Elena Faige Neroba
Business Development Manager
The grain market is trying to turn around. Oil prices continue to fall. The market is awaiting the outcome of the OPEC + ministerial meeting on March 4. SWOT under pressure from low export sales due to lack of Chinese demand. $ 1.9 trillion bailout package bolstered by congressional indices.
The market is supported by delayed seeding in Brazil. The main bearish factor is the absence of China in the market. In general, the price scenario of the current season so far strongly resembles 2008.
The price of corn in China is 340 USD on CFR China port terms, according to the China Oilseeds telegram channel. The price continues to rise on the back of a decline in corn production last year, as well as a change in the subsidy policy for corn producers. The limited supply on the market is also driving up the price of corn. The Chinese authorities deny that the harvest in the current season was less than 260MMT, and according to market estimates, only due to this factor, the deficit could be about 26MMT. In addition, the issue of grain reserves in the country has not been resolved. Analytical agency Сofeed reports that the demand for fodder corn will increase by 10MMT compared to last season, while the Chinese authorities have so far talked about imports within the framework of TQR in the amount of 10MMT. Most likely, the size of imports outside the quota will be from 17 to 23 MMT to build up stocks and increase pig production. At the same time, the market expects that the demand for Ukrainian corn will be about 4-5MMT.
China domestic corn prices Jan 20-Mar1 by China Oilseeds TC
The decline in oil prices increased the pressure on corn quotes, falling on the background of low consumption of ethanol in the United States. In January, the use of corn for ethanol in the United States decreased by 3.7% compared to December to 10.56 million tons, which is 11.4% less than in January 2020. Due to frosts in February, operators expect data for the past month will be even more pessimistic. Export sales of corn from the USA fell by 50% over the week to 453kMT.
Argentine corn on FOB basis is now offered $ 10 cheaper than American corn and $ 30 cheaper than Ukrainian corn. At the same time, the market expects the effect of reducing the VAT rate in Ukraine, which will entail adjustments in export prices. At the same time, the absence of a strong domestic market in Ukraine will prevent farmers from selling corn to processors within the country in the long term. Rains in Brazil are delaying the sowing of second-crop maize, so some of the acreage may be planted after optimal timing, reducing yield potential. According to Ag Rural, 39% of the planned acreage is now planted, up from 67% on average in 5 years. Argentine agency Pablo Adreani & Associates predicts Argentina's corn crop could reach 51MMT, higher than USDA and Argentine Exchange forecasts.
According to the European Commission, the import of corn to the EU for the week decreased to the lowest in 2020/21 MY of 139.4 thousand tons, and in total in the season amounted to 10.6 MMT, which is 28% less than the corresponding figure last year. WASDE predicts a decrease in corn imports to the EU to 15.5 MMT, while today Ukrainian corn in the procurement structure is giving way to Brazilian corn. Market operators expect the EU to buy another 3MMT of Ukrainian corn, which raises doubts in view of the optimistic attitude of Brazilian producers. At the same time, corn quotes on the Matif strengthened.
Crops in the United States have deteriorated. European Commission and IGC revised EU production and stocks. Despite upbeat official data on wheat production in India, local analysts point to potential problems with weather conditions. Wheat harvest may be below expectations by 3-4%. Pakistan has tendered an additional 300kMT of wheat. The results of the tender have not yet been announced, but according to Reuters, the minimum bid price was $ 332. Crops in Texas, Kansas and Oklahoma have deteriorated, according to USDA, with estimates not including the impact of recent frosts. SovEcon raised its forecast for Russian wheat exports to 39.1MMT due to limited supply from competing countries in the Black Sea region. The Manager of National Commodity Reserves of China said that 1,681MMT of wheat were sold at an auction today from state reserves. The volume sold amounted to 41.7% of the volume offered on the market. China sells wheat to replace more expensive and scarce corn.
China domestic soy prices Dec-Mar by China Oilseeds TC
Most wheat and barley crops remain in good condition, according to FranceAgriMer. An estimated 87% of soft wheat crops in France were in good or excellent condition by the end of last week. Crops in Ukraine are also assessed as satisfactory so far, as in most of the territories of Russia. The fear is caused by the southern regions of the Russian Federation and the eastern and southeastern territories of Ukraine, where there is a lack of moisture. So far, Ukrainian vice minister of Economy expects wheat production 21/22 up to 30MMT – almost 20% higher YoY as favorable weather conditions and increased in planting areas on winter wheat which is 6,7 mln ha. But I’m doubt.
Vegetable oil markets are weakening under pressure from falling oil prices, increased supply of palm and soybean oil and weak demand from China. Palm oil production in Malaysia is recovering and exports are below expectations, pushing prices down. A similar situation is observed in Indonesia.
Soybean harvesting rates in Brazil are below average. According to the Agrural agency, only 25% of the crops are threshed, but due to precipitation, the yield forecasts remain at 133MMT. Brazilian farmers sold soybeans at an accelerated rate. Some Brazilian farmers, according to Bloomberg, defaulted on forward sales made several months ago when prices were lower, prompting lawsuits and potentially causing financial losses for traders. Forward contracts between traders and farmers usually do not contain a cancellation clause, but provide for a penalty that must be paid in the event of non-compliance. According to lawyers, the fine ranges from 20% to 50% of the value of the undelivered cargo. Given that local soybean prices could double after the forward sale, farmers can earn more by paying the fine and selling the same beans on the spot market.
Lack of rainfall in Argentina in the coming weeks will increase the stress on crops, but so far they are normal, so crop forecasts remain at the same level. An increase in the supply of Argentine meal amid falling corn prices puts pressure on export prices for Ukrainian meal, which continues to fall in price, which affects sunflower prices. In addition, the market is waiting for the effect of the reduction in the VAT rate. However, there is a shortage of sunflower seeds for processing on the Ukrainian market, and many factories will have to stop production before the season. Demand for American soybeans remains low given China's absence from the market.
The price of soybeans with protein from 39% on March 1 is within 814 USD on CFR China port terms and continues to grow. There are not many offers of imported soybeans either; the next deliveries are expected only in mid-March or in April. As of March 1, refiners are not actively launching processing. The main reason is the high price of raw materials, according to China Oilseeds. According to the line-up, only 6.2MMT of soybeans will arrive in China in March. Due to problems with the supply of soybeans, many factories are in no hurry to start production. This can lead to a decrease in oil reserves and its rise in prices on the domestic market.
Traditionally, the post-Chinese New Year period is characterized by a decline in pork demand, the rate of recovery in the pig population has slowed. This led to a decrease in demand for soybean meal, an increase in stocks at the processing facilities and, as a consequence, to a decrease in prices. The price for March 1, 2021 is about 504 USD under CFR China port terms. In this regard, the spot price for sunflower meal will also decrease. The price of soybeans with protein from 39% on March 1 is within 814 USD on CFR China port terms and continues to grow. There are not many offers of imported soybeans either; the next deliveries are expected only in mid-March or in April. As of March 1, refiners are not actively launching processing. The main reason is the high price of raw materials, according to China Oilseeds. According to the line-up, only 6.2MMT of soybeans will arrive in China in March. Due to problems with the supply of soybeans, many factories are in no hurry to start production. This can lead to a decrease in oil reserves and its rise in prices on the domestic market.
Over the past few days, the price of sunflower oil has increased by almost 40 USD and is about 1526 USD CFR China port, China Oilseeds notes. The price of sunflower oil in the EU is also growing. And for today it seems not stop.
So these days market is calm. Calm like a deep blue ocean. And you know what does it mean.