The IGC envisaged that, with tighter supplies and sustained consumption growth, there will likely be another stocks contraction, to the smallest in four seasons.
The outlook for soybean trade in 2018/19 is cut to reflect a likely fall in China’s purchases. Nevertheless, global soybean volumes could still expand to a new peak as other buyers secure more, according to the IGC publication.
We caught up with Amy Reynolds, senior economist at IGC, to get a deeper dive on market dynamics.
“We have had a few years where grain crops have done pretty well and hit record levels, but this season we have seen a few more issues.”
Wheat
Expectations are that crops in North America will be fairly good but it is not yet certain. There are some doubts about the spring wheat prospects in both the US and Canada, she said.
“The USDA had been predicting some pretty good conditions for the US spring wheat but in the Northern Plains last week, a crop tour pointed to below average yields.”
Maize prospects in the US are still pretty good but it is still very dependent on the weather and there are a few weather related concerns for that crop as well, she added.
Going into the Southern Hemisphere, everybody is waiting to see what will happen in Australia, she said.
"There are some wide ranging numbers for the wheat harvest, from 15m to 20m tons.”
It can be a bit of a challenge at this time of year to make an accurate estimate, acknowledged Reynolds.
However, it has been very dry in Australia, she continued.
“Going back a few years ago the expectations had been for a dreadful crop in Australia and it turned out to be pretty decent. The indications, though, that we are getting at the moment is that things are going backwards, rather than in the other direction. I think it would be fair to say that conditions for crops have been sub-optimal in Australia this season.”
The IGC report also downgraded the outlook for feed wheat use.
“We don’t forecast prices at IGC, but we have to recognize that the general outlook for grain supplies is tighter this season. There is potentially an upward bias on price levels in terms of feed demand. It obviously depends on relative prices between the various crops. It is tight for wheat, but also for maize.”
Maize
Indeed, she said the IGC expects quite a sizeable drawdown for global maize stocks for the 2018-19 season.
“The drawdown is accelerating – we have seen a lot of that in China over the past year, with efforts to reduce inventory burdens, and local stimulation of industrial use. But it is not just in China; maize stocks are coming down in major exporters as well. Production levels can’t keep pace with feed and industrial use demand,” she said.
That drawdown is happening in the US as well, which perhaps has a wider implication for the wider market.
“We are talking about maize ending stocks in the US at the end of 2018-19 season at around 38m tons, and that is down from 52m tons at the end of 2017-18. The US maize ending stocks may well be at their lowest since 2012-2013.”
In terms of barley, global ending stocks are predicted to be at their lowest for a quarter of a century, she added.
“It is going to be interesting to see how those price relationships develop.”
Picture is still not clear
But uncertainty is the buzzword in terms of market analysis right now.
“We are plugging in numbers into our balance sheets without having a clear picture of how things are going to pan out, partly because we don’t know exactly what the size of the crops are but also because we don’t know some of the quality implications as well.”
Regarding trade disputes, if this situation is not resolved soon there will likely be implications for soybeans, but there has been little impact, so far, on the grains market, she said.
Moreover, in the last week or so, people have been focusing less, though, on trade disputes and more on supply and demand with the realization now that the world is less awash with grains, a development not seen for many years, noted Reynolds.
What happens now?
“We had grown quite comfortable with the idea that there were record levels of production, record levels of consumption, and trade growing to record levels, so what happens now? Is there going to be some demand rationing, something we have not seen for a while.
"There is clearly going to have to be some relative price movements between the major exporters. Looking at export availabilities in some of the major players, price relationships are going to have to change if the current levels of demand are going to be met. The Black Sea region is still picking up a lot of demand but if the crop numbers pan out as we think they are going to do, then that cannot go on … prices at exporters are going to have to move to competitive levels, whether that is Black Sea prices moving up…”
Soybeans
Stock levels, in terms of oilseeds, are “comfortable”, said the analyst.
“Demand is large and growing quickly and global crops of oilseeds still need to continue rising. We are suggesting that probably the pace of increase won’t be as quick as it has been in recent years but they are still rising to record levels. That is not necessarily a situation that is going to change, so when you put that against an outlook for tightening grain supplies, there are going to be some interesting decisions for farmers to make when it comes to planting time in some countries. [The question is] demand is growing so what are your crop choices going to be?
The IGC expects that soybean production in 2018-19 will reach record levels.
“We are looking at growth of 6% but a lot of that depends on South American crops. Argentina did not have a great crop in 2017-2018, but we have penciled in a 44% increase for 2018-2019, which sounds like a lot, but it is basically just putting output close to where it would normally be. In Brazil, we have an outlook for a record 2018-2019 soybean harvest. And, at this point, while it is not easy to get a good handle on it, we are looking at strong local prices in South America and local currency weakness and its potentially going to encourage farmers to plant more.”