine up river $576/t (Mar 6) some $24/t above last year. CBOT Futures-May soyabeans soared to close at $14.578/bu (Mar 7).
LARGE SUPPLIES, BOOST CRUSHINGS IN 2013/14
Larger crops of soyabean, rapeseed, sunflowerseed, and other oilseeds, are expected to boost crushings by 17mt to 414mt. Soyabean crush margins throughout the world have so far been positive-soya crush is forecast to rise by 10mt to 239mt. While global oil meal consumption is expected to increase by 10mt to 274mt, by the end of 2013/14, mainly due to robust food and feed demand in China, where rising incomes and changing tastes, have increased demand for animal protein, and for greater incorporation of higher-protein ingredients in feed rations; and also in a number of countries including the EU, US, Russia, Brazil, India, Indonesia and Japan.
CHALLENGING OUTLOOK AS CHINA’S CRUSH MARGINS DETERIORATE China’s crush sector c.140mt has been expanding almost entirely on imported soyabeans, since much of the domestic soy crop is used for food or purchased by the State Reserve.
But despite the timing of large supplies of South American soyabeans entering the market, compared to the progressively tight stocks of soyabeans in the US, China has persistently bought US supplies; sending elevated soyabean prices even higher. But with soyabean crush margins turned negative, “...problems in China continue to mount as the soyabean crush margins continue to deteriorate...” according to Darrell Holaday; with strong indications that China may postpone a large amount of Brazilian soyabeans that are to be shipped in Mar/April, to July or August, or later.
China cancelled a shipment for 245,000mt with traders expecting more cancellations to follow; soyabean crushers have built-up supplies at import ports expected to rise to over 6mt by next month.
While China’s feed demand is strong, the impact of Bird flu (H7N9) on the poultry industry has been significant, and has cost some U$3.27Bn in the first two months of the year, with consumers switching to pork, beef, fish and other proteins. Additionally, pig and pork prices continue to fall in China, down year-on year by 19.4% and 13.1% respectively. Lower prices provide less incentive to pig producers, with some industry forecasts that prices are likely to remain low at least through the first six months of this year.
Longer term, and adding to producers woes, China’s State Council suggests that the country’s overall consumption of pork by 2020, when the population is expected to reach 1.35bn, is likely to be more than halved to 24.6mt from 54.9mt last year.