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Grain rally on hold

08 December 202010 min reading

Elena Faige Neroba Business Development Manager Maxigrain

The upward rally in the grain market has been stalled. However, spot grain prices are at their highest level since 2014, when the price was moving down due to overproduction. The market is trying to take a "breather".

Ukrainian corn remains quite expensive for the Chinese market. Restraining sales by Ukrainian farmers as a result of a sharp decline in production (as of the current date, 26.8 MMT or 94% of the area has been harvested according to a survey of producers) led to a protracted price rally.

As of November 27, in the ports of Ukraine, 21 vessels with a total tonnage above 1.1MMT stay anchored waiting for loading. Ukraine exported 6% less new cropped corn YoY, but last month was 3,1MMT which is higher than November 2019 and 1,7 times more than October 2020. The key destination was China – 1,3MMT.

Despite the fact that the import quota for corn in China is 7.2MMT, there is information on the market that COFCO has signed contracts for the supply of more than 10MMT. Probably China will increase the quota after the New Year holidays.

Rainfall begins in Latin America, improving crop prospects. In line with AgRural's expectations, Brazil's corn planting reached 94% as of November 26, up from 91% a year earlier. Some damage in the Rio Grande do Sul state is irreversible despite expected rainfall during the week.

IGC predicts a decline in global corn stocks, although production is still higher than consumption. Production estimates have been downgraded on cutbacks for some Northern Hemisphere growers, but still at record levels, driven primarily by large yields in the US and Brazil.

Demand from wheat importers remains, prices on local markets are trying to turn around. Australia's offer puts pressure on prices in certain regions. Australian APW is quoted at around $ 275 C&F Southeast Asia, almost at last week's level. Despite the fact that Australia's harvest is already estimated at 31-32MMT, demand from Asian buyers remains high.

AHW is trading at $ 290-295 C&F, Australian Standard White Wheat ~ $ 270 C&F. APW is still cheaper than a similar class of Black Sea wheat, which costs $ 285-290, Singapore trader ZernoOnline reports.

Egyptian GASC bought 2 vessels of Russian and 1 vessel of Ukrainian wheat at a tender, at a price that practically corresponds to the previous tender - from USD 261.85 FOB Black Sea. At the previous tender on November 26, 3 vessels of Russian grain were purchased for delivery in the second half of January at USD 261-262.35 FOB Novorossiysk.

Jordan announced a tender for December 9 for the purchase of 120kMT milling wheat of optional origin in lots of 60kMT for delivery from April 1 to April 15, April 16 to 30 and May 1 to 15. Turkey to hold a tender for the purchase of 400kMT of red durum wheat on December 4.

India will be able to export up to 4MMT of wheat to Southeast and West Asia by March, up from 0.18MMT last year if the government grants an export subsidy. There are rumors that India sold some cargoes to Bangladesh – mainly by railways, but sources said that one vessel could could be shipped as well. Market price is around 250-260 USD FOB for 11.5% pro.

Russia is considering a proposal to increase the grain export limit from February 15 to the end of the current marketing year from 15 to 17.5 MMT. Profiled associations of exporters are also trying to substantiate the groundlessness of establishing export duties.

The area under wheat for the future harvest is 1.1 million hectares higher than last year, but the sowing conditions were extremely dry. IKAR expects production at 78MMT against roughly 84MMT this year, but such forecasts are, in the opinion of many market players, premature. The sowing of winter wheat in the Northern Hemisphere is almost completed, despite the drought, the wheat is ready to go into winter dormancy in relatively good condition.

China sold ~ 674.8 kMT of wheat from the state reserve, or 16.76% of the total supply. The average selling price was RMB 2,340 (US $ 355.34) per tonne. Sales volumes are lower than last month, indicating a decrease in demand for wheat as a substitute for corn in feed.

The head of the Algerian state operator OAIC was allegedly fired last week due to a precedent with the import of improper grain. According to rumors, we can talk about the Baltic grain, since Russia and Ukraine did not ship grain to Algeria recently. German wheat stays the main grain for Algeria this season.

Jordanian MIT did not buy barley in the current tender, postponing the purchase until December 8th. For 2020, MIT acquired 600 kMT at an average price of US $ 203.39 compared to 720 kMT in 2019 at an average price of US $ 248.45. Cheaper Syrian barley and weaker demand have helped keep stocks high.

The vegoils market trying to win back the bearish scenario

The port union strike in Argentina has been over and started again. A spokesman for the Argentine Federation of Oilseeds, which joined the strike, said worker participation was "almost complete" at many Argentine oilseed factories that produce soy feeds used to feed poultry and pigs from Europe to Southeast Asia.

Due to the fact that there were fewer cereals to check the cargoes entering the port, 1,306 trucks loaded with grain entered the terminals in the Rosario area from midnight to 7 am on Tuesday. This is 45% less than the same period on the same day a week earlier, according to the Rosario Grain Exchange, Reuters reports.

Indonesia's calculated CPO reference price for December is growing at the fastest rate in 10 months, pushing the export duty up from $ 3 to $ 33, according to Palm Oil Analytics. The Indian government cut the base import duty on crude palm oil to 27.5% from 37.5%. The move could once again boost demand for palm oil while reducing demand for other vegetable oils.

Export shipments of US soybeans are declining seasonally, but still remain one of the best indicators for the current season. Shipments were up 67% from a year ago, double the USDA forecast. In terms of technical analysis, the charts say the historic 2020 rally may be poised to subside, or at least cooled off for a while.

StoneX raised its expectations for soybean production in Brazil to 133.9MMT. According to a Safras estimate, as of November 27, Brazilian farmers planted 83.3% of the estimated 38.3 million hectares of soybeans for 20/21. Last year, by the current date, 84.3% of the area was sown, and on average over 5 years, sowing by the current date was 84.8% completed. Mercosul revised its forecast to 128.34MMT, up from 129.15MMT in the previous report, one of the lowest forecasts. Farmers expect up to 100mm rainfall this week and next week, which will significantly improve soil moisture reserves in key production areas.

France intends to increase its protein crop area by 40% from 2022 as it seeks to reduce its heavy reliance on Latin American soybeans. To achieve this goal, France is investing a total of $ 119.79 million to encourage farmers to expand acreage, Reuters reports.

Stocks of soybeans at Chinese processors are declining seasonally but still remain at a fairly high level. Rumors about the refusal of several boats of US soybeans are still unconfirmed, but processors' margins are extremely low. China has not bought soybeans from the USA for almost 2 weeks.

Rapeseed oil in China has also dropped in price, which will lead to a decrease in prices for sunflower oil. Ukrainian processors have already started to cut prices to compete with producers of other oils, which led to a decrease in the purchase price for sunflower.

The Government Trading Corporation (GTC) of Iran has announced an international tender for the purchase of about 30 KMT of sunflower oil. Earlier, the Argentine government announced the possibility of refunding the export tax on soybeans for small and medium-sized producers. Argentine farmers have reported that the amount of funds allocated by the government for this purpose has been dropped significantly and they are extremely disappointed.

MACRO

Joe Biden's practically held victory in the US presidential election makes economic analysts wonder what financial policy the new owner of the White House will adhere to in the situation that Donald Trump leaves behind. Over the four years of his presidency, the United States has several times renewed its record values of its debt, the budget deficit has been constantly increased - meanwhile, Biden was moving towards the presidency with an economic program involving new gigantic spending, and the consequences of the coronavirus pandemic for the American economy are far from being over.

One of the most widespread projections today says that in the nearest future all these imbalances that have been growing in recent years will lead to a serious weakening of the dollar and a new acceleration of global inflation, since many other countries have followed the US in pursuing quantitative easing programs in the financial sector. But there is another point of view, the supporters of which remind that such forecasts were made during the 2008 crisis, but they came true exactly the opposite.

Next year, the dollar may fall by 20%, analysts at the American Citigroup said a few days ago. As possible factors that will contribute to such a scenario, they named the emergence of effective vaccines against coronavirus that can stimulate world trade and economic growth, as well as the policy of low rates of the US Federal Reserve System (FRS).

The Fed, Citigroup has suggested, will be cautious when considering raising interest rates even as the global economic recovery accelerates. This could prompt investors to look elsewhere for their money, as rising inflationary expectations in the US make the dollar less attractive, and investors are targeting fast-growing economies where monetary tightening may come sooner.

Morgan Stanley believes that the dollar index will lose 4% in a year, emerging market currencies such as the Brazilian real, the South African rand and the Russian ruble may strengthen against the dollar, and the euro will trade at $ 1.25 by the end of next year.

China "unexpectedly" poured $ 30 billion into financial system

Official statistics show that economic recovery in China is in full swing, but a number of events raise doubts about this. The above graph reflects the amount of liquidity that the Bank of China injects into the country's financial system through medium-term loans (in billions of yuan).

On Monday, the Bank of China "unexpectedly" poured 200 billion yuan ($ 30 billion) into the country's financial system in the form of medium-term loans at an interest rate of 2.95%, Bloomberg writes, citing a statement from the regulator. Interestingly, the news coincided with the publication in China of strong PMI figures for November, which exceeded both October and analyst forecasts.

Recall that just two weeks ago, the Bank of China changed its mind about tightening monetary policy and injected 800 billion yuan into the market, which more than covered the need of the country's credit institutions to finance the 600 billion bond repayment scheduled for November. The US and China are in a full-blown financial war. Therefore, Beijing will simulate prosperity and manipulate macroeconomic statistics to attract foreign capital, Erik Peters, investment director at One River Asset Management, warned in October.

It should also be recalled that in November, the yield on China's 10-year public debt reached a record high since May 2019. Bloomberg explains this by economic growth, which increases inflationary expectations, and the "metered" injections of liquidity, according to the agency, indicate Beijing's unwillingness to unduly relax monetary policy.

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