If you as an importer expecting for a low price – don’t waste your time: even FOB market lost 10-15-20 USD freight levels still at least higher than before pandemic. The number of vessels waiting in the US Gulf of Mexico roadstead has reached its highest level since the start of the pandemic, exacerbating delays for companies during one of the busiest periods of the year for freight traffic. A record 46 container vessels are stuck waiting to enter California's two largest ports as labor shortages and disruptions from COVID-19 continue to shatter a supply chain that has been pushed to its limits ahead of a busy holiday shopping season.

 Global shipping disruptions and river droughts in South America threaten to restrict meat exports from the two major beef-producing countries as rising food prices fuel inflation around the world. Meat processors in landlocked Paraguay are likely to slaughter 20-25% fewer cattle this month due to a lack of shipping containers, high transport costs and unstable transport times.

 Vessels repairs and general drydocking operations have become more complex in China, where authorities are introducing many measures to stop the spread of the delta version of Covid-19. The local government of Dalian has just introduced measures that require surveyors visiting shipyards and dry dock facilities to reside in a designated inclusion zone while the ship is being repaired. This requires surveyors to be quarantined while they are working, usually two to three weeks depending on the renovation. Upon completion of work, surveyors must spend 14 days in centralized quarantine at a government facility, followed by seven days of home quarantine. Quarantine measures are expected to bind many inspectors for much longer periods, leading to a shortage of qualified personnel. Shipowners are advised to postpone or arrange surveys at other ports outside China where possible, where attendance at survey does not require quarantine. China's heightened Covid response is also having a significant impact on port calls, leading to increased congestion.

 According to Drewry Maritime Consultancy, sea container prices have more than doubled over the past year, and container freight rates have been increased 351% year on year. But as container makers strive to meet demand and make huge profits, industry insiders warn of oversupply when the pandemic ends.

But let’s back to grains. The stock market reacts sharply to the possible aftermath of Hurricane Ida. Prices fell as damaged grain elevators and power outages at the US' busiest agricultural port raised concerns over grain and oil shipments. Individual contract holders sell positions because they understand that they will not be able to complete the delivery. Crop conditions have not changed over the past week, but areas unaffected by the hurricane remain fairly dry.

The Asian PMI began to decline due to the Delta strain wave. Global merchandise trade is under threat from potential delta-induced disruptions, in addition to still rising transport costs, while retailers have begun shopping for the fall and New Year holidays.

The Chinese government continues to purchase pork from the State Reserve, because pork prices fell below the cost of hogs production after the active recovery of livestock amid a sharp rise in the cost of feed.

In addition, there was information about the spread of ASF in China, and the USDA already predicts a possible decrease in production by 14%. Recently, the rise in pork production in the EU has put pressure on prices, as weakened demand in the EU, as well as reports of weakening demand from China. Industry analysts at Rabobank expect production growth to be capped in the third quarter of 2021 due to weakening exports and high feed costs.

The harvesting campaign of early cereals in the Northern Hemisphere is almost complete and the farmers have begun winter sowing. A study by Farm Futures magazine on US sowing plans for 2022 found 94.3 million acres of corn planted, up 1.7% from USDA's 2021 estimate. Soybean planting is up 3.7% on 90.8 million acres, wheat planting on 49.7 million acres, up 6.3%. 

If we talk about corn, all eyes are still on China, but with pessimistic expectations. They imported about 23MMT of corn in 20/21, close to the USDA's forecast of 26MMT. The Department has left its official forecasts unchanged for 2021-2022, while the USDA's Chinese attache believes that imports are likely to be 20MMT. Chart - Bloomberg. We have already said that this figure may be lower due to substitute goods, and now the factor of a potential reduction in pig production has been added. In the northeast of China, early varieties of corn began to be harvested 10-15 days earlier than planned. Due to the fact that last year the reserves of the State Reserve were at a low level, as well as due to a decrease in production, after the corn harvest last year, the price rose sharply. This led to an increase in the marginality of this crop, and as a result, an increase in the sown area for corn this year. The weather conditions in China this year are very favorable, with high temperatures and abundant rainfall, which in turn contribute to higher yields. This year, following an increase in pork production and a decrease in demand for meat, the price of pork began to decline. From the New Year holidays to the present day, many farms operate at a loss, which is why they are looking for ways to reduce production costs. One of these methods was replacing the use of corn with wheat, rice, sorghum. This affected not only pig farms but also poultry farms. Ultimately, this led to the fact that demand fell to the lowest values in the last few years. In addition, due to the higher protein content of wheat than corn, many pig farms are reducing the use of soybean and rapeseed meal as an additional source of protein. Starch producers work, practically, only to cover the cost of production. As of August 19, out of 66 factories, only 54% were working. 

According to the August 26 export forecast, the USDA currently predicts that US ethanol exports in fiscal 2022 will reach $ 2.4 billion, up $ 200 million from fiscal 2021 due to increased volumes and unit value. The agency said that expected higher corn prices would keep the unit cost of ethanol high. In fiscal 2022, the largest increase in US ethanol exports is expected to go to Brazil and the UK. The USDA said the expected sharp increase in sales to Brazil will be supported by recent drought and frost damage, which has resulted in lower sugarcane yields, higher sugar prices and an ongoing fuel demand recovery. The UK is increasing its fuel ethanol volume to E10 this fall, boosting overall demand, the agency added. India's ambition to reach E20 by 2025 continues to drive demand for industrial ethanol. Uncertainty remains about the future of fuel ethanol exports to China, according to the USDA.

Good rainfall over the past 10 days in southern Brazil has increased soil moisture and improved maize sowing in Rio Grande do Sul, AgRural reported. By 26 August, 5% of the area had been planted in south-central Brazil. The first of the important periods for assessing the potential of the future harvest is in October. M. Cordogne expects that the corn harvest in Brazil in 21/22 will be 116-118 MMT (+ 32-34 to 84 MMT in 20/21). USDA 118MMT versus 87, as planted areas will be increased by 1 million hectares, or 5%. 21/22 sown areas of soybeans will be increased by 4-5% to 40.5 million hectares, production of 143-145 MMT according to M. Cordonier's estimate (+ 6-8 MMT y / y). USDA 144MMT. CONAB estimates the production of soybeans in the new season at 141.3MMT, corn - 115.9MMT, but these figures can be estimated starting from October.

As I told you before, 21/22 is the all-about-wheat year. The main importing countries of the Black Sea grain resumed purchases. The drought in the Middle East and Central Asia will provoke an increase in imports from Turkey, Iran, Syria, Uzbekistan, Pakistan and other buyers. The exchange market took into account all the negative news and further growth looks unlikely. 

Wheat prices in China remain quite high. Many traders sell their stocks out of fear of a decline in price. But a certain part of experts believe that wheat still has potential for growth. Since quality wheat this year will still be in short supply. So far, Asian countries have accounted for a large share of EU wheat shipments in 2021-22, as larger domestic feed wheat production has partially displaced the region from its traditional milling wheat buyers in North Africa this year.

EU trade flows have been changed in the new marketing year as Algeria looked for alternatives to produce milling wheat amid growing concerns over crop quality in the EU, especially France, Algeria's largest wheat supplier. This year alone, up to 40% of the French wheat crop can be categorized as suitable for use as animal feed, as heavy rains in Western Europe this summer have negatively affected the quality of the crop in France. This, in turn, means that French exporters may have to target large buyers of animal feed in East and Southeast Asia to ease fears of oversupply of feed wheat in the EU, Argus reported.

Wheat harvesting in Ukraine is 99% complete, while the average yield remains at a record level of 4.62 MT/ha, and according to Minagro, production has already exceeded 32.5 MT. If we take into account that the State Statistics Committee, albeit with a lag, shows other data, then the total wheat production can reach 33 MMT, 60% of which will be of flour-grinding quality. At the same time, about 76% of the area has been harvested in Russia, and the average yield is rapidly declining and currently amounts to 3 MT / ha. Local analysts have once again revised production and estimate it at 75-77MMT, and expect that in the September WASDE report the forecast of 72.5MMT will be increased. Canada has updated its forecast for wheat production. It was expected to be 22.6 MMT versus 24 MMT USDA and 35.18 MMT last year, but even taking into account the drought, StatCanada is forecasting 22.95 MMT. In any case, the market has already taken this into account in the price.

Georgia, which import potential reaches 0.5 MMT per year, is looking for wheat suppliers alternative to Russia, as prices are too high. The duty, which according to market estimates at the end of September will reach $ 55 per ton minimum, does not allow efficient purchase of grain from Russian producers. Wheat harvest in Kazakhstan may be 30% lower than last year. Harvesting began and farms were faced with quality problem. The Union of Field Growers predicts about 10MMT of durum and soft wheat, the Ministry of Agriculture predicts a decrease in yield by 20% and yield by 15MMT. Iran, Egypt and a number of state operators of other importing countries have purchased wheat, returning the current price tag for October delivery to FOB ~ $ 300. 

VEGOILS MARKET

The United States curtailed oil production because of the hurricane. OPEC + will consider the possibility of increasing production today. Brazilian soybean offers for October shipment to CNF China are very expensive. Traders face a shortage of supply from farmers. Pre-hurricane CNF bids were at + 370 / 380X, 35 cents higher than PNW bids. In addition, America has nearly exhausted its export potential.

The price of soybeans in China remains at the same level. In the North-East there were some small rains, however, they will not have a large positive effect on crops, as due to the long heat, the forecasts for yields are very low. Due to the abundance of rains and waterlogged soil in the northeast of the PRC, it is predicted that harvesting will begin with a delay of 1-2 weeks. Rumor has it that the State Reserve plans to start selling soybeans harvested in 2017 and 2019. If this is the case, then the additional volumes will have an impact on the current prices in the domestic market. In the main areas of production and storage of soybeans, soybean stocks are rapidly declining, soybeans have been sold either to the State Reserve or to processors. In ports in the south of the country, soybeans of the last year are also practically sold out.

At the end of August, the school year begins, which will lead to an increase in demand for soybean processed products, however, there is no particular activity on the part of processors, most likely this is due to the fact that many have made stocks a few months ago. China continues to buy at least 2 vessels of American soybeans almost every day.

The price of soybean oil started to rise this week. The main reason was the support from the exchange prices. In the Northeast, many factories have suspended processing due to a busy warehouse with soybean meal or lack of soybeans, while in southern China many factories have reopened. Stocks of soybean oil, at the main factories, amount to 935kMT, which is 8.5k less than a week earlier.

Tensions between the PRC and Canada, as well as problems with the supply of rapeseed around the world, have led to the fact that the percentage of operating rapeseed processing plants is at a low level. Only 5 large factories are operating, and then, many of them are not working at full capacity. Ending stocks of rapeseed oil are also quite large, China Oilseeds reports. The main reason for the rise in prices is the influence of general market trends, namely the rise in prices for soybean and palm oil.

Due to low rapeseed imports to China, there will be a shortage of raw materials in the second half of the year, which will lead to a reduction in processing volumes. At the moment, supply exceeds demand; large oil reserves will be difficult to sell in the short and even medium term. The situation with sunflower oil is similar to the situation with soybean oil. Due to the lower price, sunflower oil is preferred by many buyers. Demand on the eve of the holidays starts to rise a little. 

Russia and Ukraine have started harvesting sunflower seeds. So far, due to the delay in the start of the harvesting campaign, it is difficult to talk about a potential average quality, but the prospects for the Ukrainian harvest remain quite optimistic, most market participants are inclined to a figure of more than 16MMT, while, according to our estimates, the harvest in Russia may not exceed 14.9MMT, which is low oil content will support oil prices. At the same time, Romania and Turkey also expect record volumes of sunflower - according to our estimates - 3.3MMT and 1.7MMT, respectively. Oilseed production in the EU is also rated at a high level. 

So let’s go ahead like we are durum or rapeseeds – the most expensive grains on the global market this season.