Drowned hope

09 June 201911 min reading

“Beijing announced that negotiations would not resume until Washington corrects its wrong actions, but Trump continued to talk about the possibility of an “early” conclusion of the deal. As part of his visit to Japan, the American leader said that the States were not ready to make a deal, but noted that a great agreement would be reached in the future. Tan Min Lang of UBS Global Wealth Management believes that the parties can reach an agreement not earlier than before the arrival of 2020. Trump, who hopes for re-election in 2020, will want to increase his chances of winning, and the Chinese authorities need to overcome economic uncertainty.”

Elena Faige Pitek (Neroba) Head of Analytics Marcopolo Commodities SA The dollar rose against all Group 10 counterparts, while safe-haven currencies fell after US President Donald Trump said he was in no hurry to enter into a trade deal with China. The yen declines during the first day of four, as the main parties of the European Union retained their positions against the populists in the elections, while the euro cannot hold back the morning growth, as the success of the European parties in Italy and France paint a mixed picture. Trump said he would wait for elections to Japan’s upper house in July before he made a deal. EUR / USD drops 0.1% to 1.1190 against 1.1215, the daily maximum.

We always need to pay attention to the currency exchange rate, because it’s take huge influence on buying facilities or could make selling price more or less attractive. USD/Argentinian peso is almost 43 and stay falling, Brazilian Real also filling not good: 4 and going down but slowly than peso. A weaker currency means that Brazilian farmers put more money in their pocket whenever they sell grain that is priced in dollars. So that too could have stimulated sales, the same for Argentinian and Ukrainian.

China on Friday 31th of May will demonstrate its economic results for May, and economists expect the official index of business activity in the manufacturing sector to fall to 49.9 amid a worsening trade war with the United States. It is expected that the Fed’s favorite indicator of core inflation will increase, showed a forecast before the publication of data on Friday.

ARGENTINA Two weeks of decent farmer selling in Argentina, taking advantage of CBOT volatility. Soy crushers suffering from very low margins (around USD 15). Soybean crop is estimated in the range 56-57 MMT. Meal quality still an issue, being very difficult to reach 46.5%. Traders prefer Brazilian beans as for protein content and ready to pay preemie. Soybean crushing in April was 3.82 MMT. May is estimated at 4.2 MMT and June probably 4.3 MMT. Bean exporters have bought around 4 MMT and they remain active in the market. Year will probably end with soy exports at 7-8 MMT if trade war gets worse.

Corn continue to be the big ‘battle’ for exporters. Harvest progress at around 48%, progressing very slow in recent weeks as humidity is still very high and late plantings are far from being ready to collect. Line up is really heavy, and more than 11 MMT of this crop were already exported since late Feb. Farmers are not delivering as expected, and price skyrocketed for spot positions.

Exporters tried to capture the inverse and committed big volumes before Brazilian Safrinha enter the game later in June. Final corn crop number will probably surpass 50 MMT. Better prices making it very profitable for farmers, motivating to plant more in 2019/20. BRAZIL Brazilian corn exports already have the best May ever and sales may exceed 1.1 MMT if sales remain at the same pace this last week of the month. The best year beginning since 2015/2016. Brazil’s grain exporters association ANEC sees corn exports in 2019 surpassing 30 MMT and possibly beating a previous 2015 record of 30.7 MMT.

But not just exports capacity increase: Brazil corn ethanol industry booms as cereal’s output more than 97 MMT, Reuters says after recently surveyed 11 analysts in Brazil. New corn-based ethanol plant is built in Mato Grosso. Impasa, a company operating two corn ethanol plants in Paraguay, will open its first unit in Brazil in July. Besides ethanol, byproducts such as DDGs and corn oil are also in demand. Mato Grosso is Brazil’s leading cattle producer, with 14 % of the country’s 220 million herd. Ethanol demand may increase next year when Brazil begins the RenovaBio program. Meat demand could increase on Asian ASF crisis. So there is good opportunities to increase domestic consumption too. According to Conab, there are 2,192 storage units in Mato Grosso with a capacity of 37.4 million tons. A lot of those storage units still contain soybeans, so some of the corn will have to be stored outside temporarily. But in the same time, in an effort to modernize and streamline their operations, Conab is now in the process of closing some of its grain storage facilities in Brazil. Conab maintained a grain storage operation as a way to smooth out grain prices in Brazil, but many of the facilities had fallen into a state of disrepair due to a lack of funds for maintenance. The closures will be in locations where there is ample private storage capacity. A total of 27 facilities will close with 13 of those units in the center-west region, 5 in the southeast, 4 in the north, 3 in the northeast, and 2 in the south.

The Center for Advanced Studies in Applied Economics (Cepa) reported to Reuters that the Chinese purchased more than 5 million tons of soybeans over the past few days for delivery in June-July-August, which is equivalent to about 100 vessels.

Farmer selling in Brazil had been relatively slow in recent weeks as farmers were hoping for better prices. That seems to have now turned around with the Chinese business being sent to Brazil. Another factor that seemed to stimulate soybean sales is the delayed spring planting in the U.S. caused by wet weather. That would give support for soybean prices but not for a long time as soy is overproduced and the US stocks are huge. Therefore, it looked like Brazilians one more time could take advantage of this brief window of opportunity to lock in prices.

AUSTRALIA As drought persists, Australia restricts water use in populous state. The country’s east coast, as Reuters mentioned, has suffered through two years of below average rainfall, devastating agricultural production and stoking a political debate over the impact of climate change. Australia importing high protein wheat for first time in 12 years as drought eats into grain production. That was the second main news for last month. Not big volume but big boom. Winter crop production in Australia is forecast to drop to 29.3 MMT in 2018-2019, 20% below the 20-year long-term average, because of severe drought conditions in Victoria, New South Wales and parts of South Australia and Queensland. The wheat crop is also forecast to be down 20% to 17mmt.

The difficult season is compounded by the impact on dairy farmers, who are a key domestic market for bulk grain but were forced to reduce their stock numbers, and therefore their grain requirements, due to drought. Canadian vessels coming soon.

CHINA Last week, Beijing announced that negotiations would not resume until Washington corrects its wrong actions, but Trump continued to talk about the possibility of an “early” conclusion of the deal. On Monday, at a press conference as part of his visit to Japan, the American leader said that the States were not ready to make a deal, but noted that a great agreement would be reached in the future.

Tan Min Lang of UBS Global Wealth Management believes that the parties can reach an agreement not earlier than before the arrival of 2020. So far, both economies manage to avoid the harsh effects of a trade war, which means they don’t have any need for prompt conclusion of a transaction, the bank believes. Also, the Trump administration has placed the Chinese giant Huawei on a blacklist, banning it from making purchases from US companies without special government permission. Trump cannot afford to fight simultaneously with China and Japan, I am sure an expert UBS, but both countries are interested in the final conclusion of the transaction. Trump, who hopes for re-election in 2020, will want to increase his chances of winning, and the Chinese authorities need to overcome economic uncertainty.

But not only trade war making China’s demand weaker. African Swine Fever is predicted to kill half of China’s pigs & more than a quarter of the world’s herd. How will ASF impact U.S. sales to China? Despite China’s dwindling herd numbers, high tariffs could still limit trade.

China faced food inflation. Chicken wholesale prices +57%, egg futures +38%, pork wholesale prices +41% YoY in Jan-April. Prices are high, but as China lost pigs they don’t need to feed them. In a few month after ASF will stopped –yes, but not now. These days China needs to buy meat. Main question – who will be a supplier: EU, USA or LatAm? “I summarize the situation with China as a lot of unknowns,” said USMEF Chief Executive Officer Dan Halstrom. “One thing is certain: that ASF is impacting their herds. You can debate the numbers, but the numbers are big. So yes, there will be an impact, but what does that mean to the U.S. is not so clear. “Today we sit here with 62 percent duties on pork, and we’re at 37 percent duties on beef,” he added. “Without a doubt that’s impacting our ability to expand business into China.” China’s Ag ministry calls the armyworm situation “severe” and the task “urgent” to prevent grain output loss. Crucial to keep armyworm out of heavy corn regions in the North. China says it is making progress on an ASF vaccine, but some scientists are skeptical. In general China food crisis could be more dangerous than trade war.

EUROPEAN UNION As for Platts expectations, EU wheat exports to date at 18.4 MMT v 18.6 MMT in 17/18 Top 3 buyers: Algeria (4.9 MMT, up 24%), Saudi, Egypt EU Corn imports to date at 21.5 MMT v 15.6 MMT in 17/18 Top 3 sellers: Ukraine (13.9 MMT, up 95%), Brazil, Canada

EU commission raised 2019/20 EU wheat production to 143.8 MMT vs 141.3 MMT last month.The new COCERAL Crop Forecast has been published these days. They foresee the 2019 EU total grain crop at 301 million tonnes. This is slightly up from the previous of 298.5 MMT and significantly up YtY crop of 281.0 MMT of grains. Wheat production is seen at 140.3 MMT vs 139.8 MMT in March report and well above the 127.4 MMT last season. After a dry period in the beginning of spring, growing conditions have stabilized.

The EU’s barley production forecast for 2019 stands at 59.0 MMT, down from 59.4 MMT previously, but up from 56.1 MMT last year. The EU’s corn crop forecast has been revised up from 61.0 MMT to 62.9 MMT (last year: 60.9 MMT) mainly due to a much higher than previously expected acreage in Germany and Romania. The rapeseed production forecast for the EU has been reduced from 18.6 MMT to 17.9 MMT due to a sharp reduction in the French crop.

BLACK SEA REGION Planting almost finished, weather condition was perfect. Ukrainian Grain Association updated forecast for country’s 2019/2020 MY; • Total production 94.7 MMT and export 56.9 MMT • Barley production – 8.4 MMT, export – 4.9 MMT • Corn production – 32.2 MMT, export – 26 MMT • Wheat production – 26.7 MMT, export – 19 MMT.

As of May 16, Ukrainian agricultural enterprises planted spring grains and pulses throughout the areas of 6.3 mln ha, or 87% of the forecast. USDA forecast is 29 MMT for wheat production and 33 MMT for corn with 27 MMT exports. Also they expects 9 MMT of barley production in Ukraine.

Another market driver is Russian wheat production. Analyst still see big gap between their forecasting: Russian AgMin at 72-75 MMT; USDA 77 MMT; Agritel 78.8 MMT; FAO 79 MMT, IGC 79.5 MMT; IKAR at 81 MMT; Informa 82 MMT; ProZerno at 82.3 MMT; SovEcon at 83.4 MMT.

USA The key player and newsmaker for last month and for the next one also. There are only one reason: weather. Flooding and rains catch farmers in the fields just in planting time. Crop pace two time slowest than it should be, and it could be the USA lost up to 1bbu of corn crop. Crop progress on this afternoon’s report is expected at 63-65% for corn vs. 49% last week and 91% average. This is the main numbers because wheat is much better and soybeans firstly has longer planting window and secondly overproducer anyway. Trump promised financial aid to farmers who lost money in trade war. According the last crop progress report, NASS shows only 58% of corn area planted, but avg number is 90%. Soybeans crop progress is just 29% vs 66% avg, but there is enough time for be faster later. Anyway, we should be ready for green screen.

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