Charting Grain | The low price cycle pedals on…

The low price cycle pedals on…


Analysis
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Grain supplies across the globe continue to grow.

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GRAIN supplies across the globe continue to grow, as harvest of the record summer crop in South America ramps up and the northern hemisphere winter crop ticks along with very few issues at this stage of the spring.

In the past week we have seen the World Agricultural Supply and Demand Estimates (WADSE) release its latest report and the prognosis was bearish, although largely expected, across all major commodities.

In last week’s WADSE report the US Department of Agriculture (USDA) continued the recent trend by raising Brazilian corn and soybean production estimates for the 2016-17 harvest.

The corn number was up two million tonnes month-on-month to 93.5 million tonnes and the soybean number was 3 million tonnes higher at 111 million tonnes.

Conab, Brazil’s agricultural statistics agency, is currently estimating the corn and soybean crops at 91.5 million tonnes and 110.2 million tonnes respectively.

Across the border in Argentina, the USDA expects corn production to be 38.5 million tonnes, an increase of 1 million tonnes on last month, but higher than the Buenos Aires Grain Exchange (BAGE) whose current forecast sits at 37 million tonnes.

The up-trend continued in soybeans with the USDA increasing their forecast by 0.5 million tonnes to 56 million tonnes, but still 0.5 million tonnes lower than the latest BAGE appraisal.

There is a feeling of déjà vu in Argentina at the moment, with production of both soybeans and corn being threatened, like last year, by abundant rainfall in the harvest window.

It is reported that up to one million hectares of summer cropped land is currently suffering from varying degrees of waterlogging, the final effect of which will depend on future weather events.

On the demand side of the equation, the USDA estimates for world corn trade came in at 154.4 million tonnes, an increase of 1.5 million tonnes, and world consumption was set at 1,042 million tonnes, an increase of 3.2 million tonnes.  However, the telling figure was the world ending stocks forecast, which the USDA pegged at a staggering 223 million tonnes, up over 11 million tonnes on last year, despite the aforementioned increased in global consumption.

The USDA’s global soybean consumption number was unchanged despite a 1 million tonnes increase in China’s (the world’s biggest soybean consumer) imports to 88 million tonnes.

To put this in perspective that is around four times Australia’s forecast wheat exports and is equal to four panamax (60,000 tonne) vessels unloading in China every day of the year.

Wheat didn’t escape the bearish outlook  either, with world ending stocks increasing by 2.4 million tonnes to 252.3 million tonnes.

Global wheat exports for the current season were lowered slightly to 180.7 million tonnes.

There were alterations in some of the major exporting nations with Australia, Canada, Russia and Kazakhstan exports all down 0.5 million tonnes.

This still leaves Australian wheat exports at 24.5 million tonnes, which is achievable if the current export pace is sustained into the second half of 2017.

However, 22 million tonnes would be a more realistic number as Australian wheat is forced to compete with northern hemisphere exports in the second half of the year.

To complete the bearish outlook, global stocks of barley are forecast to increase by 0.5 million tonnes to 24.5 million tonnes.

Australian barley exports were left unchanged at 8.1 million tonnes, making it the largest global exporter in 2016-17, supplying around a 25 per cent of the world’s export trade.

Meanwhile, north of the equator the spring continues to be relatively kind to the maturing winter crop.

In the US weather forecasts continue to be favourable for the winter wheat belt and the crop condition rating has increased one percentage point week-on-week to 54 per cent good to excellent.

Across the Atlantic, the European crop has emerged from the winter in good condition.

However, some minor moisture deficit areas have developed in recent weeks across parts of France, Belgium, the UK and Spain, which will certainly require rainfall in the near term to avoid a downgrading to their yield potential.

As the global futures markets attest, the world supply continues to outweigh demand and market participants soldier on in search of the next market rallying event.

Let’s hope that event is not domestic driven.

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