“Wheat is still in support due to reduction and production and a delay in harvesting, except for the Kazakhstan, Canada, Australia and Argentina. The second significant factor is the activity on the side of state-owned companies: the wave of tenders and the need to buy parties for them against the background of relatively strong currencies of the Black Sea region also created additional tension.”
Elena Faige Neroba
Business Development Manager
Ukraine has almost completed sowing: according to producers, 6 million hectares have already been allocated for wheat, with planned areas of 6.2-6.3 million hectares; 1.1 million ha were allotted for barley, sowing completed; under a rapeseed area of 1.1 million hectares, but the sowing was carried out in extremely arid conditions, so analysts monitor the germination: some plants are lagging behind in development. Most likely, part of the area will have to be re-sown in the spring, especially for areas under rape. Similar problems with rapeseed are also observed in Romania, which, under the influence of EU demand, is ready to increase sown areas, but because of the drought, they had to be reduced almost twice to the level of 13/14, which provides additional support for the prices of the future crop.
In Russia, according to local analysts, 18 million ha are sown under winter crops and fieldwork continues. The areas under winter crops already exceed last year, and the condition of crops in the main part of production areas is good. Rains that did not reach the Black Sea region prevented both harvesting and sowing in North-Eastern Europe. For example, in France, there is a significant lag in wheat sowing, and a slight lag in barley.
American farmers expect to plant the smallest areas in the past century with wheat. As of November 03, 89% of the planned area was sown in 18 major states producing wheat, making up 90% of the 2018 winter acreage, which is 1 pp higher than the 5-year average. Moreover, already 56% of seedlings are in the state of GD / EX. In general, the USA and Russia are eliminated faster than Ukraine and the EU. The reason for this is the weather conditions.
In addition to the weather and the markets, the farmers in Argentina now have to worry about how President-Elect Fernandez may impact their farming operations. Even though the weather in Argentina has shown some improvements in the central and northern areas, it is still too dry in the southern and western areas. The near term forecast does not look very good, so the dryness will probably persist in the southern and western areas. The first phase of corn planting is nearing completion with 40% of the corn planted and the second phase will start in early December. The early planted corn is rated 5.5% poor to very poor and 43.5% good to excellent, which is a higher rating than last year. The soil moisture for the early planted corn is rated 22.9% dry to very dry and 26.7% optimum to surplus, which is also a better rating than last year.
It has been an uneven start to planting in Brazil due to dryer than normal weather during September and October, especially in south-central Brazil. The weather is now improving, but some of the soybeans in Brazil are being planted a month or more later than last year. Nationwide, the Brazilian soybean crop is 46% planted compared to 60% last year and 45% average according to AgRural.
SUPPLY AND DEMAND
Iran, despite the growth of wheat production in the country, is ready to import grain. The supplier will most likely be Russia or Turkey. Kazakhstan has lost a significant part of the wheat crop and will take the offer of Russia from the market, which will also create price support.
In addition, due to weather conditions, not only crop yields suffered, but also the quality of Argentinean wheat. It is also important to note the influence of the political factor: elections in Argentina can significantly affect export policy up to the introduction of export duties. Inflation there is over 50%, interest rates are upwards of 80%, the country has huge debts to pay to the IMF and the Argentine peso has lost about 85% of its value since Macri has been president. Marci’s representatives are widely expected that the new administration will increase export taxes on agricultural commodities in order to shore up government revenues. At its peak, commodity export taxes accounted for 11-12% of total government revenues, but that percentage declined when President Macri eliminated or lowered the export taxes.
In general, wheat is still in support due to reduction and production and a delay in harvesting, except for aforementioned Kazakhstan, in Canada, Australia, and Argentina. The second significant factor is the activity on the side of state-owned companies: the wave of tenders and the need to buy parties for them against the background of relatively strong currencies of the Black Sea region also created additional tension.
Ukraine remains one of the cheapest countries in the Black Sea region, and this clearly demonstrates the high rate of shipment at ports. As of 05.11,2019, taking into account the line-up, more than 12 MMT of wheat from 19-20 MMT of export potential was sold. The main buyer countries are still Turkey, Indonesia, and China. In corn, the EU is stably active.
So far, corn remains under pressure: the harvesting campaign in the Northern Hemisphere is in full swing. Despite the fact that in the USA there is a lag in harvesting rates, while in Ukraine the yield is still lower than last year for the same period – just 6/37 mt/ha, the market has come to terms with expectations of underproduction in the USA and has moved away from the summer price rally. From the beginning of 2019, Brazil exported more than 30 MMT, and for the period from September 2018 to September 2019 - 40 MMT of corn, which significantly exceeds the similar indicators of YoY. In case of exports decline Brazilians know what to do with the rest of corn supply. There are currently 6 corn-based ethanol facilities in operation in Mato Grosso and 5 more are scheduled to be built over the next two years. According to the National Corn Ethanol Union (Unem), two facilities are in the final phases of construction and should be operational by the end of next year in the cities of Sorriso (central Mato Grosso) and Campo Novo do Parecis (western Mato Grosso). Three more are scheduled to be built by the end of 2021 in Nova Marilandia and two in Nova Mutum (all three are in the mid-north region of Mato Grosso). Corn ethanol production in the state increased by 66% from 2018 to 2019. In 2019, the state produced 1.1 billion liters of ethanol and that is expected to increase to 2 billion liters in 2020. The Mato Grosso Institute of Agricultural Economics (Imea) estimates that the state will produce 32 million tons of corn in 2019/20 and that corn production will continue to increase in the years ahead. The National Corn Ethanol Union also expects corn-based ethanol production to continue increasing as well.
Soybeans are still supported not only on the basis of China’s expectations of an increase in purchases of American beans, but also from a growing palm. Malaysia’s soybean futures rose amid claims to cut production, despite India’s potential refusal to buy oil for political reasons. The Brazilian president, Jair Bolsonaro, was in Beijing last week to meet with Chinese President Xi Jinping and signed eight new commercial accords with most of the accords centering on agricultural products including processed meat, cottonseed meal, and renewable energy.
Despite the announcement of the signing date of the agreement, 10/29/19 the futures markets remained calm: this is not the first time after such statements that the transaction was postponed. Another question – what will be with Chinese – Argentinian and Brazilian deals in case of China’s will come back to the USA.
There was nothing to afraid this Halloween, but in a week after interesting goings-on go on. One by one instead of preparing to 17th of November tread deal signs between the USA and China in Chile, Beijeen Canadian, French and Denmark meat supply. IMHO, it looks like China does not need a deal with Washington. And the final accord was delaying the meeting until December. If we add record October Brazil soy export at 9.67MMT and just .97 MMT USA to China we can discuss just one question: could someone explain, why China needs USA beans? Or it’s just overtures? Couse ASF still on the floor and pigs even crossing the Russian border.
Wheat which got support from government tenders this week became weaker: Russia still unsold, and Argentinian crop is coming. But in long term wheat is optimistic as planting area reducing over the world.
So let’s trade rapeseeds for next season: it’s more reasonable and understandable.