Tight supplies underpin grain & oilseed prices in 2023

Inflation spiralled on the back of fiscal stimulus and expansionary monetary policies in response to the Covid pandemic. War in Ukraine, energy shocks and supply chain disruptions exacerbated inflationary pressures. Central banks responded by raising interest rates, which began to curb rising inflation, but the rapid switch from a prolonged period of low to much higher interest rates, to fight inflation, generated vulnerabilities, seen in developments in the banking sector. Policymakers responded decisively to financial stability risks, but uncertainties remain exceptionally high. Despite the improved outlook for China, the International Monetary Fund (IMF) expect global economic growth to slow below 3% this year.

Rising Coarse Grain Output In 2023

Global supplies are tight for key commodities. Global grain output is projected to rise in 2023/24 led by a recovery in corn, boosting overall supply. Food prices have retreated from record highs early last year though many vulnerable countries continuing to face food insecurity. Reduced plantings in Ukraine caused by the war, underlines the need to scale-up production of grains and oilseeds to help rebuild global stocks and moderate price levels. The International Grains Council (IGC) preliminary forecast points to a smaller outturn for wheat of 787mt in 2023/24 due to reduced output from the Black Sea region, recovery in Argentina and a significant increase in wheat plantings in the US.

UKRAINE’S OUTPUT TO FALL IN 2023

The Black Sea Grain Initiative (BSGI) renewal is key for Ukraine’s grains/oilseeds to access the global market and to encourage more Ukrainian growers to plant crops, despite the ongoing war. High input costs, farm equipment losses and safety concerns signal crop plantings will be lower. The Ministry of Agriculture confirmed the spring planting season started earlier than normal, with 26,000/ha of spring wheat planted. They anticipate a smaller harvest in 2023 of 44.3mt [million tonnes] (includes 25.6mt of corn). The renewal of the BSGI for a further 120 days will be discussed in March — Russia is seeking a 60-day limit. Markets have priced in that the BSGI will be renewed though doubt remains over the extension period.

RUSSIA’S CROP SEEN LOWER IN 2023

Both SovEcon and IKAR estimate the Russian wheat crop at 86mt and 84mt, respectively in 2023. IKAR revised their wheat estimate to 81mt due to drought concerns in southern parts of the country. The lower wheat output for 2023 on reduced winter plantings and soft domestic prices.

Rise In Us Wheat Acreage Highest In 15 Years

US wheat acreage to increase to 49.5m/acres with output c.51mt, driven by higher prices, low supplies and input prices easing. While many areas from North Dakota to Kansas, received varied precipitation, dry weather remains a concern in the Central Plains. Some 57% of the US winter wheat area, mostly Hard Red Winter varieties, remain in drought conditions; Soft Red Winter areas remain well watered. Canada’s wheat area, other than durum, is expected to increase 4% to 8.2m/ha with yields c.3.6 t/ha-35mt.

French Wheat Crop In Good Condition

Wheat plantings remain broadly the similar to last year. AgriMer reported that French soft wheat crop was mostly in good, condition. Some concern that dry weather conditions could reduce production from the Iberian countries, while scarce and expensive fertilizer supplies may affect crop yield potential across the EU.

CHINA’S WHEAT OUTPUT LOWER IN 2023

China’s wheat crop is forecast lower at 127mt. Record wheat acreage in India c.34.3m/ha — weather has been an issue before harvest-government forecast c.112mt, but private estimates are lower c.107–108mt due to the heatwave in February. Pakistan severe floods receded in time for plantings-crop output c.28mt.

Argentine Growers Consider Gm Wheat In 2023

A vicious drought slashed output for Argentina’s wheat and other major grains and oilseeds. And, indirectly bolstered the case for GM wheat. Bioceres Crop Solutions is to market drought-tolerant genetically modified (GM) wheat in Argentina for the 2023 growing season; this follows the varieties, recent approval in Brazil.

‘EL NIÑO’ SIGNALS DRIER CONDITIONS IN 2023

Abares anticipate the Australian wheat crop to be lower c.26mt in 2023 due to drier growing conditions with the ending of the climate phenomenon La Niña. A neutral phase is expected to persist through the Northern Hemisphere in early summer. A transition to El Niño is likely to occur between July-Sept ‘23, with the prospect of El Niño increasing through the autumn.

FOOD/FEED USE OUTSTRIPS PRODUCTION IN 2022/23

Global wheat production increased to a record 789mt in 2022/23 with significant increases in production for Canada and the

Russian Federation, which more than offset lower output in Argentina and Ukraine. Global wheat consumption is forecast at 793mt (food 634mt, feed159mt), a small rise in food use offset by lower feed use.

Morocco Improves Access For Black Sea Grain

Changes to Morocco’s wheat import subsidy scheme will facilitate imports from the Black Sea region. From March ‘23, importers will be able to receive a monthly subsidy if cargoes are loaded by the end of the month-previously, ships had to arrive in Morocco by the end of the month. The change will likely increase competition in the Moroccan market, typically dominated by French and other EU suppliers.

Asian Buyers Switch To Feed Wheat

Wheat exports from Russia 43.5mt, France 37mt, Australia 30mt, Canada 25mt and US 21mt, contribute to the rise in global trade to 212mt.

With larger imports seen for the EU 9mt, China 10mt, Morocco 7.5mt, Saudi Arabia 4.5mt, Iraq 3.5mt and Pakistan 3mt. Australia’s bumper crop found openings for its feed wheat in Southeast Asia, as fertilizer shortages reduced domestic corn yields and increased local corn prices. Buyers tended to avoid Black Sea grain due to concerns with finance and delays. Feed wheat being at a significant discount to corn, prompted several Asian countries including Thailand and South Korea, to purchase more Australian feed wheat in 2023.

TIGHT GLOBAL WHEAT STOCKS IN 2022/23

With consumption outstripping supply for the third consecutive year, global stocks are projected to fall to 267mt (World 127mt, China 140mt) just over three-months supply. Stocks among major wheat exporters remain similar to last year.

Falling Demand Pressures Wheat Futures

Prices have fallen sharply since the turn of the year for all wheat classes-Paris (Euronext) milling wheat futures was trading at a low of €261.50/t ($276.75/t10.03.23). CBOT SRW wheat Futures contract (May) closed at $6.792/bu ($249.56/t-10.03.23); HRW $7.982/t ($293.29/t-10.03.23); French wheat Fob Rouen $287/t; Russian wheat Fob Black Sea $282/t (9.03.23); US SRW Fob $300/t (10.03.23).

TIGHT COARSE GRAIN SUPPLIES TO EASE IN 2023/24

Tight global coarse grain supplies are forecast to ease led by a recovery in corn in 2023/24, due to increased acreage, higher yields and favourable growing conditions and an increase for sorghum; while barley acreage is to remain similar to last year.

US CORN ACRES PROJECTED TO RISE TO 91M/ACRES

In February, USDA provisionally forecast US farmers to plant 91m/acres of corn in 2023/24, an increase of 2.4m/acres over last year; with yields of 181.5bu/acre and output rising to 383mt (15.085bn/bu) in 2023/24; with feed/food/seed use higher 179mt, ethanol lower at 133mt based on flat fuel consumption and exports of 56mt.

The US Farm Futures Survey in March, found that farmers are opting for more drought-resistant crops this spring as depleted soil moisture levels present a substantial challenge, especially in the

Central Plains, for the upcoming growing season. Steep input costs are a key element that determine decisions on acreage. The survey pegged US corn at 87.7m/acres, loosing acres to soybeans; while for sorghum acreage was boosted to 8.5m/acres.

SHARP FALL IN DEMAND IN 2022/23

USDA forecast global coarse grain output to fall by 62mt to 1.44bn/t in 2022/23. Dramatic fall in demand for coarse grains, as a number of countries grapple with ongoing economic challenges, lower supplies and higher world market prices. Tight supplies and higher prices for coarse grains saw demand fall by 42mt to 1.45bn/t — feed use 892mt and food/seed/industry 558mt, with trade at 220mt. Tighter stocks of 322mt (World 114mt, China 208mt) are forecast by the end of 2022/23.

RECORD CORN CROP IN BRAZIL IN 2022/23

Despite a record corn crop in Brazil projected at 125mt, global corn production is forecast lower at 1.15bn/t in 2022/23, offset by a weather-reduced crop in the US 349mt, drought in Argentina c.33-36mt (USDA 40mt) and Ukraine 27mt. Rising inflation and energy costs muted demand for corn; feed use fell by over 22mt to 749mt; food/industry fell by 24mt to 429mt.

CORN TRADE 14MT LOWER IN 2022/23

USDA pegs Ukraine’s corn exports at 23.5mt, Argentina 29mt, Brazil expected to export a record 52mt and the US 49mt. Ongoing financial challenges and higher market prices pressured trade with global corn exports expected to fall from 194mt to 180mt in 2022/23.

CHINA CORN IMPORTS FALL IN 2022/23

China’s buying spree of US corn recently hit 2.65mt in March’23 improving firm prices for old crop. China’s large domestic corn harvest is forecast at 277mt with imports expected to be lower for corn 18mt, barley 9mt and sorghum 5mt this season. Despite efforts to rebuild China’s pig herd recent reports suggest African Swine Fever (ASF), is again taking a hold especially in the northern regions of China, but also in other areas.

MEXICO’S BAN ON GM CORN IN 2024

Over three years ago, Mexico introduced a ban on GM corn in Mexican diets and an end to the use of herbicide glyphosate, to take effect by 31 January 2024. Mexico imports large quantities of corn from the US; 90% of US corn will be GM. If the ban goes ahead in 2024 it would affect the US and other key exporters who trade with Mexico. US domestic growers and a broad coalition of national/state agriculture/ bioscience organizations, lobbied US government officials to request formal trade consultations as the first step in a process that could lead to the US bringing a formal dispute against Mexico. The parties must meet to discuss the issue within 30 days, and, if the talks are not successful, the US could turn to a separate dispute settlement procedure under the trade agreement.

TIGHT CORN STOCKS IN 2022/23

Global corn stocks are forecast at 296mt (world 89mt, China 207mt) with major exporter stocks lower at 54mt.

Sharp Fall In Corn Triggers Demand

Chicago corn futures fell on concerns over the banking sector and news that Russia proposed extending the BSGI for 60 days instead of 120 days. Falling Chicago corn prices stokes Asian demand-South Korea’s Major Feedmill Group (MFG) purchased c.135,000/t of feed corn in two consignments in an international tender (14 March 2023) — c.66,000/t bought from trading house Cargill-premium of $244.87/bu over the Chicago September 2023 corn contract — plus a $1.50/t surcharge for additional port unloadingAugust delivery. Second consignment c.69,000/t sourced from optional originsbought at outright price c.$309.85/t C&F from Al Ghurair plus a $1.50/t surcharge for port unloading-June/July delivery.

INCREASED BARLEY OUTPUT IN 2022/3

Global barley production is forecast at 152mt due to higher yields in Canada, Russia and Turkey offsetting the impact of small reduction in the EU’s production. Australia produced a near record crop of barley 14.1mt due to mostly good weather conditions and exceptional yields. A smaller global sorghum crop at 58mt primarily due to lower area and output in the US 4.8mt.

US SOYBEAN ACREAGE PROJECTED AT 87.5M/HA IN 2023/24

USDA project US farmers will plant soybeans this year on 87.5m acres, similar to last year; assuming average yields, implies a production of c.125mt. USDA pegs soybean acreage at 87.77m/acres with production at c.123mt — well below market expectations for a much larger shift to soybeans.

RECORD -HIGH OILSEED OUTPUT IN 2022/23

Despite a much-reduced soybean output in Argentina, global oilseed production is projected at record-high 630mt, boosted by a huge soybean crop and better crops for rapeseed, palm kernel and cottonseed; with smaller crops for sunflower seed, groundnuts and copra. Favourable crushing margins increased meal output for animal feed 350mt and oil-driven by renewable diesel and food rising to 213mt. Global trade forecast higher at 200mt with stocks marginally lower at 117mt.

Brazil On Track For Record 153mt

SOY CROP

Global soybean production for 2022/23 is forecast at a bumper 375mt. The US crop was trimmed to 116mt due to dry conditions; a record crop is anticipated in Brazil c.153mt and in Paraguay 10mt. Harvest pace has been slower in Brazil this season hampered by heavy rains in key growing regions areas and slowed the movement of soybeans to ports. The drought in Argentina, severely cut soybean output. The Rosario Board of Trade and Buenos Aires Grain Exchange cut their projections mid-March for Argentina's 2022/23 soybean crop to multi-year lows of 27mt and 29mt respectively; other analysts suggest the soybean crop could be in the low 20s, well-below USDA’s current estimate of 33mt.

ARGENTINA EXPECTED TO IMPORT 7.3MT IN 2022/23

Tight domestic soybean supplies in Argentina will require imports expected to rise to 7.3mt, to take advantage of falling prices in Brazil and Paraguay. Argentina’s smaller crop should also support crush margins in North America and Europe.

RECORD RAPESEED CROP IN 2022/23

May — with nearby demand commitments mostly covered, there is no rush for fresh Brazilian cargoes.

While, domestic crushers in Brazil covered requirements until mid-May. Soybean prices in Brazil fell in March due to record harvest, slack demand and the prospect of a large US crop in 2023/24.

SPIKE IN AFRICAN SWINE FEVER (ASF) IN CHINA

producers of pigs.

“The outbreak was pretty severe in January and February, especially in the northern producing regions, and some areas are still battling the disease”, said Pan Chenjun, a senior analyst at Rabobank. She estimates that the latest wave has affected 10% of the nationwide sow herd, which controls hog production, and will lead to higher prices in the coming months.

Rapeseed prices are easing in response to a record global crop of 86mt with output increasing in Canada 19mt, the EU 19.5mt and Australia 8.3mt. Rising global rapeseed supply is expected to weigh on prices leading to reduced plantings in Australia and lower yields in 2023/24.

Renewable Diesel Expands Use For Soybeans

The US appetite for soybeans continues to expand as more crush plants come online to process soybean oil into renewable diesel. USDA is projecting soybean crush to top 2.3bn/bu as renewable diesel production expands. Three large plants are planned for North Dakota — 42.5m/bu plant near Casselton, 53m/bu facility at Spiritwood and a 42m/bu plant north of Grand Forks.

Spot Demand Muted In Brazil

Spot demand for soybeans in overseas markets and in Brazil’s domestic market in March has been muted. In China, soybean meal prices have fallen and crush margins turned negative-minus $9.90mt in some areas. Chinese importers are said to have secured all their soybean needs for March, 75% for April and slightly above 50% for

The exit from China’s Zero-Covid policy last year set the scene for improving economic conditions as well as the anticipated revival of the hotel, restaurant, and institutional (HRI) sector supporting rising consumption. Despite an upward revision for China’s pork production in 2023, domestic supplies are virtually unchanged year-on-year and are unlikely to fully meet rebounding consumption.

News that ASF is again spreading through the Chinese pig herd in key provinces, Shandong, Hebei, Henan, farms in north east China and Shanxi where the cull is significant. Northern provinces like Shandong and Hebei are among the top

Weak Pig Prices On Rising Cull

Chinese pig prices have hovered around 15 yuan ($2.18) per kilogramme since late last year, pressured by weak demand and excess supply. Large losses encouraged many farmers to downsize herds in the winter, which pushed up slaughter volumes. “We continue to believe the low China hog price is due to many pigs going to slaughter at any weight due to ASF breaks,” according to Jim Long, chief executive of Canadian genetics company Genesus. China increased its meat imports with further large pork imports from the US through Jan/Feb ‘23 of 380,000/t — a significant increase over last year.