Tag: global

Global Grain Supply and Demand

Markets lifted in mid-August because of rumours of a whopping 700,000 tonne French wheat sale to China.  Rumours were confirmed when a fleet of 12 Panamax vessels (they’re the big ones), were booked.  The curious part of the event is that French wheat was dearer than US or Australian wheat, but the Chinese are playing political games, avoiding those who they feel politically aggrieved with, so ended up with the dearer European grain.  That is a short-term positive for the EU (and Britain), although the increasing levels of global protectionism in not good for anybody.  It threatens markets, consumer choice, economies and of course ultimately, security.

It is at this time of year when the global crop projections start to turn into reality.  Many combinable crop producing regions of the world start harvest before us so, by now, data is emerging on the size of the global crop.   Expectations are declining slightly as can be seen in the International Grains Council figures in the table below, with EU and USA suggesting smaller than previously thought crop tonnages.  Russia seems to be bucking the trend with a large grain crop, with 10% more grains than two years ago.  Most of the increase is wheat.  Opening grain stocks are thought higher than previous years, but by less than previously estimated.

Those grains that are not wheat are coarse grains (feed grains), which is predominantly maize.  This is the largest cereals crop by weight in the world and so is dominant in the pricing matrix.  Its current figures suggest a record crop, reaching potentially 1.16 billion tonnes.  It seems a very bearish fundamental, but is only 2.4% greater than 2 years ago.  This is in fact only slightly more than the 2.2% growth in human population over the same period.  As people are gradually increasing the grain consumption (e.g. by shifting from beef and lamb to pigs and poultry consumption), then this is only just meeting demand. We should expect a record production every year to meet the rising demand.

The chart does not show soybean supply and demand.  The key point is, whilst this is not grown in the UK, it has the dominant influence on UK vegetable proteins and oilseeds, being the largest commodity in both markets.  A small increase in the expected crops in the Southern Hemisphere means more will be available from the New Year which could be bearish on oilseed markets.  This may be offset though, if the Chinese continued their pattern of avoiding the likes of the US, and buying from Brazil (soybean) or the EU (primarily grains) instead.  Yet, we must remember that whatever is not bought from the large buyer, will still be available another day for the rest of the market.

In summary, although the UK harvest is going to be small this year, there is plenty of grain in the rest of the world.  This is likely to limit the scope for domestic price rises.

 

International Grains Council Figures

The International Grains Council (IGC) has released its first full supply and demand projection for the 2020/21 year.  This shows 48 million tonnes more grain production than last year with a 34 million tonne rise in consumption.

Grain consumption goes up every year (by about this much) as might be expected; simply as the population rises and each person consumes more grain on average (mostly indirectly through animal feed).  This means that production should be a record each year, simply to keep pace.  However, this coming year, despite production clearly rising by more than demand, the stock level is thought likely to fall, albeit only by 3 million tonnes.  This is because the stock level was already falling and simply to keep pace, production would have had to rise further.  This is demonstrated in the table.  The level of year-end stock has fallen from over 30.1% three years ago to 27.1% now.  This is what has underwritten improvements in grain prices in the last year.  China is ever-increasing its holdings of grain stocks, with over half of wheat and possibly as much as 65% of global maize grains being held in its stores.  This potentially means there is much less grain available than these figures suggest as Chinese stocks are not generally available for the wider market.

18/19 figures estimates; 19/20 forecasts; 20/21 projections   (1) Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US 

For wheat specifically, the picture is reversed.  The stock level is seen rising, with a greater rise of wheat production for harvest 2020, resulting in production remaining well ahead of consumption.  Overall, the figures suggest a strong level of price support for grains overall, but there is ample wheat, suggesting the price premium that wheat tends to carry over maize and other feed grains, might be rather slim for a year, notwithstanding the impact of lock down.