Political uncertainty impacts well-supplied grain market

by Chris Lyddon
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Speakers at IGC Conference believe 2017 global harvest could be second largest ever. The event was held June 6 in London, England and it drew several hundred participants. 
Photos by Chris Lyddon.
Etsuo Kitahara, executive director of the International Grains Council (IGC), opened the organization’s annual conference June 6 in London, England, by focusing on the two biggest factors facing the international grain market — huge supplies of grain and political uncertainties that are shaping the trade environment.

“Since 2013-14 we have seen ample availabilities of grains and soybeans for four consecutive years, helping to fulfill growing consumption requirements and increasing trade needs, while still maintaining comfortable levels of global stocks for wheat, maize and soybeans,” he said. “World production of wheat and coarse grains exceeded 2 billion tonnes for the first time in 2013-14, and has stayed above that level, reaching an all-time high of over 2.1 billion in 2016-17.”

While the global harvest may not be as big in 2017-18, it could still be the second largest ever, he said.

“Rice output is expected to edge up to a new high in 2017-18 while soybean production is seen near the 2016-17 record,” he said. “Reflecting abundant supplies, export quotations for grains and oilseeds in recent seasons have stayed close to their lowest levels in the past decade. Lower import prices, coupled with historically depressed ocean freight rates on major routes, have been stimulating consumption worldwide. On the other hand, weaker prices are causing financial difficulties for many farmers in exporting countries, also presenting a challenge when making sales decisions and for traders in securing regular supplies.

“Since the last conference, we have observed major political developments that will reshape the trading environment for goods and services. The Brexit negotiations, which will begin (in June), will redefine trading relationships for a range of commodities between the U.K. and E.U. and the rest of the world. The renegotiation of NAFTA, the North American Free Trade Agreement, is likely to start in the summer between the U.S., Canada and Mexico, following the formal notification by the USTR to the Congress in May, the outcome of which could have a far-reaching impact on trade in commodities beyond the region.”

Seth Meyer of the USDA said U.S. wheat production is expected to decline this year.

Oilseed stock abundant

Seth Meyer, chairman of the World Agricultural Outlook Board at the Office of the Chief Economist, U.S. Department of Agriculture, considered the outlook for grains and oilseeds.

“We’re coming off years of record production for corn, soybeans, oilseeds,” he said. “We have seen production exceed consumption and we have rebuilt stocks to a reasonable level. Stocks are abundant. This is, of course, enough to put a limit on price rallies.

“There is a long-term trend in the U.S. where area is not changing, but we are planting more corn and soybeans,” he said, illustrating the point with figures on farm budgets for northeast Kansas that showed a sharp reduction on spending on wheat. “Corn prices have been relatively flat while bean prices have been falling. Around the world there are growing stocks of wheat.

“We still expect carryout to increase at the global level. Part of what is driving a tightening of supplies is that U.S. production is expected to be down.”

He predicted that the United States would be the world’s number one wheat exporter and that U.S. prices would rebound from a pretty low level.

For soybeans he noted flat supplies coming out of South America.

“U.S. exports are growing, but they are only growing in the first six months of the year,” he said. “The world market has become very accustomed to never being more than six months away from another soybean crop.”

Chinese demand for soybeans is growing.

“China is still going to be the one that drives soybean export trade,” he said.

For maize, consumption is expected to exceed production.

“We see an actual tightening in the global market,” he said. “High world prices in the last several years had invited a lot of competition for the U.S.”

Brazil can produce more, Meyer said.

“They are not area constrained when it comes to second crop corn,” he said. “Last year that second crop corn went in late and the rain stopped early. This year has been the opposite.”

That was in contrast to the United States, where a lower area gave a large production decline. The United States already was producing more ethanol than can be used in its own market.