Tag: maize

Grain Markets

The price of grains has recently increased, driven by concerns about new crop prospects, with world supply and demand tightly balanced.  In mid-April, the price of new crop UK feed wheat futures (Nov-24) reached £200 per tonne for the first time since mid-January.  The increase in prices follows concern around crop conditions in key global markets.

Close attention is being paid to global weather patterns, with global grain stocks following the 2024 harvest expected to rise by just 1 million tonnes, year-on-year.  This is a significant decline in the International Grains Council forecast of stocks from the previous month (see table).  Managed money funds still hold a large sold position in grains and oilseeds, essentially betting on prices moving lower.  Recent weather concerns have led to some buying, increasing prices.  Further weather concerns would lead to more fund managers reducing their short positions.

The decline in output forecasts is driven by two key factors, concern over the production of South American grain in 2023/24 (reducing carry-in stocks), and reduced North American maize acreage.  Brazil has been suffering the lingering effects of El Niño, a weather pattern which brings warm, dry weather to South America.  This has resulted in significantly lower soil moisture reserves.  Much of the Brazilian maize crop will be planted in the coming months. With little chance of above-average rain in the coming months in central Brazil, crop prospects could yet worsen, supporting prices.

Dry weather is aiding progress with maize planting in the US, with progress ahead of the five-year average.  US farmers are expected to plant 5% less maize this year, in favour of soyabeans.  US weather will again be a key watch point for grain pricing this year.  Also in the US, the proportion of winter wheat crops rated ‘good’ or ‘excellent’ was estimated at 50% in the week ending 21st April; down 6 percentage points since the beginning of the month. The fall in conditions is due to dry weather.

Conditions have improved in Europe.  Warm dry weather throughout spring has aided planting progress in France and Germany.  However, winter crop conditions are still poorer than normal.  Concerns will be rising about the impact of warmer/dryer weather on winter crops.  The EU Commission crop monitoring report highlights the rapid acceleration of plant development in France and the increasing prevalence of disease pressure.

In the UK, crop conditions are down significantly on previous years.  To the end of March, just 34% of UK winter wheat was in ‘good’ or ‘excellent’ condition.  This is down from 90% as at March 2023.  A further update to crop conditions is due to be published by AHDB in May.  Winter crops are looking healthier than they were a month ago, where established, although not everywhere and challenges still remain for many especially in the North of England.  Furthermore, rainfall has continued to hamper spring planting efforts in the wettest regions, although progress has been made elsewhere.

 

Global Grain Update

Global grain prices have been falling for much of 2024.  The main driver of the decline has been ample supplies of grain anticipated to come from South America.  Maize and soyabeans in Argentina and Brazil are still developing, making prices volatile in response to weather conditions.  Concerns over excess rainfall in the region prompted some fund managers to cover some of their record sold positions, supporting prices in the third week of March.  The role of fund managers in Chicago grain and oilseed futures markets is important for the direction of global prices.  If weather conditions turn, or other funds become more or less attractive the price of grain can move quickly.

With regard to supply and demand, the International Grains Council (IGC) published its latest update for the 2023/24 season, on the 14th March.  Furthermore, the IGC also published its first forecasts for 2024/25. These are shown below.

Despite cuts to global grain production in the Southern Hemisphere for the 2023/24 season, there is a greater fall in estimated consumption, resulting from reductions in feed use.  As a result global stocks are forecast to increase by 10 million tonnes.

For 2024/25, the global grain and soyabean stocks are due to rise again.  Whilst an increase in stocks is likely to move prices lower, the year-on-year rise is fairly small.  We are still some months away from the Northern Hemisphere harvest, and it would not take a big reduction in production (forecast or actual) to move global prices higher.

For the 2024/25 season, total grains production is forecast to rise by 28 million tonnes, 10 million tonnes of that rise is wheat.  Increases in wheat production are projected for Argentina, Australia, Canada and the USA.  Production is expected to fall in the EU, and the Black Sea.  However, usage of wheat is set to remain high and global stocks are forecast to fall by 5 million tonnes between 2023/24 and 2024/25.  This may provide some specific support to wheat prices.

Global Grains

Grain markets have been increasingly volatile in July, driven once again by the Black Sea.  US maize crop conditions have improved, but weather concerns still linger.

Ukraine/ Russia

The renewal, or lack thereof, of the Black Sea Grain Initiative (BSGI) has been a key watchpoint for grain markets for the past year.  The agreement, guaranteeing the transit of agricultural commodities, broke down on 17th July 2023.  The ending of the BSGI, came with missile strikes at the port of Odessa, and threats of military action against vessels delivering cargos to Ukraine.

In response to the ending of the BSGI, and subsequent concerns about global grain availability, UK feed wheat futures have been more volatile.  Between 17th July and 19th July UK feed wheat futures (November 2023), gained more than £16 per tonne, before falling back by £5 per tonne.

The lack of the BSGI and exports through a key port such as Odessa is undoubtedly a challenge to global grain availability.  However, reports from key commentators highlight the important role of the Danube and exports via Constanta, Romania, have played, and will continue to play, in keeping grain moving.  An increase in Ukrainian grain being exported by road, rail and waterways through Eastern Europe could cause downwards pressure on grain prices in the countries bordering Ukraine.  Some Governments have already placed restrictions on trade – for example grain can only transit through their territories.

The movement of Black Sea grain will continue to be a focal point.  Further attacks on the Danube port of Reni lifted prices on Monday 24th July.

United States

Following last month’s update, the US Corn Belt has received much-needed rain.  Drought as the crop moved towards silking negatively impacted crop conditions and was a risk to yield prospects.

Yield forecasts have been lowered but remain at record levels due to high planted areas.  While weather remains a risk to the crop, the global supply and demand balance is little changed.  In July, the USDA increased the area of maize it expects to be harvested by 900 thousand hectares.

The increase in the area of maize comes at the expense of soyabeans, with the area expected to be harvested falling by 1.6 million hectares.  The cut to the soyabean area has added significant support to the wider vegetable oil complex, including rapeseed.

Hotter weather and less rain is forecast in the Corn Belt through the first week of August so conditions remain uncertain.

Global Supply and Demand

The latest global supply and demand figures highlight the continued view from the USDA that the world will be better supplied with grain this coming season.  But there is a diverging picture between maize and wheat.  Global maize stocks are forecast to grow by 17.8 million tonnes year-on-year. Meanwhile, wheat ending stocks are forecast to fall by 2.8 million tonnes; to the lowest level since 2015/16. Wheat production was estimated to decline further in July’s USDA World Agricultural Supply and Demand Estimates, driven by month-on-month declines in Argentina, Canada, and the EU.

Global Grain Supply & Demand

Global grain and oilseed markets have continued to fall over the past month.  A large driver of the drop in wheat prices was the renewal of the Black Sea Initiative.  The deal was renewed for a further 60 days on 17th May 2023.  The shorter deal length drives greater uncertainty for the global supply chain.  The deal now runs until 18th July 2023.  There were moments during the last 60-day period where an extension seemed less likely; this resulted in temporary price spikes.

The renewal of the Black Sea Grain Initiative comes at a time when forecasts of Russian wheat production have increased, also pressuring prices.  Whilst the Black Sea Grain Initiative is vital to market direction, we also must pay attention to the underlying supply and demand fundamentals.

In May, the USDA released its first estimates of 2023/24 global grain supply and demand.   In contrast to the International Grains Council (IGC) forecasts, the USDA sees a softening of the grain balance, year-on-year, with significant maize stock growth offsetting a fall in wheat stocks.  The IGC’s updated 2023/24 forecasts show a further tightening of the global supply and demand.  The chart shows the USDA figures with production exceeding consumption.  It also translates this into year-end stock figures.  Whilst, on the headline stock figures, the world looks well-supplied with grain, taking China out of the calculation shows the world is in a far tighter position.  China tends to hold its stocks for strategic rather than trading reasons and they don’t really contribute to the availability of grain to the rest of the world.

The US and Global maize crop are an important element of the softening USDA supply and demand picture.  Maize production is expected to increase by 69 million tonnes globally, and stocks by 15 million tonnes.  The US alone is expected to account for 39 million tonnes of the production increase, while seeing its stocks rise by 20 million tonnes.

The US maize crop is currently 81% planted (week ending 21st May).  Crop conditions will need to be watched closely for their impact, either positive or negative, on crop potential and so, price. At present the outlook for maize in the US remains positive.

In Europe there have been contrasting weather conditions.  Conditions have generally been favourable in Northern Europe, albeit with too much rain during spring planting.  However, prolonged drought in Spain is causing concern.  Grain yields in Spain are forecast to be down by 30-40% against the five-year average, by the EU Joint Research Centre.  This may support demand for UK barley exports.

Grain Market Update

Grain and oilseed markets have continued their decline through January.  Any uncertainty or risk premium associated with Russia’s invasion of Ukraine, almost a year ago, is priced in.

Combinable crop pricing is now very much centred on the balance of supply and demand at a global level.  Whilst grain markets are tighter year-on-year, expectations of large maize production in Brazil are pushing prices lower.  There may be some support going forwards, although this will depend on the extent to which dry weather impacts Argentinian maize and soyabean production.

Crops in the Northern Hemisphere are developing well.  A generally mild winter across Europe and the Black Sea has aided crop development.  That said, close attention will be paid to Ukrainian output, particularly of maize.  North America had been an area of concern with drought in key production regions but recent rainfall has contributed to the decline in prices.

UK markets have, unsurprisingly, followed the trends of global combinable crop markets.  Ex-farm UK feed wheat was quoted at £213  per tonne on 27th January 2023, down more than £15 per tonne on December levels.  Milling wheat prices have shown more resistance to the decline in global grain prices.  Ex-farm milling wheat premiums are approaching £57 per tonne.  With expensive nitrogen, and a lack of recommended Group 1 milling wheat varieties, there is a challenge for 2023 milling wheat supply.

Feed barley prices have also declined by less than feed wheat, down more than £8 per tonne from December levels, at £201 per tonne on 20th January 2023.  For domestic grains there will be demand concerns; poultry placings in November and December were noticeably down on year-earlier levels.  Additionally, the breeding pig herd is reduced following the last two years of challenging margins.

In the UK, ex-farm oilseed rape was quoted at £434 per tonne in January, around £134 per tonne behind January 2022 levels.  The decline has been driven by larger oilseed crops globally and reduced crude oil prices.  Soyabean production is forecast to be up almost 30 million tonnes year-on-year; largely driven by South America.  Argentinian dry weather may offer some support.  Additionally, large biodiesel mandates in Brazil and Asia could offer long term support, if unmatched by oilseed production increase.

Other protein prices have been stable.  Feed bean prices have fallen by £7 per tonne month-on-month, to £248 per tonne.  Feed pea values increased by £3 per tonne, to £248.

Global Grain and Oilseed Markets

Throughout November the price of grain has fallen back considerably.  Futures prices were dropping before the announcement of a 120-day extension to the Ukrainian grain export corridor, 17th November.  Global grain markets have softened primarily on expectations of a large maize crop.  The crop underpins global feed and industrial (ethanol) markets.

There are expectations of record maize production in South America, in response to high prices.  Brazilian weather conditions appear well suited to a big crop.  Conversely, Argentina is also forecast for a record maize crop despite currently experiencing a severe drought.  The drought in Argentina has, however, trimmed production outlooks for wheat.  South American weather remains a key watch point for grain markets, particularly with an active La Niña (the third in three years).  La Niña brings dry weather to South America.

Despite forecasts for bumper maize production, the balance of global grain supply and demand remains tight.  This ought to offer some underlying support.  However, concerns about the impact of recession on demand, particularly industrial demand, seem to be outweighing this fundamental tightness.

Demand concerns are also impacting global oilseed prices.  China’s zero-tolerance approach to Covid is driving expectations of reduced palm oil demand.  This, combined with increased palm oil production in Southeast Asia, has depressed prices.  This has impacted rapeseed markets with the underlying value of rapeseed oil falling.  Additionally, a rebound in Canadian canola (rapeseed) production following last year’s disastrous crop is leaving global oilseeds well supplied.

Global Grain Markets

Global grain markets have continued to fall from recent highs as the northern hemisphere grain harvest kicks-off.  The prospect of grain coming onto the market is reducing the build-up of pressure caused by the ongoing war in Ukraine.
On 17th June 2022 the USDA released its latest forecasts of agricultural supply and demand.  Consumption of wheat, barley, and maize combined is forecast to outstrip production in the coming season.  This suggests that while harvest progress is moving prices down at the moment, underlying support remains.  Where prices settle after harvest will depend on many factors, most of all actual yields.
 
Winter crop prospects in the US and parts of Europe have been challenged so far this season.  In the US, the harvest of winter wheat has been quicker than normal so far.  To the 19th June 2022, 25% of the crop is harvested.  Crop conditions in US have dipped again for wheat, but the outlook for spring crops is positive.  This is driving the mixed movement in prices.
 
In the EU, persistent dryness throughout May and June has resulted in yield estimates for wheat and winter barley falling below the five-year average.  The impact is not limited to one region of the EU with dryness affecting many of the key grain producers.
 
Russia is expected to harvest a bigger than average wheat crop this year.  The impact of this crop on global prices will depend on the level of the crop available to be exported.  At present exports are also forecast to increase compared to average, but much will depend on how easy it is for Russia to export the crop in light of present tensions.  Russia has increased its export taxes to preserve wheat for domestic consumption.

Global Grain Markets

Arable markets have continued to react to the ongoing conflict in Ukraine.  May-22 UK feed wheat futures have moved up further, now trading around £320 per tonne.  In the short-term, prices for commodities and inputs will be driven by uncertainty in Ukraine.  The re-escalation of conflict in the east of the country, where much of Ukraine’s wheat and barley crop is grown, will continue to drive prices.

While the war in Ukraine has been the key driver of grain markets over the past three months, there are also other factors driving prices.

Severe drought in parts of the US wheat belt, has seen US wheat crop conditions rated poorly.  In the most recent USDA report (18th April 2022) 37% of the US winter wheat crop was rated as being in ‘poor’ or ‘very poor’ condition, the highest proportion for this time of year since 2018.  Difficult crop conditions at this time of year do not guarantee low production, in 2018 yields in the US, whilst down, were ahead of the five-year average even after crops were rated poor earlier in the season.  However, the crop needs rainfall, which looks lacking at present.

On top of the concerns for the US wheat crop, the US maize crop is also getting smaller.  Reports suggest farmers in the US are opting for soyabeans over maize, driven by lower costs of production.  The combination of a smaller US winter wheat crop and smaller than expected maize crop will support new crop grain prices.

The latest International Grains Council (IGC) supply and demand estimates, support the view of tight markets.  World grain closing stocks are forecast to fall by 26.5 million tonnes from 2021/22 to 2022/23.  Major exporters’ closing stocks of grain drop by 14.2 million tonnes.

It is worth adding that owing to the situation in Ukraine, all forecasts should be treated with caution.

Arable Update

It is early days yet, but the world is gearing up for record areas of maize plantings in the US.  Indeed, the USDA published its predictions in February with exactly that.  It might be expected that this would cause prices to collapse but, of course, the global populations keep rising and so with more mouths to feed, consumption needs to be a record every year, just to keep up.  The market recognised this and quickly calculated the plantings estimated by the USDA might not be sufficient.  Indeed, maize stocks are thought likely to reach a 7-year low at the end of the season.  Prices rose.  This is all rather forward looking as the Midwest (where most US maize is planted) does not get its drills out for another month or two. Southern States like Alabama start in March but more northerly areas such as Illinois (where more is planted) is late April.

Yet, grain and oilseed prices are at 7-year highs, or even higher in the UK and other national markets.  Production is clearly only half of the story.  In fact, the country with most mouths to feed is not only buying ever-increasing amounts of soybean (having imported vast amounts in recent years and hitting a gigantic 100 million tonnes in 2020/21), but is also now buying maize and wheat.  China’s food policy for millennia was to be self sufficient in grains.  This has changed.  The chart demonstrates that when China decides to buy something, it does so in volume.  Its wheat imports have doubled to 10 million tonnes this year and maize imports tripled, adding another 16 million tonnes of new demand to the crop.  The world will certainly feel it.

According to USDA estimates, Chinese wheat stocks at 155 million tonnes are half the world’s wheat reserves, and 10 million tonnes more than China consumes in a year.  China will also carry over enough maize to keep it going for 8 months.  One has to wonder what it is up to, either something big or it will release it all onto the market again at some point, something the Chinese did at the turn of the millennium, an action that contributed to 5 years of low grain prices.

Unusual weather around the world is, ironically, usual at this time of year with plantings and crops emerging from winter in the more southerly countries.  It often affects markets more than it affects crops suggesting it has limited long term impacts.  In the UK, whilst snow melt and subsequent rains have topped up the soil moisture levels to ‘saturated’ in many regions, the warmer weather and winds have also been starting to prepare soils for spring cropping.  A lot still depends on the rainfall in coming weeks though.  Barley remains cheap compared with wheat, and whilst new crop wheat has been steadily rising in price (November futures at £170 per tonne), the discount from old to new crop is about £35 per tonne. There will be nothing carried over this year.

Oilseed prices have been strong, pushed about by currency shifts, and the Chinese business (above), plus poor weather in south America.   Demand in the EU is tight, partly as people throughout the EU have still been driving a lot in the more recent wave of lockdowns and therefore buying biodiesel.  There will not be much OSR in the EU by harvest time.

The pulse market is still busy but possibly falling a bit as the Australian harvest is now in full swing and some of which has already reached the Egyptian shores, depressing demand from the UK.

 

 

 

 

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.