MARKETS OUTLOOK Crop weather scares receding

by John Buckley

“Demand for US soya will rise somewhat from domestic crushers while exports will probably slip under intense competition from the Latin American suppliers. At this stage, the outcome is expected to be substantial growth in US surplus stocks, from under 7m to about 11.5m tonnes”

76 | Milling and Grain

GRAIN and oilseed markets saw a surprise but, in the event, unsustainable run-up in prices during the period since our last review. Mostly this hump in costs was due to crop weather scares and funds making the most of these in hope of an easy profit. Many of these events were probably over-played, trading off uncertainties rather than major crop damage – so are now receding in importance. That said, one or two key questions still need to be resolved, notably the final size of maize and soya planted acreages in the USA, the world’s largest grain and oilseed producing country. There is also an unusually wide range of US yield forecasts for both crops. Markets also need to see the outcome of a European heat-wave, already trimming millions of tonnes off the maize crop, some changeable conditions at the tail end of an already weather-challenging season in Russia and Ukraine and, not least, the extent to which drought has reduced Canada’s wheat, durum and canola crops. All of these factors have the potential to disturb prices further in coming weeks. However, there are also some important-price restraining factors at work on both the supply and demand side of the ledger. For the wheat market, these are led by better than expected crops (so far) in Europe and the Black Sea region (Russia, Ukraine, Kazakhstan) and, perhaps even more importantly, the USDA’s decision to make a big downward revision in its Chinese consumption forecasts (down 6m tonnes for 2014/15 and another 5m for 2015/16). The latter changes along with one or two other reassessments, have resulted in the USDA adding a hefty 16.5m tonnes to its forecast for global wheat ending stocks for 2015/16 (ends next June 30). Because these are inside China, these stocks are effectively ‘off-market.’ They might also be considered a slightly academic number, based on as many ‘guesstimates’ as facts. Nonetheless, they do put a slacker slant on the global wheat supply situation and, if these really are anywhere near correct, they will have some influence on China’s maize consumption and import needs. For maize and soyabeans, which we count with wheat as the three main market movers, there are some some further bearish developments, led by larger than expected South American crops. Looking at what’s emerging from local/national sources, some of these Lat-Am numbers are probably still being under-estimated by the USDA - and other ‘official’ analysts – both for the 2014/125 season nearing completion (August 31) and for the new 2015/16 marketing year . Assuming the weather doesn’t suddenly turn nasty for the second half of the Northern Hemisphere wheat harvest – or the remainder of our maize/soya growing season, the outlook remains much as we summed it up in our last issue: another year of large production, backed by comfortable (mostly larger than average) carry-in stocks from last year. That ample supply, moreover is set against no more than moderate growth of global demand. Without a fresh weather scare ( and it would have to be a big one coming sooner than later for now rapidly maturing crops) there is nothing much here to excite the speculator into another round of betting on grain price rises. Indeed, one or two of the banks that like to forecast agricultural market price trends are estimating grain values will fall below the levels indicated by the forward futures price ‘curve.’ At this stage, it’s hard to disagree with that. Wheat stocks to stay high Apart from the larger Chinese wheat stocks mentioned above (estimated to cover about 40% of world supplies), inventories are looking pretty comfortable in some of the market-influencing centres too. The EU is reckoned to carry in about 14/15m tonnes this year and, assuming a crop somewhere around the 146/148m tonne level, it will leave 2015/16 with a similarly large ending stock. This assumes the EU consumes something close to last year’s volume of wheat, say around 124m tonnes, and again exports about 31m (which would be its third largest achievement, comfortable keeping Europe in the role of world’s leading exporter). US wheat output, despite a number of weather problems, is expected to rise by about 3.3m tones to 58.5m. Allowing for say 2/2.5m more domestic consumption, it can still export (if it can find enough markets for its relatively expensive grain) about 3.5m tonnes more than last