WORLD FEED & GRAIN MARKET REVIEW

by John Buckley

China using more maize, India’s consumption growth rate more than halving (it frequently seems to get over-estimated). It’s not an impressive result during an era of unusually cheap wheat (in inflationweighted terms if not always in importers’ national currencies versus the US dollar, in which most grain is traded). Moreover, imports, the arena in which world prices are tested and ‘made,’ are hardly growing at all, thanks in large part to India’s growing selfsufficiency.

RUSSIAN WHEAT MARKET DOMINANCE GROWS Two opposing forces have fought for supremacy over world wheat market direction at the turn of the year, making for a more volatile but broadly firmer market. One has been a Polar blast – extreme cold but not accompanied by adequate snow protection, threatening unusual levels of ‘winterkill’ for an already drought-stressed US (2018) winter wheat crop. The latter was sown on a significantly smaller area too. One recent estimate has plantings down 4.5 percent at 31.2m acres (12.62m ha), their lowest since 1909 although the latest official forecast on January 12 saw the drop not much over one percent - if still at a 99-year low of just 32.6m acres. In the previous two years, in response to a long period of low prices, US total wheat area had already slumped by 20.5 percent, according to USDA data. The opposing factor has been further increments made to Russia’s already record 2017 crop estimate – some officials now putting this as high as 85.8m tonnes compared with the USDA’s December forecast of 83m and last year’s 72.5m tonnes. USDA more or less came into line with an 85m tonne update in its January monthlies. Russia’s farm minister meanwhile suggested next year’s crop might even beat this year’s record volume. It might be remembered that, at the start of this season, the Russian harvest was expected to reach just 67m tonnes. It suggests Russian exports could expand a lot further than the 33.5m tonnes (+5.7m) forecast by the USDA – some say closer to 40m tonnes. The popular view has been that exports will still be restrained by limitations on Russian transport and port systems well below that figure. Yet Russia is making strenuous efforts to overcome these shortcomings and is constantly breaking records for export grain handling. In November it raised wheat exports by 48 percent on the month to 4.2m tonnes and for the season to that point had so far shipped over 17m tonnes (+29%), selling more to its traditional customers as well as breaking into some new markets in competition with other exporters, not least the EU. It has, for example, dominated sales to the largest wheat importer Egypt, pushing out all but a few sales from main rivals Ukraine and Rumania. Russia’s deputy farm minister meanwhile reports a planned 50 percent increase in grain export capacity within three years. Based on this autumn’s sowings and weather so far, Russia could have another big crop on the way for 2018 – provided it avoids a late Arctic blast or the sort of summer droughts and heat-waves that slashed its contribution earlier this decade and in the previous one, when world prices reached record high levels – albeit alongside some major crop losses in other wheat producing countries too. If Russia is to be the biggest influence on world wheat prices in 2018, then, it will probably be in a downward direction, especially on a world market burdened already with record surplus stocks (In which Russia itself is a factor, expected to see its inventories rise sharply for a second season running in 2017/18). Turning back to the uncertain US crop outlook for 2018, yield losses are by no means certain at this stage. Wheat, as a grass, is a tough old plant that can bounce back surprisingly well from tough winter conditions, given adequate moisture and normal spring weather. There have been many past years when the threat of frost damage to the US crop has temporarily lifted prices, only for them to fall back when the crop emerges from dormancy. A similar situation has been seen across the globe in China, where winter droughts often get the bulls agitated but are usually sorted out by rain coming on time in the spring. Along with China, the US has also been a major contributor to growth of global carryover stocks. From 2014 to 2017 these doubled to 32m tonnes – a number that has continued to keep prices in the US pinned down – so could do with some trimming

100 | February 2018 - Milling and Grain