Another reason for this assumption is Russia’s recent return as a major export seller. In the past month it has felt confident enough about its own crop prospects – and the large stocks it is carrying into the new sason – to drop its controversial export tax (imposed when exports seemed to be draining internal supplies too quickly at a time of crop uncertainty). Russia has already stepped in to sell new crop wheat at cheap prices to Asia customers and will doubtless soon be competing hard for the markets most contested with other suppliers around the Middle East/North Africa (MENA) region. EU and other exporters are already concerned that, along with cheap Ukrainian offers, this will push down the price at which they can expect to trade overseas and, in turn, what producers will get for wheat on the domestic EU markets. World wheat consumption is not expected to grow much in 2015/16, according to the USDA forecasts – less than 0.2% after this season’s 1.7% and the previous year’s 3.6%, as booms in European and Chinese demand taper off. That suggests world stocks will increase again from an already large 201m to over 203m tonnes - a 28%-plus stocks/use ratio that is hardly constructive for wheat bulls. CBOT wheat futures do show price premiums going forward of 8-10% but the EU futures market is
pressed to offer more than about 3% (spring 2017, rising to 6% into the following year. Europe’s own what crop is expectd to drop by about 6m tonnes this year which, even with consumption at a relatively buoyant 123.5m and exports again at the heady 30m-tonne-plus level will leave the Union with large seasonal ending stocks in mid-2016. Provided crops perform as advertised, none of this supports significantly higher raw material costs going forward. However, with returns from growing wheat remaining low in comparison with production costs, farmers in many countries may justifiably continue to grumble about whether it’s worth growing the crop. 78 | Milling and Grain
PROTEINS – where will all the soya go? After a record three-year boom in production, world soya crops had been expected to decline in the coming 2015/16 season as farmers reduced area and yields deflated from the past year’s unusually high levels. However, the USDA’s first take on the new crop balance now suggests otherwise, pitching the world crop at 317m tonnes – level with the past season’s record output. Even that may under-estimate the eventual out-turn if the USDA, as many private US analysts suggest, is under-sating US planted acres at 84.6m. Some of these other estimates ar 1m or more acres higher still. Moreover, the USDA is looking for a fall in average US yields to 46bu/acre from last year’s record 47.8bu. A month or two back that seemed a reasonable suggestion. But the US crop has been sown far earlier than usual and is currently in better condition than at this time last year. With no immediate weather threat (even the dreaded El Nino phenomenon can actually be quite beneficial to US crops in terms of preventing droughts and heatwaves), it’s quite possible that the US will have an above trend yield again and a crop not far off last year’s record 108m tonnes. Moreover, Latin American soya crop forecasts for the 2014/15 season (still finishing harvests as we go to press) are still rising. For the two main suppliers, Brazil and Argentina, some local observers have these as much as 3m to 4m tonnes over the USDA’s total 153m tonnes. Even without that extra supply, these two producers are expected to finish the 2014/15 season with record high stocks of about 57m tonnes. This buildup resulted not only from their record large crops but from farmers holding back supplies as a hedge against inflation and collapsing local currencies. Both Brazil and Argentina have also been beset with labour problems affecting transport to ports, loading onto ships and crushing at port mills to supply soya meal export markets. The threat to export execution has dissuaded some foreign customers from getting as committed as they might to Latin American soya purchases until these problems are sorted out, diverting more late season demand to US suppliers. While that has helped the US enjoy a bumper period of soyabean exports (and crush for meal exports) the largest supplier will still have about 9.5m tonnes of soyabeans on hand at the end of its own season in September against just 2.5m last year. Going into 2015/16 season, then, the world will have about 85.5m tonnes (maybe more, if Lat-Am crops are revised up). That’s quite a supply cushion against any weather upsets to the 2015/16 crops. One surprise in the USDA’s new crop forecasts is the even bigger (new record) harvest it expects for Brazil (in early 2016) – despite a lengthy period of economic stress during which crop finance was expected to b a prim casualty. This is currently seen at 97m tonnes versus this year’s 94.5m. Although Argentine output is expected to retreat a little, world supplies – new production plus stocks - will be about 20m tonnes bigger than last year’s already massive 380m. The bounty goes on as, based on the USDA’s crush forecast for 2015/16 (266m tonnes), global soyabean carryover stocks (into 2017/18) will expand yet again to 96m – equal to a normal whole year’s production from the US or Brazil. Global demand for soya meal is seen growing next season by about 5% or 10-11m tonne, led by China (+3m) and Europe (+1m). Clearly the raw material supply is there to cater for far larger growth than this.