Global grain trade review

by Chris Lyddon
Share This:
There are two things every commentator stresses continuously as the 2010-11 marketing year gets under way.
The first is that its volatile and volatility is here to stay. The one thing you can be sure of is that you can’t be sure where prices are going to go. The other one is that things aren’t so bad. At least they’re not as bad as they were in 2007-08, when the world was talking about tight food supplies.

“Given the generally adequate supply situation for wheat and other grains, despite recent crop concerns, many have expressed surprise at the ferocity of recent market responses,” was how the International Grains Council (IGC) characterized the situation in its Grain Market Report at the end of September after an advance in prices took wheat back up to the peaks it had reached in early August.

“While the initial trigger for the steep upturn in wheat and barley values in recent months was the fast deteriorating outlook for these crops in the Black Sea region, much of the more recent bullishness is attributed to concerns about smaller than anticipated U.S. maize (corn) yields, as well as substantial new grain buying activity by importers,” the IGC said. “Another feature is the difficult harvest weather in some countries, affecting milling wheat and malting barley quality.”

Overall, the world crop is down, but it’s still a big one. The IGC now puts it at 643.7 million tonnes, compared with a crop of 676.8 million in 2009-10.

The problem is that demand is rising. The IGC has consumption in 2010-11 at 656.7 million tonnes, which would mean a fall in stocks from their opening level of 195.8 million tonnes to an ending level of 182.7 million, still up on the 2008-09 ending stocks level of 168.3 million tonnes.

As Jack Watts explained to the HGCA’s Outlook conference (see article on page 88), the problem with sentiment this year is that so many market players started out expecting a bit of peace and quiet after three years of unprecedented volatility.

Then the trouble started and the market got a reminder that, more than anything, grain is a weather market. Russia’s incredible heatwave, which, apart from affecting crops, triggered an increase in that country’s death rate, caused a downward revision in the Russian wheat crop figure from 50 million tonnes at the end of July to 42 million at the end of September, even ac- cording to the conservative IGC. That was followed by the announcement from the Russian government of a ban on exports.

“I think it would be expedient to introduce a temporary ban on export grains and other agricultural goods,” the Financial Times quoted Russian Prime Minister Vladimir Putin as telling a cabinet meeting. “We cannot allow an increase in domestic prices and we need to maintain the number of cattle.”

Ukraine followed suit with limits on grain exports. The world had lost its supply of cheap wheat.

Europe has its own problems. Germany had low quality, although it’s insisting it has enough milling wheat for domestic use. The withdrawal of the Black Sea origins from the market absorbed more French grain.

For British trader David Doyle, head of exports and risks at Openfield, it’s created opportunities, allowing U.K. grain to price itself into markets.

“That’s why the export pace has been so fast,” he said. “We shouldn’t have a problem moving our surplus. We are very well placed to market our crop.”

German buyers had responded to reports that quality was deteriorating by buying milling wheat from Britain. They also sold some feed wheat to non-E.U. destinations.

“We’ll see more North African business than we would normally do,” he said. “As France is covering shortfalls in the Black Sea, we are covering some French destinations. There’s going to be opportunities.”

He expects the current pace of French exports to slow. “I can’t imagine the French running out by Christmas,” he said. “They can’t maintain that pace.”

Despite their woes, he’s expecting more from Germany. “The Germans will get their act together and will fulfill some business,” he said.

The last few weeks have seen sharp rises in coarse grains after a U.S. Department of Agriculture (USDA) report predicted a fall in U.S. maize stocks to a 14-year low. By the end of this season, stocks will be down by 50%.
The report also predicted a 70% fall in E.U. barley stocks.

“Coarse grain supplies available to the world are expected to fall dramatically,” it said. “The combined shortfalls present a much tighter supply picture than just a few months ago.”

According to the Financial Times, “fears of a global food crisis swept commodity markets,” in response. Rabobank’s analysts called it a “red rag to the corn bulls.”

Even so, the world is facing a record maize (corn) crop at 824.3 million tonnes, according to the IGC, even if it has been shaved a bit off earlier estimates (the previous month’s was 828.6 million). That compared with the previous year’s figure of 810.3 million tonnes.

The bullish tone in maize has spread to wheat. Mitch Morison, general manager, commodities, at Australian grain marketer AWB, said that the jump in U.S. maize prices had been the catalyst for a stronger wheat market.

“We’d only said just last week that the wheat market would need fresh news of a supply concern to hold prices up, and with the price interrelationship between wheat and corn, the corn issue was certainly it,” Morison said, announcing a rise in the pool estimates for AWB’s farmer suppliers in October.

“The market reaction was swift, with wheat futures generally rising close to daily allowable limits. We have been very fortunate that this has come along at the same time as the Australian dollar keeps strengthening, otherwise our pool estimates may have gone the other way,” Morison said.

With a huge proportion of the crop still to be harvested, and much of it not in the ground yet, there’s a long way to go with the oilseeds year.

The USDA’s October World Agricultural Supply and Demand Estimates report projected world oilseed production for 2010-11 at 440.6 million tonnes, unchanged from September and little changed from the previous year’s 440.9 million tonnes.

World soybean production is projected at 255.3 million tonnes, up 400,000 tonnes from the previous month, but down on the previous year’s 259.9 million. The USDA has Brazil’s soybean crop at 67 million tonnes, a rise in the estimate of 2 million since it was last calculated, because of increased area, but still down on the previous year’s 69 million.

“Global sunflowerseed production is reduced this month as lower production for Russia is only partly offset by an increase for Ukraine,” the USDA said.

It reduced its projection for global oilseed stocks for 2010-11 by 1.7 million tonnes to 71.4 million. “Soybeans account for most of the change, with a reduction for the United States partly offset by projected increases for Brazil and China,” it said. 2009-10 oilseed ending stocks were 72.3 million tonnes. The USDA now puts the U.S. soybean crop at 92.76 million tonnes, down from 94.79 million, but up on the 91.42 million produced in the previous year.

The report has U.S. soybean exports at 41.37 million tonnes in 2010-11. The rise from its previous estimate of 40.42 million tonnes reflects “strong export sales and reduced export prospects for Argentina resulting from lower beginning stocks,” the USDA said. U.S. exports in 2009-10 were 40.77 million tonnes.

With oilseeds, as with wheat, the British find themselves in a fortunate position in Europe. U.K. rapeseed production in
2010 was high at 2.23 million tonnes (versus 1.85 million the previous year). “Generally most growers were very happy,” said John Thorpe, Openfield’s head of oilseeds. “There were no crop failures, no reports of anything being ripped up. Maybe that’s fallout from the previous year when farmers realized just how resilient rapeseed is.” The E.U. as a whole, in contrast, had seen a fall in the crop to 20.14 million tonnes from 21.68 million. “Germany is down 9% because of cold conditions,” he said, pointing out that they had been the worst in the last 25 years. “France is down 15% on drought. If we look at the E.U.-27, production is down. It’s now reliant on imports from Ukraine and others.”

The pattern of trade has changed. Thorpe highlighted the fact that 75% of U.K. rapeseed exports in July/August went to France, compared with zero in the same period last year. He also noted the need for canola from Australia. According to the Australian Bureau of Agricultural and Resource Economics – Bureau of Rural Sciences (ABARE–BRS), that country is set to harvest 2.229 million tonnes of canola this year, compared with 1.91 million the prior year. The E.U. needs a big chunk of that. “There’s a hell of a reliance on Australia at about 750,000 tonnes,” said Thorpe. Rapeseed appears to be a good choice for growers, according to Thorpe. “Since January, rapeseed prices are up by £52,” he said. “You can see why rapeseed is the choice of a break crop.”

Chris Lyddon is World Grain’s European editor. He may be contacted at: