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Changing Trade flows
Stuart Richardson
McDonald Pelz Global Commodities LLC
AGIC July 2011
July 26, 2010
Stuart Richardson
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Wheat 2011/12
July 27, 2011 2
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Corn SND Update
July 27, 2011 3
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Global Oilseeds 2011/12
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China influences
• Strong growth forecast to continue
July 27, 2011 5
SR1
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Slide 5
SR1 Stuart Richardson, 10/07/2011
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Example;China: All of the Growth In Soybean Import Demand
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China: All of the Growth In Soybean Import Demand
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China’s Corn Imports: Economics Or Policy
Over 1 MMT of U.S. purchases
$/MTU.S. Exports
TMT
Source USDA Outlook Conf 2011
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FSU continues to emerge as significant
exporter of cereals...
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Significant market impacts
July 27, 2011 10
Russian
Drought 2010
Exports
Back again
Russian
drought
2010
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FSU Wheat Exports grow
July 27, 2011 11
Source PSD Online
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FSU milling wheat
• Milling and feed grade move to Med/EU/North Africa
• Middle East markets – Egypt, Persian Gulf
• Maybe 20% inclusion into Asia possible based on price
– Feed wheat into Korea and Philippines
– 11.5% protein competes against APW
• Price dependent
• Quality concerns – can it remain cheap enough to buy demand.
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Price impacts on trade flows
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US Ethanol demand
United States ForeignMMT MMT
Source USDA outlook conference 2011
U.S. Corn Production Responds to Ethanol, Foreign Production Responds to Growing Feed Demand
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Other factors – Funds?
July 27, 201115
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US carry charges - VSR
Return
incentive to
store wheat
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US carry charges - VSR
• “The concept is designed to improve cash-futures convergence at futures contract expiration”. CME website "An
introduction to variable storage rate in wheat futures" 2009.
• Volatility likely to continue – US is residual supplier
• If Natural demand for SRW – Latin America
– GASC!!
– China?
• Hedging – opportunity or necessity?
• Incentive to store grain.
• Stimulus to invest in storage– New capital from funds?
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So how is Aussie going....
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Australian Wheat Bulk shipment pace
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Aussie wheat (bulk) exports
2008/09 to 2010/11
Source Own data
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How is Aussie competing?
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Increasing competition to secure
demand
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Whats coming....
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Canada – Wheat and barley
deregulation 2012
• Conservative government has majority
• Agenda in place for 2012 deregulation
• Fall 2011 intro of legislation
• But there is resistance.......
• Talk of Plebiscite for all growers by CWB
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CN Network
Canada – deregulation 2012
• Likely impacts;
– Canadian wheat flows to Northern US
• Natural flow to demand
• Increases US Supply
– Evolution of business models in market
• Traders increase
• Origination strategies – choices for the grower
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Canada opening up• Our view
– More Canadian wheat into US
• Increase from 500kt to ~2.0Mmt
– Strong competitor to US grades
• Growers experiment with new wheat classes (mid-pro)
• Generic North American grades
• NS/HRW/Soft wheat
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Canada opening up– Competition for logistics capacity
will increase.• Wheat
• Barley
• Canola
• Pulses
– Direct control of logistics task may see efficiency increase
• No more grade mismatches to demand
• Add 2-4mmt of capacity p.a.
– Investment in domestic milling and malting
– Canadian wheat “on the market”
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CN Network
Source CWB website
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Historical Canadian Wheat exports
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Impact of Canadian wheat dereg;• Similar themes to Australian since 2008
– Growers will see many buyers• CWB controlled cash buying so far
• CWB has also controlled the domestic market for wheat
– Elevation capacity has value• Competitive elevator market on prairies for volume
– Port control has value• Elevators are privately owned – easy transition.
• Blending increases
– Multiple buyers marketing grain • Market share strategies?
– Grain buys demand when it needs to.
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Conclusions
• We use the US for global price discovery – but is this true in the future
• “New origins” adding competition –– North America morphs into one large supply
– Black Sea supply
• Do alternate markets like ASX develop become proxy’s for transparent market?
• Volatility – Funds have cash may look to extend investment
strategies
– Basis volatility remains strong.
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The end
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Conclusions
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People are going to bring different business models to
the market
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$15 - 35Country Silo-Handling-Cleaning-Drying-Storage-Blending
$5-8
Country Logistics-Trucks-Rails-Barges-Insurance
-$10 - $2?
Port Silo-Handling-Blending-Storage
$4-8
Origination margins Distribution marginsOcean Freight
Port Silo-Handling-Blending-Storage
Customer Distribution-Parcel size-Logistics-Risk Mgmt Advice-Finance
$1-2
Sea Freight
$4-8 $2-8
Farm Relation-Finance-Risk Mgmt
$ ?
Domestic originator – to FOB
Eg, Pools, BHC, Domestic trader
CFR sales
Multi-National
Growers/Track to CFR, including finance and freight
Grower
financing
options
Sometimes distribution strategies;
Port assets, Financing, CMA, incountry
demand assets (eg crush or processing)
Destination specialistMay operate
from FOB
FOB to CFR trader
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Supply continues to hit the market
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July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June
Source USDA WASDE
Black Sea
Winter and Spring
87Mmt (R/U/K)
Europe
Winter
132Mmt
Canada - 25Mmt
USA
Winter and Spring
56MmtArgy - 15mmt
Aussie - 25Mmt
300mmt Wheat supply
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Canada competes with Aussie
• Hard wheats
• Softer style
wheat
• Durum
• Feed wheat