Tag: maize

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.

 

Global Grain Stocks

According to those who keep track of such numbers (in particular the US Department of Agriculture and the International Grains Council) the world has plenty of grain in store.  At 640 million tonnes of year-end wheat and feed grains, that is nearly as much as the world has ever had.  That sounds rather bearish for prices.  However, there are two points worthy of note.

The first point to consider is where those stores are being held.  In essence it matters not whether grain is in exporter’s barns or importers silos; it is all available to supply consumers.  But if something is thought likely to remain in store for a considerable time, then its impact becomes significant only at the time of its sale, not whilst it is squirreled away in a barn.  There are more consumers in China than in any other country in the world.  China therefore gets through more grains than any other country; in fact, consuming about half as much grain again than the Americans, the second most hungry nation.  China also produces more grain than any other country, this time by a margin of about 20% over its nearest rival, again the USA.  China has not historically been a large player in the global market apart from topping up their wheat reserves from time to time.  However, it has, in recent years, started importing various grains, including barley and maize as well as more tropical crops like sorghum.  And, as it happens, over half of that 640 million tonnes of grain carry-over stock is held in this one country.  That is equivalent to nearly 10 months supply.  One would assume it will be used one day, as long as it is being properly stored, but it also means that whilst it is locked up like that, the rest of the world has to operate as if it wasn’t there.  Clearly if it is sold and Chinese stocks fall one day, as has happened in the past, it could lead to low grain prices for some time, but in the meantime, stocks, excluding those in China are relatively tight at 300 million tonnes.

The chart demonstrates the grain stocks held in China compared with the rest of the world, and the amount eaten in China compared with the rest of the world. it demonstrates they are holding quite a bit.

Grain Stock and Consumption Globally; China and the rest.

The second point is, we are consuming more grain than we have ever done so as well.  So as a proportion of consumption, 300 million tonnes is not that much.  Of wheat, the closing stocks is about 23% of consumption, almost a quarter of a year, but of feed grains, its 13%, about 6 weeks.  This is about equivalent to ‘pipeline stock’ requirements in the UK and many other countries as the end of the season is June and harvest begins in August.  All of a sudden, its starting to sound a little more bullish.