THE big news in Agricultural markets last week was the release of a plethora of data by the US Department of Agriculture. Most of the reports had been delayed due to the partial shutdown of US government agencies.
The biggest of these reports was the World Agricultural Supply and Demand Estimates, which incorporated two months of data. The January report could not be collated as USDA employees were furloughed throughout the record 35 day shutdown.
Surprisingly, there weren't any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million tonnes to 267.5mt. Nothing there to scare the market. They left the US and European Union wheat exports unchanged at 27.2mt and 22mt respectively, but they did decrease Australian wheat exports to 10mt This is now roughly in line with most domestic trade estimates.
Interestingly, the USDA increased Russian wheat exports by 500,000t to 37mt. There has been much speculation around the unsustainable pace of Russian exports and possible restrictions as internal wheat prices soar. Rouble-denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014. Growers are holding back sales given shrinking stocks and continually rising prices.
The USDA trimmed world wheat ending stocks from 268.1 million tonnes to 267.5mt. Nothing there to scare the market.
Russian export wheat prices increased around US$4 last week, closing at a four year high. Russia is now largely uncompetitive in the world wheat market. This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.
GASC bought 300,000t of wheat in their snap tender last Friday. The US sold 120,000t of soft red winter wheat, the French also sold 120,0000t, and the remaining 60,000t was traded by Ukrainian exporters.
The US was the lowest free on board (FOB) offer by around US$10, and despite the US$10 freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was about US$2 lower than the late January tender.
The Chinese will be back at work this week after their traditional Chinese New Year festivities. There are 12 Chinese zodiac animals used to represent years, and 2019 is the Year of the Pig. The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries such as North and South Korea and Vietnam commemorating it as well.
In China, you will also hear the New Year referred to as ‘chunjie’, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter crop harvest and summer crop planting season.
With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?
Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the March 1 deadline. This is when the US tariffs on over US$200 billion worth of Chinese imports are scheduled to increase from 10pc to 25pc.
Early in the trade negotiation process, China stated that it would purchase 5mt of US soybeans as a goodwill gesture while the negotiations were in progress. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period. With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10mt since the talks began.
Moving to the northern hemisphere winter crop where unusually warm weather and heavy rain across many parts of the Balkans and western Europe has reduced the protective snow cover. The weather forecasts are kind in coming weeks but any return to cold winter conditions could have serious winterkill implications in the absence of adequate protection.
In the Black Sea region, extremely mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia. There have been no reports of crop losses and local Ukraine estimates have stated that between 96pc and 99pc of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.
A large part of the US winter wheat area received heavy rainfall to start the month, and subsequent minimum night time temperatures have been close to the theoretical winterkill thresholds. This follows the extremely low temperatures through many of the Midwest states in late January. Up to 20pc of wheat land had limited or no snow cover. If there has been some damage, it will only become evident once the crop breaks dormancy in early spring and recommences its growth phase.
One USDA number that did disappoint last week was the area sown to winter wheat in the US. They rolled out a planted area of 31.1 million acres. This is a 110 year low and is 4.3pc lower than last year’s area of 32.5 million acres.
Unseasonable weather conditions seem the be a global norm these days, and Australia is no exception. While the prolonged dry continues in south eastern Australia, many parts of Northern Queensland are the complete antithesis. Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.
Unfortunately, the flooding will be no help to the ailing Murray-Darling basin on which so many Australians depend.
– Peter McMeekin is a consultant with Grain Brokers Australia.