“Trump’s Twitter provides fresh White House trading strategy. They deny trade talks and the US stocks get higher while Shanghai Composite crashing. The grain market is low… The market is also very sensitive to planting data updating. Rain, snow and cold weather in the USA has certainly slowed spring planting progress so far. EU and Black Sea Region were cold and dry, but fields in Ukraine, Romania, Moldova, Bulgaria, and Greece, I was seen last week looking good. Russia expects another huge wheat crop near 83 MMT. Argentinian wheat production seeks to rise to 20.4 MMT and thus join the growth of the main exporting countries in 2019/20 TY. For the main analysts’ expectation, it could be 149 MMT for EU, 51 MMT for the USA, 34 MMT for Canada and 27 MMT for Ukraine.”
Elena Faige Pitek (Neroba)
Head of Analytics
Marcopolo Commodities SA
U.S. President Donald Trump’s Twitter provides fresh White House trading strategy. They deny trade talks and the US stocks get higher while Shanghai Composite crashing. The grain market is low. Trump loves to intimidate the markets, his favorite weapon. It’s safe to say that these threats should not be taken seriously. If the States introduce new duties the rate between counties will be higher than in many countries. Most likely the continuation of the game ‘who will blink the first’ rather than a change in the course of negotiations. Some analysts suggest that this is a part of the President’s game with Fed and Powell not with China. Trump trying to drive the Fed into a corner. If there is uncertainty regarding trade it’s possible the regulation will have to reduce rates and ensure economic growth before elections 2020. There are doubts that this is a way to play a strategy game. It occurs in the foreign exchange market. The Chinese yuan fell amid a slowdown in the economy. And the exchange rate increases the competitiveness of the country. Another point in this situation is Trump does not get tired of repeating that he needs cheap oil and the escalation of the trade conflict with China is one of the unconventional ways to achieve the goal.
There are the most interesting days as The North Hemisphere. Planting data renews daily and the market is very sensitive to each updating. Rain, snow and cold weather in the USA has certainly slowed spring planting progress so far. As of May 7, average expectations was 25% for corn, 8% for soybeans, 24% for spring wheat. New USDA report shows 23% of corn, 6% of soybeans and 22% of spring wheat. This is much better than a week ago but still, less then regular pace, which is 46% for corn, 14% for soybeans and 49% for spring wheat. Winter wheat conditions are 64% good/excellent as per market data. Planting delays for corn/soybeans increase the likelihood of farmers switching from corn to soybeans which have a later planting window. As per new Trump’s Twitter claim, the US is on the warpath with China and it’s not the and of the sad-soybean story. Soybean futures should fall. Anyway, China says their delegation plans to visit the USA this week to continue negotiations.
EU and Black Sea Region were cold and dry, but fields in Ukraine, Romania, Moldova, Bulgaria, and Greece, I was seen last week looking good. Ukrainian crop progress going well: soybeans did for 6% of expecting 1822 thnd ha or 110 thnd ha, corn at 16.4% from 4662.4 thnd ha, spring wheat almost finished. Now weather conditions a little bit better, Europe got the bulk of the rain in the Balkans, Germany, and Poland, but temperatures remain significantly below normal. Also, there is windy and ground lost moisture. Balkan areas crop, for now, looks pretty good also. Greece, Bulgaria and Moldova are not the main producers for sure, but can’t forget even about that. For example, Bulgaria corn production is near 2-2.6 MMT (exports 1.3 MMT), wheat is near 5-6 MMT (exports 2-2.6 MMT).
Canada looks dry and cold, Turkey and part of the Middle East is rainy. Australia as for last years completely dry. Russia expects another huge wheat crop near 83 MMT. Argentinian wheat production seeks to rise to 20.4 MMT and thus join the growth of the main exporting countries in 2019/20 TY. Weather favors most the territory of Russia, the USA, and EU, while Australia continues to depend on the rains. For the main analysts’ expectation, it could be 149 MMT for EU, 51 MMT for the USA, 34 MMT for Canada and 27 MMT for Ukraine.
As for corn and soybeans, it’s too early to make forecasts. But for next month huge corn and soy production in the LatAm will push exports higher and it will make pressure on prices. Anyway, Ukraine sold 23.9 MMT of corn for the 3rd of May and it record pace, exports capacity is 3-5 MMT for the beginning of the new season in September.
Traders continue to grapple with record soybean stocks, rising corn stocks and good wheat potential so it’s strong export competition between major world suppliers.
The only chance for soybeans and partly for corn is African Swine Fever, not only at China, but also at Vietnam, Japan, and South Africa. Pork-producers should increase production to satisfy the high demand. On Friday, 10th of May trading community should meet renew WASDE report. But will they? Usually, the May Supply&Demand Estimates is one of the biggest and the most important report of the year, because it gives the market the first glance for new grain and oils crop. As a baseline for the marketing year. But this year balance sheet looks wrapped up about trade war between the USA and China and weather give a lot of surprises. As I mentioned, China delegation will be coming to the White House, but the report will be ready on the same date so the May report will not be in the focus of attention this time. Much more attention we should pay to winter wheat condition and crop progress all over the world.
So there is nothing to discuss this time. The only one winner for today is Brasil which soybeans offers increase on hopes of trade talk collapse. Again. This is the only short-term support for beans.
One more point to make attention is EM currencies. Investors are ready for any new turn in the trade dispute. The MSCI currency index consolidates around January while stock market indicator tends to the longest February decline. As cheaper local currencies are, as more attractive other than US grains will be. Also, we should pay attention to the Argentinian economy: it’s not the first time for rumors about exports duties on IMF claim.
FAO Food Price Index reaches highest level in 10 months
World food prices rose to their highest levels in nearly a year in April, climbing 1.5 percent compared to March, with four of five components in the index rising compared to the previous month. The index, released by the United Nations Food and Agriculture Organization (FAO), has now climbed every month this year. The last time the index was this high was in June 2018.
FAO also issued its first forecast for global cereal production this year, seeing a record output for 2019 following a decline in 2018. In its first forecast for 2019, FAO predicted world cereal production would come in at a record 2.722 billion tons this year, up 2.7 percent on 2018 levels, when output declined. “Among the major cereals, wheat, maize and barley would account for most of the rise in cereal production, with projected year-on-year increases of 5.0 percent, 2.3 percent and 5.4 percent, respectively,” FAO said.
For the fourth consecutive month, dairy prices climbed the most, adding 5.2 percent a month after rising 6.2 percent. FAO said dry weather in Australia and New Zealand drove prices higher, with distributors stocking up on butter, whole milk powder, and cheese rose in anticipation of tightening supply chains.
Vegetable oil prices climbed 1.1 percent pushed by the rise of palm and soybean oil prices. Meats were 3.0 percent higher, pushed by pig meat prices, which rose on higher demand from China. Sugar prices rose modestly, climbing just 0.8 percent based on a rise in biofuel production in Brazil, the world’s top producer of sugar.
Prices for rice and cereals, the biggest component in the FAO index, were the only sector to see a drop in prices, falling 2.8 percent to below its level a year earlier. FAO said wheat prices led the fall, with corn prices finishing the month only marginally lower and rice prices holding steady compared to March. The sub-index fell for the fourth consecutive month, pressured by large export availabilities and slowing trade. Among the cereals, wheat prices fell the most in April, influenced by prospects for a strong rebound in the 2019 production, amid large exportable supplies. Maize prices were also lower, mostly because of expectations of larger South American crops.