The 29th Annual International Association of Operative Millers (IAOM) Mideast & Africa Conference and Expo, held Oct. 22-25 at Mövenpick Hotel & Residences in Nairobi, Kenya, attracted more than 600 delegates and 89 exhibitors from around the world.

The huge potential of the African milling market, a topic that will be explored in more detail in the next issue of World Grain, was a major discussion point during the conference and around the exhibition. Speakers also offered telling insights into the multiple drivers and trends currently influencing grain markets. Inevitably, given the air of uncertainty they are casting over global commerce, the trade policies of the Trump administration and the ongoing U.S.-China tariff war were front and center.

With some analysts predicting U.S. farmers will turn to corn and wheat in the coming planting season as U.S. exports of soybeans to China disappear into the trade war ether, Dan Basse, president and founder of AgResource Co., told World Grain that the U.S.-China tariff war would add a certain “dynamism” to grain markets next year as trade flows established over the last decade were disrupted. However, for U.S. farmers, the rapidly changing trading landscape and resultant heightened risk were making it challenging to develop sound planting and business strategies.

“The Trump trade tariffs are making it difficult for U.S. farmers and many U.S. manufacturers to make future economic decisions on their businesses,” he said. “What do I plant? What storage is needed? How do I manage risk? Few can adequately plan for their futures amid the great trade uncertainty that exists today.”

He said as the trade war with China escalated through 2018, the initial impact fell on U.S. soybean prices/margins and “Brazilian farmers rejoiced.”

“It did not spread much beyond these points,” he said. “But that window closes with the new South American harvest. If weather is normal, U.S. farmers will plant more grain crops in 2019 and further depress their prices. At that point the trade war expands in terms of its impact.

“I have no idea when this all ends, but China may be willing to wait for the 2020 U.S. election to see if Trump is re-elected. If the U.S. stock market goes south, the pressure for a deal increases.”

Ian Flagg, regional vice-president, Europe & MENA at U.S. Wheat Associates, gave a searing overview of the U.S. wheat market outlook, noting that the area of land planted with wheat had continued to fall in recent years as farmers turned to more profitable genetically modified corn and soybeans.

“Last year, it was one of the lowest we’ve had in a long time; it was only 18.5 million hectares,” he said. “This year, it was up just a little bit, but it was still quite low — well below the 10-year average of around 22 million hectares.”

Flagg said this season would see a relatively low production total of just over 30 million tonnes, but with more than 30 million tonnes held over, total supply was over 80 million tonnes.

“The expectations for exports are a little bit better than last year,” he said. “USDA is projecting 28 million tonnes,” up from 24.5 million tonnes of wheat exported last year.

“The pace of sales so far has been relatively slow,” he said. “But I think the general expectation is that a little bit later on in the marketing year, from January forward, sales ought to pick up just a little bit.”

Yet, although the wheat numbers look relatively static, turbulence continues beneath the surface as U.S. agriculture comes to grips with trade tariffs. Steve Mercer, vice-president of communications, U.S. Wheat Associates, told World Grain the pattern of many U.S. agri exports was rapidly changing.

“We know that the soybean harvest is well under way and none of it is moving to export elevators in the Pacific Northwest,” he said. “That might affect wheat movements to those ports, except that China is not buying any U.S. wheat either right now.

“There is no roadblock to wheat supplies in that region. Most of the HRW wheat from the central and southern plains moves to western Gulf elevators, so I’m not sure if slower soybean sales are affecting that supply chain, but we always compete for rail and barge space with soybeans and corn.”

He said that lower sales of wheat to China would not involve a wholesale rethink for U.S. Wheat Associates.

“Since we have been working in virtually all markets for U.S. wheat for many years, it is really not a matter of ‘switching’ sales from one country to another,” he explained. “We have, however, expanded the work of our staff who are based in China temporarily out to markets with expanding potential, including Vietnam, Malaysia, Indonesia and Thailand. Sales to Japan, Taiwan, Korea and the Philippines remain strong.”

Drought-devastated Australia

Weather was also a key factor in the Australian wheat crop. Don Campbell, general manager, trading and marketing, GrainCorp Ltd., said this year there had been a major shortfall in rainfall in the coastal region of Australia that accounts for most of its wheat production.

“Australia is the driest continent on earth, excluding Antarctica,” he explained. “Its climate is very erratic, often moving from one extreme to the other. Years of drought can be broken by devastating floods. The rainfall needed to produce a crop ranges from between 400 to 600 millimeters per year with production relying also on other factors like soil characteristics and temperature to grow the crop.”

So far this year, he said drought conditions had devastated production with total output estimated at 16 million to 18 million tonnes.

“Based on current numbers, the East Coast region will produce only 19% of this year’s Australian wheat crop compared to the average of 49% over the past decade,” he said. “More importantly, 80% of Australia’s wheat production will be harvested in just two states — Western Australia and South Australia.”

Understandably, Australian exports of wheat will decline with the USDA forecasting 13 million tonnes in 2018-19, down from 14.5 million tonnes in 2017-18 and from the 22.6 million tonnes exported in 2016-17. Indeed, such has been the drought in Australia. The country’s agriculture department confirmed in late October that it had received, and was assessing, five applications to import bulk whole grain — including wheat, canola, corn, and peas from the United States and Canada through various Australian ports.

With Australia’s wheat exports set to plunge, and with freight rates relatively high, most of the country’s exports are expected to be shipped to Asian markets. Of course, a declining Australian presence in global wheat markets will create opportunities for alternative producers to secure more market share both in Asia and further afield.

Black Sea, North America will benefit

However, European producers appear unlikely to seize on the opportunity. The International Grains Council (IGC) forecasts that E.U.-28 wheat exports will decline to 22.2 million tonnes in 2018-19 (July-June) from 23.6 million tonnes a year earlier. Moreover, Indrek Aigro, head of business development, Copenhagen Merchants, said the outlook for Baltic Sea production and exports was also downbeat.

“Between January and July, we only got 60% of what we are normally getting of rainfall,” Aigro said. “This resulted in the loss of yields, country to country, of between 20% to 30% all over. This also brought a early harvest, which was completed in August.”

The wet autumn and hot and dry summer saw the harvest fall 30% this year, meaning exports will drop 50% and Baltic Sea origin milling wheat “will not be competing this season to main Black Sea destinations,” he said.

“If there’s anything positive in the (early harvest), it at least gave us a very early window for winter sowings, so we are at the moment having a very good output for next year,” Aigro said.

All of which should leave a sizeable window for Black Sea and North American origin wheats. Sebastien Thilmany, a trader at Ameropa, said demand for Black Sea wheat had been growing worldwide. However, he said 2018-19 production was “normal” after last year’s records. He said that so far, the wheat export pace was at “a record high,” but eventually it would fall away, and this would result in Black Sea wheat exports falling from 67.8 million tonnes in 2017-18 to 56.8 million tonnes in 2018-19.

In North America, IGC expects Canadian exports to rise to 23.5 million tonnes in 2018-19, up from 23.6 million tonnes a year earlier, while it predicts U.S. exports of wheat will total 30 million tonnes, up from 24.5 million tonnes a year earlier. The net global result will mean the IGC’s major exporters will see sales fall from an estimated 164.2 million tonnes in 2017-18 to a forecast 156.2 million tonnes in 2018-19.

To view the complete slideshow of the annual IAOM MEA conference, click here.