Survey Of Grain Harvests Shows Disappointment At Prices.
Sally White / www.agriprods.com
On the “feast or famine” scale, this year’s grain harvests are providing the former. There is going to be a hefty rise in world grain stocks this year despite rising consumption. Unlike the bulk of the UK the weather has been auspicious for crops across most of mainland Europe and it is turning good in the US and Asia. Farmers are cutting back on planting plans for next year.
These days no one holds the corner on influencing world prices in the way the US used to. Its clout in wheat has shrunk from around 14 per cent of production in the 1980s to 9.6 per cent now. Even if the US punches above its weight in exports, accounting for 20 per cent of the world total, that is way down from the 35 per cent 20 years ago.
More countries count now. Currently traders are watching Russia turn in over-all better yields, India’s monsoon catching up with its schedule and the weather taking a turn for the better in the US, sending wheat to two year lows. Only because Argentina, Australia and China have been suffering from lack of rain is there any export market at all! Now even Australia is getting more rain and estimates for crop production are rising.
The harvest is now virtually complete in the UK, although heavy rain has been making life difficult in the North and Scotland, turning roads into rivers and causing quality concerns. Wheat crop estimates are hovering around the 15 million tonnes mark, leaving an exportable surplus of over three million tonnes. “Farmer retention” is making a frequent appearance in the reports, as dependence is put on hopes of a better market this winter. “The fundamentals of the market still remain the same, there are abundant world wheat stocks and with limited export interest, due to the UK still remaining out priced by cheaper offers of Danish origin wheat, the UK is facing a large exportable surplus with nowhere to go,” is the latest comment from merchants Gleadells.
So far the only real post-harvest support for UK and European feed wheat markets has been an Egyptian tender early in the month for 60,000 tonnes and the weak pound v. the Euro. Traders comment that the short-term looks bearish and values seem likely to trade at current or even lower levels. Brokers are recommending a sale into any rise. Rapeseed looks more encouraging. In Europe the market lost €10 last week as spillover pressure from the lower soy complex and the sharp fall in crude oil combined to take prices lower. However, Gleadells say, “it is difficult to see European rapeseed prices remaining at these low levels -EU origin rapeseed is the cheapest in the world”. Plus, the import ban on US soybeans due to the tightening of EU regulations on GMO feed materials will see a sharp increase in rapeseed processing and “with rapeseed oil now in to B100 bio-diesel the expectation for a lift in prices remains”.
However, for most grains sums have already been done and farmers are cutting back on plantings around the world. The European farmers’ organisation COPA-COGECA suggests that low harvest prices “could lead farmers to change their sowing intentions this autumn”, leading to a further fall in EU cereals production in 2010/11. Paul Temple, chairman of COPA-COGEC’s working group on cereals, oilseeds and protein crops also warned that reduced plantings could lead to increased price volatility. Average yields are also falling as farmers cut back on the use of fertiliser and plant protection products.
COPA-COGECA estimates for 2009/2010 suggest the following reductions in EU27 cereal production - wheat down 8.3 per cent, barley 8.6 per cent less, a fall for maize of 10.1 per cent, for rye 4.6 per cent and for oats 12.1 per cent. A decline in oilseed production of 10.8 per cent across the EU27 is also projected for 2009/10, with a 31.8 per cent reduction in sunflower oil production and a 29.1 per cent increase in soya bean production.
France has yet to report on the wheat harvest, but in Germany it is virtually complete, and the agriculture ministry sees grain production up 22.8 per cent, with wheat up 24 per cent to 25.7million tonnes. In Denmark rain continues to slow winter wheat and spring barley harvest, but wheat yields and quality have generally been good, but barley has been below average. After a three per cent increase in plantings, Slovakia expects a total grain crop of 2.9 million tonnes, 35 per cent above last year.
Ukraine has reportedly harvested 26.8m tonnes of wheat and 13.4m tonnes of barley, with the harvest about 90 per cent complete. This compares with a total grain harvest of 29.3 million tonnes last year. However, quality problems suggest Ukraine will have substantially more feed wheat this season, and less milling wheat.
Russia's grain crop is forecast to reach 95 million tonnes, of which 57 million tonnes is expected to be wheat. But it is not clear at this stage how much of this wheat will reach milling quality. Analyst SovEcon estimates Russian wheat exports for 2008/09 could reach 16 million tonnes, compared with 12.2 million tonnes last year.World wheat production estimates continue to grow, with the International Grain Council now forecasting the world wheat crop at 662 million tonnes, an increase of 8 million tonnes since their last estimate, they also estimated wheat stocks to increase by 9 million tonnes to 183 million tonnes.
China’s bad luck with weather this year has been good for the US. A drought in major corn producing areas in the northeast has raised concerns of a fall in output, pushing prices higher. As wheat can substitute corn to feed animals, higher corn prices usually result in more wheat being used as feed meal. The country's total corn output in 2009 is forecast to fall 19.97 million metric tons, or 12 per cent, to 145.94 million tons due to the ongoing drought, Li Qiang chairman of commodity brokers Shanghai JCI, said last week.
Stock numbers are likely to see more upward revisions, further depressing prices. Prospects look good in Australia - on Monday in Western Australia, the country’s major grain belt, the Department of Agriculture reported: "The department's seasonal outlook system, based on a selection of analogue years, is indicating weak El Nino or warm neutral conditions in the Pacific Ocean. The median rainfall map of these years suggests that average rainfall is the most likely outcome across much of Australia for the rest of the growing season."
Even world rice prospects are improving as India’s monsoon arrives, albeit considerable late. "The overall situation seems to be improving ... there have been very good rains, especially in drought-affected areas from which the standing crop will get a lot of advantage," Indian Farm Commissioner N.B. Singh said last week. India's summer-sown rice area has fallen by 17 percent on the year to 30.2 million hectares. Planting of wheat and other winter crops will begin early in India this year to try to make up for lost production. In July the rainfall was 50 per cent lower than normal, but this has now shrunk to 25-35 per cent and could fall to 15-20 per cent by the end of September. There has been drought in 278 in the country’s 626 districts – hence India’s unusually heavy imports and ban on exports.
Last week wheat prices in London dropped, with the November contract reaching £1.25 to £96 a tonne. Paris wheat was strong, locals pushing it up on the back of the Egyptian order so that November closed EUR0.24 higher at EUR126 a tonne. In the US September wheat fell as low as US$4.47 at one stage, the lowest since April 2007. Corn is down 30 per cent on June levels and soya beans are the lowest for five months – all on forecasts of mega-harvests because of auspicious growing weather and uncertainty on exports.
For example, while Washington has been saying that US corn exports would jump by 250 million bushels over the next year, the numbers are lagging the schedule by 60 million bushels compared to this time last year.
Best prospects for prices are deemed to be the Chinese and the possibility that the drought has been worse than feared. Shanghai-based JC Intelligence has a figure of 145.9 million tonnes for the wheat harvest, down 17 million on the last figures from the US Department of Agriculture.
