Weird grain trade flows arise

Weird grain trade flows arise

Agribusiness
LOW: The International Grains Council estimates the 2020-21 ending stocks for grains globally is expected to be the lowest in five years. Photo: SHUTTERSTOCK

LOW: The International Grains Council estimates the 2020-21 ending stocks for grains globally is expected to be the lowest in five years. Photo: SHUTTERSTOCK

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As seeders begin to pull into paddocks across the southern Australia cropping zone, spring has sprung in many cropping regions globally. Wheat is starting to...

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As seeders begin to pull into paddocks across the southern Australia cropping zone, spring has sprung in many cropping regions globally.

Wheat is starting to form heads and fill and sowing ramps up for key spring crops, corn and soybeans in the northern hemisphere.

In this period of the year, uncertainty around production tends to creep into global markets, as weather becomes a key driver in thinking about supply of grain for the next 12 months.

What we've seen in the past few weeks is just how volatile global markets can be and how they can impact our pricing at a local level.

Just recently, we have seen canola reach the highest values since 2008, when a global drought severely reduced the availability of oilseed stocks worldwide.

Wheat values have also been pushed higher, offering growers opportunities to manage price risks at above decile 9 numbers across port zones.

In this period, many of the futures markets have experienced backwardation, whereby old crop values are trading at a premium to new crop.

This indicates concerns about the availability of stocks now, rather than into next year.

This has led to some weird trade flows being exposed throughout the past few months and causing usually self-sufficient countries to have to turn to imports.

One of these such trade flows, and potentially the most unusual, is Canada.

Canada is the world's largest producer and exporter of canola globally, with 90 per cent of what is produced hitting the export market.

The tightness of the oilseed balance sheet globally and an increase in the consumption of vegetable oils has meant stocks have contracted by large volumes.

This has led to a shortage of old crop canola in Canada and meant Canada has had to import rapeseed from the Ukraine.

This is the equivalent of Australia importing wheat - extremely rare.

France, too, is not immune.

Last year was not great for wheat production out of France.

First, conditions were too wet, then too mild, leading to pest outbreaks, and then too dry.

France is generally considered one of the largest wheat producers in the European Union and this shortfall in production means the country is having to import wheat from Romania.

Again, a trade flow considered rare when France generally exports a majority of the wheat it produces.

The issue that global trade is coming across is all to do with stocks.

The International Grains Council estimates the 2020-21 ending stocks for grains globally is expected to be the lowest in five years.

The majority of this drawdown in stocks revolves around corn usage.

Corn will be at the lowest global stocks in eight years, while wheat stocks are likely to end at record levels.

Interestingly, the main factor supporting wheat values, presently, is a rally in the corn numbers in the overseas futures markets.

Typically, corn will trade at a discount to wheat and be used as the primary feed component of many stock feed rations globally.

At this time, corn is pricing itself out of rations as it approaches wheat values.

This is being driven by tightening corn stocks, with competing end users into millers and ethanol producers, and increasing issues around production.

The key area of concern and the main driver of recent corn movements on the futures markets is the safrinha corn crop in Brazil, which accounts for about two-thirds of Brazil's annual corn production.

Corn is very susceptible to heat or moisture stress events at flowering and grain fill, conditions which are presently being felt in Brazil.

This will be key to watch as corn is likely to continue to drag wheat up.

All that is for certain is that for the next few weeks, while there is uncertainty around crop conditions and weather forecasts, the volatility seen in April will continue.

Going back to our key marketing principles about not panicking when the market does, should underpin our decision-making on grain sales.

Hold on for the ride, because the trade sure do like to make it a bumpy one.

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