Global cereals and oilseeds markets will be affected by a large US soya crop and a world surplus of vegetable oils, advised speakers at this week’s AHDB Grains Outlook conference in London.
Opening speaker was Dr Seth Meyer, who chairs the USDA World Agricultural Outlook Board that oversees the Department’s monthly World Agricultural Supply and Demand Estimates (WASDE) reports.
Dr Meyer said that large soya and corn crops in addition to President Trump’s trade dispute with China are disrupting traditional farm commodity trade flows and pricing, and this is likely to affect growers’ planting intentions for 2019.
China’s imposition of tariffs on US soyabean imports in retaliation to US tariffs on its steel has “broken the just-in-time soybean distribution chain from the US to China”. As a result, China is seeking to reduce its dependence on imported soya – although this can’t happen overnight – and source its beans from alternative origins – particularly Argentina and Brazil.
But this has led to US beans being shipped to Argentina to feed its crushing plants. With a large soya harvest underway in the US – despite some weather delays and consequent quality concerns – the US is looking to Europe and elsewhere to make up its export volumes denied access to China.
Already, a $95/tonne differential between South American and US soyabeans has opened up, and Dr Meyer advised that this is an incentive for soya growers in Argentina and Brazil to plant more of the crop.
Conversely, pressure on US soya prices will be making farmers there consider alternatives next spring. The question is whether they opt for more wheat or corn, and what effect this will have on 2019 global markets for these commodities.
China’s livestock industry is dependent on imported feed grains as well as proteins, although it is hard to tell at this stage of the marketing year what proportions of wheat, corn and sorghum will be bought.
Dr Meyer said the next four months will be critical. “China needs US beans, wherever it obtains them and the US needs to export its record harvest – it is difficult to predict how this will resolve itself.”
African Swine Fever in China is another issue adding to uncertainty. There have been over 30 outbreaks in the north east of the country, with movement restrictions causing problems and lower prices. The latest case in a 20,000 animal unit is especially worrying, as such intensive units should have better biosecurity procedures in place. As the disease reduces pig numbers and productivity, it could have a significant effect on feed material demand if it becomes established.
Other factors influencing world trade patterns include the pace of Russia’s wheat exports, which have helped offset Europe’s shortage so far, but Dr Meyer doubted whether Russia could sustain these export volumes for the whole marketing year without affecting domestic consumers. Similarly Argentina might be tempted to impose a soybean export tax to keep its own crushing plants supplied; while Brazil’s exports could again be constrained by the inadequacies of its port infrastructure and logistics problems such as the last year’s transport strike.
A tight 2018/19 global oilseed rape market is likely to be more than offset by a world surplus in all vegetable oils, Rabobank commodity analyst Charles Clack told delegates at the conference.
He noted that smaller crops in Australia, Canada and the Ukraine had contributed to a 9% fall in the volume of rapeseed available for export. But demand is rising, particularly in the EU and China.
The 2018 EU oilseed rape harvest, provisionally estimated at 19-20 million tonnes, is at an 18 year low for the crop. It leaves a 4.5m tonne shortfall in the EU to be made up by imports. But China is seeking alternative feed proteins to replace US soybeans in the wake of the tariff dispute, with its rapeseed imports forecast to rise 11% in 2018/19.
“Such a backdrop would usually see the oilseed futures market on fire,” stated Mr Clack. “But this time, world surpluses of soya and palm oil are capping the rise in oilseed rape values.”
He explained that a record South American soybean crop of 193m tonnes, with a large US harvest also underway is weighing on the market. At the same time, a 4.5% increase to 73m tonnes in global palm oil production is expected, while consumption is predicted to only rise by 5.1% to 67m tonnes.
“So, for the third successive year, the combined volume of global vegetable oils is building faster than the rate of consumption, acting as a ceiling on EU oilseed rape values.”
Mr Clack said that the narrowing of the EU wheat: rapeseed price differential may have persuaded more farmers to grow cereals at the expense of oilseeds, so 2019 production could also be down. He expected EU oilseed rape values will gradually trend higher across the rest of the marketing year, “but with the upside limited by heavy and competitive vegetable oil supplies”.