Commodities - MARKETS OUTLOOK

Commodities - MARKETS OUTLOOK

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  72 | October2016 - Milling and Grain Prices might have stayed down or dropped further still if not for ongoing concerns about the proportion of higher quality milling wheat in this year’s mix. Wet harvest weather has lowered protein content of US hard red winter bread wheat – its main export grade. Supplies just keep on growing CROP farmers anxiously watching prices fall to ever less remunerative levels have had further unwelcome news over the past couple of months from yet higher cereal and oilseed crop estimates across the Northern Hemisphere. World wheat production has been raised from 731m to 745m tonnes and is now 10m over even last year’s giant crop, according to the US Department of Agriculture. The move follows combined increments to US, Russian, Ukrainian, Australian and Canadian production, far outweighing a steep downward revision in the EU’s prospects since mid-year (which may not be the end of that story). In a season of flat growth in world wheat trade – the arena in which international value is ‘made’ – even a prospective 8.7m tonne drop in Europe’s wheat export potential seems to be getting swallowed up by the growing competition among its key rivals. The USDA has also marked up consumption by 20m tonnes since mid-year, putting it some 27m over last year’s (gains mainly in the US, China and India). However, that fails to stop world wheat surplus stocks rising from last year’s 241m to 249m tonnes – their highest ever level. The bellwether US wheat futures markets – which started the season under the impression that world output would decline this year - have responded by trading down to fresh 10-year lows, shedding about 30% of its peak 2016 value at one point, before a partial bounce-back to a recent 23% net loss. Prices might have stayed down or dropped further still if not for ongoing concerns about the proportion of higher quality milling wheat in this year’s mix. Wet harvest weather has lowered protein content of US hard red winter bread wheat – its main export grade. Excessive rain is also said to be causing some problems with vomitoxin and low proteins in Canada. French wheat quality has been badly hit by the rains and floods that plagued its crop before and during the harvest, affecting Hagberg falling numbers and other milling characteristics, if having less dramatic impact on proteins, which should at least help disposal into feed outlets. German and Baltic EU States have also encountered some problems with rain compromising harvest quality while parts of Russia and Ukraine have seen similar weather problems. Russia’s crop is so large, that its smaller proportion of milling wheat to feed may still exceed last year’s volume. Down South, the Australian wheat crop, still a month or so away from harvest as we go to press, is said to suffering some rain damage in New South Wales, its second most important exporting state. This litany of crop problems is being reflected in larger than usual premiums for better quality milling wheats over middling/ lower grades. Yet, such has been the descent in the market as a whole, that even with that increment, some of the top wheats are still trading at cheaper than usual levels. In the USA, for example Dark Northern Spring wheat was MARKETS OUTLOOK by John Buckley
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  offered export (fob)terms for nearby shipments from $264 down to $247 per tonnes last month – much the same as at this time last year and far cheaper than in the autumn of 2014. But that’s a full $50 premium over better quality (12.5% protein) Hard Red Winter wheat which is itself trading a massive $37 over ordinary HRWs (compared with a $10 differential this time last year). The higher volume of lower quality HRW is meanwhile putting it at a discount to usually cheaper soft red winter wheat on fob export markets. This wider than usual quality split and the ensuing price differential is likely to result in far larger than usual supplies of wheat offered to the feed sector in direct competition with maize and other coarse grains – in the US, in Europe and on the world’s export markets – especially in Asia, where buyers can be sensitive to relative wheat/maize pricing. In the months ahead, these three factors will be key drivers of the wheat price: massive supplies overall, heavy export competition and relatively tighter availability of higher quality wheats. How all this will pan out in terms of ‘average’ wheat prices is uncertain. But for the time being, the quality premium clearly looks likely to stick, if not expand further as buyers try to get their hands on the best grade supplies first, keeping abundant lower grade wheat prices under downward pressure. Even more maize IT has been a switchback year for the world maize market. Prices initially rose quite sharply amid constantly sliding estimates for a drought-reduced Brazilian crop – the world’s second largest export source after the USA. US markets were also supported by talk of the La Nina weather phenomenon (the flip side of last year’s ‘El Nino’) bringing a hot, dry damaging US Operational safety starts with innovative thinking. Safe feed production. Healthy business. By preventing stones and heavy parts from entering the hammer mill, the explosion risk is minimized and the lifetime of the screens will increase. The compact, yet robust new feeding device is designed to fit perfectly with the GD hammer mill and the automatic screen exchange. Reduce the risk of dust explosions and save on operational costs with our new feeding device with built-in heavy parts separator. www.aarsen.com/machines/hammer-mills 2016-10-07, Grain & Feed Milling.indd 1 7-10-2016 12:53:06 Milling and Grain - October 2016 | 73
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  summer. Brazilian pricesfirmed further as its currency revived from record lows against the US$ (in which most grain is traded) but by then, it had oversold its short crop (cashing in on earlier currency weakness). With floods delaying the Argentine harvest and Europe east and west more or less sold out after last year’s poor EU/CIS harvests, that left the export floor clear for US corn suppliers to sell far more than they had earlier expected. For a while, that export bonanza appeared to be propping up the US market, and in turn global and European maize prices. However, in the past couple of months, mostly ideal US weather has seen yield estimates start to rise and on top of an upward adjustment in the USDA’s official planted acreage forecast, this has led to US production numbers rising from 366.5m to 383m, versus last year’s 345.5m tonne crop. Over that same period, Brazil’s current (2015/16) crop forecast has been eroded by a further 3 tonnes, putting it 18m tonnes or more than 20% down on the previous year’s. But assuming a return to normal weather there compliments planned higher plantings, that should bounce back by an estimated 15.5m tonnes next spring. The EU’s 2016 corn crop has meanwhile been cut by a further 3m tonnes (and may have further to fall as the main, French component still seems to be contracting). However, Argentina’s 2016/17 crop has been revised up by 2.5m to 36.5m tonnes. Overall, world maize production is now expected to reach around 1,027m tonnes – a new record high, 15m tonnes over the mid-summer figure and a staggering 68m tonnes bigger than last year’s crop. As in the wheat market, big supplies and low prices are expected to boost maize consumption which the USDA sees growing from about 959m to 1,016m tonnes. The lion’s share of that usage gain is in the US itself, expected to consume an extra 11.4m tonnes in animal feeds another 2m more than last year in food/industrial outlets. China will also boost demand by 8.5m tonnes as it auctions off its massive reserves of maize from past surplus crops. Some analysts think it might use far more than that as it offers new subsidies to its processors in an attempt to clear more of this surplus (which currently accounts for almost half the world stocks of maize). A number of smaller demand increases are also expected in the EU (+2m) and in CIS, Asian and Latin American countries. Despite that, the maize market will remain in surplus, adding at least 10m tonnes to its already large global stockpile (forecast 219.5m tonnes). The lion’s share of that stock increase will take place within the USA (+17m tonnes) leaving stocks there at levels not seen for decades and equal to about 19% of usage or almost 10 weeks’ supply. As the sheer size of the coming US crop sunk in, CBOT futures prices embarked on a renewed slump, recently hitting a seven year low of about $3/bu in August (about $118/tonne). As in the wheat market these prices were almost a third cheaper than their 2016 peaks (around $173) before coming back to the $3.40s (about 22% down) in mid- September.. The decline in US wheat and maize prices has inevitably reduced the value of grain in Europe, although so far, not to the same extent. Prices here have been propped up by the shock of the French and other crop shortfalls and concerns about the downturn in quality, by the weak euro and by ideas that, even in a year of expected intense competition from the CIS countries - probably the US, Canada and Australia too - the EU will be able to dispose of enough of its exportable surpluses to avoid building further stocks (indeed for both wheat and maize, EU ending stocks should end 2016/17 quite a bit below last season’s high levels). While world barley output is seen slightly lower this season, that Main wheat crop estimate changes since mid-year (mn tonnes – source USDA/Milling) June Sep Last season EU 157.5 145.3 160 Russia 64 72 61 USA 56.5 63.2 55.8 Canada 28.5 30.5 27.6 Australia 25 27.5 24.5 Ukraine 24 27 27.2 WORLD 731 745 735 Changes to world maize supply since mid-year (mn tonnes – source USDA/Milling) June Sep Last season USA 366.5 383.4 345.5 Brazil 82 82.5 67 EU 64.3 61.1 59.1 Argentina 34 36.5 28 Ukraine 26 26 23.3 Russia 14 13 13.1 WORLD 1,012 1,027 959 74 | October 2016 - Milling and Grain
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  76 | October2016 - Milling and Grain is more than offset by larger crops of sorghum, oats and rye, indicating total coarse grain production of 1,320m tonnes – about 72m more than last year. Along with the competition from cheap feed wheat, this suggests the feed sector will have to remain clearance-priced in the season ahead – good news for livestock producers’ input costs. Proteins The oilmeal sector has come under renewed pressure in the past month from a record US soyabean crop, pushing down the cost of beans on the bellwether Chicago futures market by about 20% recently. In its August supply/demand forecasts, the US government raised its yield forecast from 48.9 to a record 50.6 bu/acre (+5.4% on the year) which in combination with its earlier raised estimate for harvested acres, projects a crop of 114.3m tonnes. That’s 11m tonnes more than expected mid-summer, easily covering earlier reductions of about 6m tonnes made to weather-hit South American bean crops. It means that, even with strong exports, the US remains in soyabean surplus, expected to build ‘carryover’ stocks to about 10m tonnes over the coming season, compared with starting stocks of 5.3m and just 2.5m only two years ago. Good supplies of soya are expected to continue well into 2016/17 as Brazil (just about to start planting) hopes for more normal weather to deliver its first 100m tonne-plus crop next spring of 2017. Some observers believe the Latin American soya expansion will slow down from now on as farmers there switch land back to maize. Corn is fetching much higher prices in Brazil after this year’s crop shortfall and in Argentina, soya (unlike maize) still incurs a hefty export tax. However, given normal sowing and growing weather, Lat-Am soya production should still increase by about 3% for the year ahead at least. In the US, the reverse equation – weaker maize than soya prices - is favouring even larger soya sowings next year, likely to keep prices well under control (again given the usual caveat of ‘normal’ weather). The bottom line is that soya will provide a larger share of world total meal consumption in 2016/17 for the second year running – about 71% compared with 67% of recent previous years. Rapeseed meal, which had previously seen strong growth of supply and demand, has backtracked with two years of falling crops and production but will be replaced this season with record large supplies of sunflower meal – up by about 10% from last year and as much as 27% higher than four years ago – though still only providing about 5.5% of world total protein meal consumption. Sunflower supplies are being boosted by bigger crops in Russia, Ukraine, Argentina and in Europe itself. Sowings have gone up in the former Soviet countries and in Latin America in response to better returns from growing the crop, boosted by demand for sunflower oil, the main crush product. Rapeseed meal production has been reduced by smaller crops in Europe and Ukraine to a four-year low although largest single- country producer Canada is at least expecting a big crop for a second year running. Most of the decline in global rapeseed consumption will be within Europe where it will be replaced by sunflower meal and soya meal. The big soya crop should also continue to keep down prices of the other oilseed meals, most of which are less valuable than soya in terms of protein content and other quality parameters. www.cicfo.com 3 SHOWS IN 1 ASIA’S LEADING EVENTS FOR THE GRAIN AND FEED INDUSTRIES 2016 4-6 NOVEMBER 2016 NANCHANG INTERNATIONAL EXHIBITION CENTRE CHINA A ONE STOP SHOW & SERVICE PLATFORM For more information contact: Ms. Sally Cheng • [email protected] • Tel: +86 21 6113 2786
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