Happy new year

13 July 20207 min reading

A new grain year has begun. It carries fewer risks of the coronavirus - the business is used to working in a new reality. Harvesting campaign in the Black Sea and US is in full swing, and trade depends on estimates of production, harvesting rates, and crop quality. Russia harvested more than 3 MMT of grain, Ukraine - more than 1 MMT . Forecasts are becoming increasingly pessimistic.

A new grain year has begun. It carries fewer risks of the coronavirus - the business is used to working in a new reality. Harvesting campaign in the Black Sea and US is in full swing, and trade depends on estimates of production, harvesting rates, and crop quality. Russia harvested more than 3 MMT of grain, Ukraine - more than 1 MMT . Forecasts are becoming increasingly pessimistic.

While there is a battle with the weather in the fields, in the cabinets there is also a struggle for the crop. As of July 1, officially forecast for wheat production, and now it is the most interesting in the cash market, is absent in Ukraine. And, therefore, there is no understanding of export potential. The representative of USDA in Ukraine in the last of the published "field" reports the decree n digits, far from the expectations of all associations, analysts and other authoritative experts: 24,7 MMT the Crimea (310 thousand hectares of winter wheat only, albeit with a yield of 3 t / ha, it is almost 1MMT), and 15.4MMT of export potential. The market expects 25 -26 wheat MMT on controlled Ukraine territories.

Wheat production in Russia is also overestimated. IKAR forecasts a yield of 78 MMT (instead of 79.5). Refinitiv estimates production at 79.2 MMT (+2% from previous expectations), SovEcon lowered expectations to 80.9 MMT (instead of 82.7) due to drought in the southern regions. It is possible that “targeted” quotas will be applied. Bulgaria’s production is officially estimated by the government at 4-4.1 MMT, and much less by local analysts. A year before the election, according to market participants, the government does not want to recognize its own insolvency and does not recognize the fact that in some regions, productivity has fallen by half. Romanian crop expectations vary widely. Local players rate it at no more than 5MMT, as the country's leadership has previously stated, and Coceral and USDA forecasts are more optimistic and fluctuate around 8MMT.

The state of winter wheat in the USA GD / EX decreased to 51% compared to 64% last year. However, the pace of cleaning progressed from 41% to 56%, against 42% at the same date last year, but this corresponds to a 5% average of 55%. The French Ministry of Agriculture predicts that soft wheat harvest in France will fall to 31.31 MMT, or 21% from last year's 39.55 MMT. This will be 12.4% below the 5-year average and will be the second largest minimum soft wheat crop in France since 2004.

Jordan purchased 60kMT Romanian 12.5% wheat in November at $ 236.95 / MT. Egypt at the next tender purchased 230 kMT of Russian 12% wheat with delivery August 8-18 at 1-3 USD / MT cheaper than the previous tender. Thailand has announced a tender for the supply of 193kMT of wheat. Grain is requested in three batches from October to December, of optional origin, with the exception of Russia, Brazil and Pakistan . Thus, Egypt is restrained by the news about the growth of supply, first lowering purchase prices, but increasing procurement volumes.

The EU exports wheat at a record pace. Compared to last season, 68% more were sold in 2019/20. Australia has signed a cooperation agreement with Indonesia. After a deterioration in relations with China and in light of a decrease in Indonesia's purchases of Australian wheat, whose yield this year is projected 40% higher than the past, this news inspires optimism for Australian producers.

After the publication of the quarterly report of planted areas in the United States and the strengthening of the cost of oil, as well as the continued growth of ethanol production in the States, corn on the Chicago Stock Exchange strengthened in value. They supported the corn price and news about the activity of China. But this information seems small compared with the overproduction of grain on a global scale. The state of corn crops in the corn belt is satisfactory.

If the initial expectations of 97 million acres of corn and seemed overpriced, the well is not the same. Before publication they waited, well, if not 97, even 95 million acres. And here they took and showed 92, of which a little more than 2 million at the date of the report was still in process. It's clear that the corn rushed. But what about “nobody needs ethanol,” “meat is gone,” you ask? Yes, all the same. Therefore, this support may be temporary . By the way , about ethanol . Airbus say that air travel will finally recover no earlier than 2025. In the United States, 71% of crops are in good and excellent condition, which exceeds the 5-year average. Egypt for the first time in 2 years bought a 49kMT boat of American corn. The EU has again zeroed the import duty on corn. The reserves of corn in the northern ports of China are minimal for the last 5 years, although their seasonal period begins.

According to FAS USDA, COFCO, by September, buy another 1 MMT of corn of optional origin. At the same time, 6.6 MMT of the tariff quota has already been used. Private companies bought about 2.8 MMT of corn, and COFCO - 1.5 MMT in the USA and about 0.5 MMT in Ukraine. China's corn market activity may be a longer support factor.

Brazil seasonally leaves the soybean market (whose supply, due to high production, still exceeds last year's) and goes to the corn market.

Barley in the United States was also sown less than expected. What the Chinese will get there is not clear, they themselves would be enough. According to FAS USDA forecasts, imports for 2020/21 will decrease by 500,000 tons to 5.5 million tons due to barriers to the import of Australian barley. From January to April this year, China imported 1.43 million tons of barley, which is 43.7 percent less than the same period last year.

The French Ministry of Agriculture predicts a barley crop in France in 2020 at 12.33MMT, which is 10.3% lower than last year. Expectations of production of winter barley fell to 7.8 MMT compared with the forecast of 8.17 MMT last month.

Canada expects to take Australia's place in the Chinese barley market. Despite expectations of a decline in production from 11.8 MMT last season to 9.7 MMT in 20/21, barley exports from Canada could grow by 1 MMT.

The variability of the correspondence of USDA forecasts to the final figures can be compared with the attempt of Nate Silver to analyze forecasts in the McLaughlin Group political show. Briefly - this is a talk show where smart people answer completely different questions from McLaughin, and in the end he asks them to make a forecast on some issue that was relevant at the time of the broadcast. In general, one week before the Obama election, all the participants in the show, except for one, bet on McCain. For different reasons. And a week after Obama's victory , McLaughin gathered them again and no one remembered his unsuccessful forecast, only explaining after the fact his vision of losing to John McCain. In general, it hooked Silver and he hello everything in a tabular form. It turned out that “absolutely precisely” 39% of the forecasts came true, and “absolutely incorrectly” - 37%. With the same success, you can toss a coin. Why a coin? Then I will strain you with a theory. The more analysts give clarifications and modifications to their forecasts, the higher the chance that one of them will hit the bull's-eye? “ Oh player error” is that many people misinterpret the law of large numbers. Coins, roulette wheels and dice have no memory of the past. Their behavior is not affected by what happened to them yesterday. And whether there is a memory in the market?

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