MARKET WATCH• WEATHER: DRY

CONDITIONS AND HIGH TEMPERATURES RETURN TO ARGENTINA

• CEREALS: COLD WEATHER ARRIVES IN RUSSIA

• OILSEED COMPLEX: PALM OIL IS AT AN 8-YEAR HIGH IN KUALA LUMPUR

• BULLISH TREND ON EURONEXT

• THE STOCK MARKETS WELCOME THE ELECTION OF JOE BIDEN IN THE USA

NEWS

WEEKLY TRENDSWheat  Maize Rapeseed Sunflower Barley Meals

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ANALYSIS & COMMENTARYGRAINS ANALYSIS: Buoyed by extremely robust demand, the global wheat market is quite tight but any increase may now be slowed by Australia’s arrival on the market, provided that rain does not damage Australia’s crops any further. Europe’s wheat is still strongly supported by a balance sheet that looks set to be very tight at the end of the campaign. After a slight correction in late October, maize prices are starting to rise again. Like the global market, European and French prices are buoyant whilst their competitiveness is still noticeable. Barley’s fundamentals are gaining the upper hand over the current political and health situation which has so far curbed the cereal complex’s full potential for increase.

OILSEEDS ANALYSIS: Rapeseed is still split between the complex’s bullish fundamentals and the risk of lower demand for biodiesel. This is the only product in the complex, however, to hesitate about the direction to take, making it cheap when compared to other oils. This is because soya’s balance sheets are still tightening week after week, whilst China is still very much present in the buying arena. Reports of US imports into Brazil have also raised seed prices in Chicago. Delays with the sowings in South America risk lengthening the inter-harvest period in early spring. Lastly, and with regard to palm, the weather and smaller workforce are likely to limit production in the short term. In conclusion, the oilseed complex is still on a bullish trend.

ECONOMIC CLIMATETHE CENTRAL BANKS ARE SET TO ACT AGAINThe sharp increase in the number of coronavirus cases in Europe and the USA is threatening the sustainability of the economic recovery noted this summer. Global growth is likely to fall again during the fourth quarter 2020 with no certainty of a recovery early next year. In an attempt to stop the disease spreading, governments are being forced to take restrictive measures again which will put growth and national budgets under strain again. To cushion this second shock the central banks will have to act again, as the ECB and Federal Reserve implied at their most recent meetings. A new round of public debt purchasing by creating money will therefore allow gov-ernments to fund these new support measures. It just remains to be seen what the long-term consequences of such a policy will be... Even though this question is all the more important now given the amounts committed, it is not new as the central banks have now been providing non-conventional support in response to various crises for more than ten years.

GREENER AGRICULTURE IN THE USA?Joe Biden’s arrival in the White House next January will reshape US policy and procedures after President Trump’s four controversial years in office. The president-elect’s official agri-culture programme is decidedly in favour of a

FERTILISERSSTILL VERY LITTLE TRADEIt has been another quiet week on the fertiliser market. There has been very little trade and prices in the main exporters are falling slight-ly. Urea FOB Egypt has therefore fallen by $4.50/t to $249/t (this is the largest fall among the main exporters). Urea FOB Persian Gulf is therefore down slightly by $1.50/t to $262/t. Exporters are reluctant to seek more competitiveness as India’s recent call to tender has pro-vided good demand in the short term. Following its call to tender of 9 October, India has purchased from the Middle East, China, Indonesia, the Black Sea, Egypt and Malaysia. Demand for phosphates is slowing down in France and Europe but prices are underpinned by the inter-national context.

more environmentally friendly agricultural sector. The aim is for US agriculture to be the world’s first to achieve net zero carbon emissions which will also help create new sources of income for producers. Joe Biden’s plan for rural America seems to be geared towards facilitating farmers’ access to the carbon markets. The new administration will also have to address producers’ concerns about the effects of climate

change. With regard to biofuel, the production and promo-tion of ethanol and the next generation of biofuels feature in the next president’s programme. With over 20% of US agri-cultural production destined for export, Joe Biden wants to reconnect with a trade policy that is in line with the interests of US farmers. In this respect, future relations with China will be examined in great detail.

Source: Bertelsmann Stiftung

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GRAINS AND OILSEEDS

MARKET INSIGHTS & TRENDS

N°72 12 / NOVEMBER 2020

GERMANY: PROJECTED CHANGE IN GDP WITH A SECOND LOCKDOWN

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POLITICAL, ECONOMIC AND WEATHER UNCERTAINTYWhilst last week was noted for a large number of politi-cal and economic events, the next few days will be noted for some more fundamental considerations. Tuesday saw the publication of the USDA’s new report which featured numerous adjustments for wheat and maize. Generally speaking, tightness is still the order of the day at inter-national level. Europe’s wheat consumption is being con-firmed; on the one hand exports are extremely buoyant (particularly for France), and on the other there is an in-crease in the amount of wheat being used in feed because of the fall in the supply of maize. Good wheat exports are also noted in the USA – so good in fact that the country’s ending stocks are down. Argentina’s production is still suffering from the effects of drought whilst the start of the harvests in Australia could bring some pressure to bear on the global market. With regard to maize, the probable election of Joe Biden (the result is being challenged in the courts) could bring various changes. On the one hand, the ethanol sector may be less buoyant if the introduction of a general lockdown throughout the country leads to a sharp fall in demand; and on the other, China is already indicating that it would like to renegotiate the trade agreements signed at the end of the trade war now that a new team is in power. Furthermore, La Niña is still in the news. It is still delay-

ing the sowings in Argentina where 31% of the acreage has been sown against the usual 40% at this time of year. Lastly, and with regard to barley, after a slight correction caused mainly by political and sanitary uncertainty, feed barley has recently regained the stability we have seen over the last few weeks. It must be said that in addition to

the support from wheat, feed barley is benefiting from the Chinese government’s latest announcements about the ban on Australian crops. By announcing that it wants to tax imports of wheat from Australia, China is confirming its grievance with Australia which is of benefit to other sources.

FOCUS ON… ARGENTINA IS BEHIND SCHEDULE WITH ITS MAIZE SOWINGSAs at 5 November, Argentina had sown 30.9% of its estimated 6.3Mha maize acreage. This is a sharp fall and well below the five-year average which stands at 37% for this time of year. This delay is largely due to La Niña which has brought strong winds combined with temperatures that are higher than normal for the season to Argentina’s entire agricultural zone. This wave of drought conditions, which began several weeks ago, has hampered maize sowings. Rain in the east of the country in recent days has, however, eased the situation. Water reserves have been replenished which has improved crop condition and allowed the sowings to make progress in the provinces of Santa Fe and Buenos Aires. The west of the country, however, is still largely dry which must be monitored. La Niña is therefore one of the key factors for the 2020/2021 maize campaign.

Expiry Closes 09/11/2020 2-Week Variation

Euronext Wheat €/T December-20 209,25 +3,50March-21 208,25 +2,50

Euronext Maize €/T January-21 189,50 0March-21 188,50 -1,00

Chicago Wheat c$/bu December-20 597,50 -18,25March-21 605,50 -10,25

PROGRESS WITH MAIZE SOWINGS IN ARGENTINA BY WEEK (%)

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MAIZE GRAINGRAINS

OILSEEDS – STILL TIGHTIncrease is still the order of the day for oilseeds whilst the fundamentals are tightening week after week. With regard to soya, all eyes are fixed on South America. Old crop supply is dwindling and there is not enough for the local market, causing domestic prices to soar. To address this, the Brazilian government has lifted import duties, meaning that several ships from the USA are now expected in Brazil’s ports. Furthermore, conditions are still dry for the current campaign, increasing the concerns about the effects of La Niña. In Brazil, the sowings are mixed – although almost 83% complete in Mato Grosso (having made up some of their delay), they are only 7% complete in Rio Grande do Sul. Argentina’s sowings are also falling be-hind schedule and are only 4% complete.Global demand for soya is still particularly strong and export sales are still therefore equally buoyant: last week the total stood at 48.5Mt which represents 81% of the USDA’s target (the five-year average is around 50%). The US balance sheets are therefore likely to be revised in the USDA’s report on Tuesday 10 November. In this week of reports, the MPOB’s report is also like-ly to attract attention. Palm production is expected to have fallen whilst demand is still strong. Stocks are therefore likely to fall. Given the recent sharp increase in palm oil prices, rapeseed oil seems comparatively cheap which could encourage China to take an interest, so this oil, which is unlikely to be used in biofuel at the

moment because of the lockdown, could therefore find buyers in Asia. Surprisingly, India bought soybean oil from the USA last week. Economic factors (the only ones that are bearish) seem to be the only factors capable of stopping the current

trend as following the election of Joe Biden, a lockdown may be introduced after his inauguration in January. Similarly, depending on how the virus spreads, new or simply more restrictive measures may be implemented, thus cutting consumption.

Expiry Closes 09/11/2020 2-Week Variation

Euronext Rapeseed €/T February-21 401,25 +9,25May-21 397,75 +6,50

Winnipeg Rapeseed C$/T January-21 553,50 +9,50May-21 548,50 +1,50

Chicago Soya c$/bu January-21 1108,75 +32,25March-21 1110,50 +49,75

FOCUS ON… THE SUNFLOWER HARVESTS ARE ONGOING IN UKRAINEThe sunflower harvests continue in Ukraine and are gradually drawing to a close. 6.11Mha had been cut (96% of the total acreage) as at 5 November. This represents just 12.2Mt. Yields are therefore generally poor with the average currently standing at a five-year low of 2t/ha. The particularly dry conditions during the summer season widely affected the production potential of Ukraine’s sunflowers, which partly explains the current results. The final production level could be around 13Mt which would be the smallest harvest since the 2015/2016 campaign. As Ukraine is the world’s largest sunflower producer, this will inevitably tighten the situation for this oilseed. Average

SUNFLOWER ACREAGE HARVESTED IN UKRAINE (HA)

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SUNFLOWEROILSEEDS

TECHNICAL POINTCHINA: THE KEY COMPONENT OF THE 2020/2021 CAMPAIGN

CHINA IS BUYING MASSIVE AMOUNTS – ALL PRODUCTS China is buying massive amounts of grain during the first part of the 2020/2021 campaign. Maize, soya, wheat, barley – whatever the product, China’s appetite seems to be insatiable. China has imported 7.9Mt of cereals (wheat, maize and barley combined) since the beginning of the 2020/2021 campaign, double the average of the last five years. This impressive total represents China’s highest level of cereal imports for at least six years. The increase in wheat imports is the most spectacular: 2.7Mt have been imported since July – a 281% increase when compared to the five-year average (all sources). Maize is also in great demand: over 3Mt have been imported since the beginning of the campaign – a 205% increase on the average of the last five years. China’s requirements for barley are more modest but nonetheless there: 2.19Mt have been imported since July – a slight 1% increase on the five-year average.

With regard to oilseeds, China imported 98.5Mt of soya between October 2019 and September 2020 – its largest-ever import campaign. China is therefore buying unprecedented amounts of grain, all types.

WHY SUCH A KEEN INTEREST IN GRAIN? Why does China have such a keen interest in grain? There is a variety of reasons. Firstly, an underlying trend: China is still developing its economy and posted positive growth again in 2020. This is a godsend for the yuan which is strengthening against the weak dollar, thus boosting China’s purchasing power. China has also restocked its pig population after it was decimated by swine fever two years ago – there is now a considerable need for grain to use in feed. Secondly, 2020 has been a complicated year for China’s cereal growers with lockdown, floods and typhoons. The Covid-19 crisis has probably encouraged China to be more vigilant about securing its food stocks and it is therefore buying more.

There are also signs that China’s maize situation is extremely tight. Between June and August, 56Mt of state maize stocks were auctioned off – four times more than the previous year. This drove maize prices up sharply in China (Dalian) and they are still rising despite the arrival of the new crop – a sign of significant tightness. China’s maize acreage is also thought to have fallen since intervention prices were abolished in 2015. This fall, combined with an increase in domestic demand, is thought to have eaten into China’s maize stocks year after year. This would explain the trade agreement that China and the USA signed early this year. This agreement commits China to buying $40 billion worth of US agricultural products – a considerable sum. These estimates aside, at the moment it is extremely difficult to make a precise analysis of the factors affecting the Chinese market which is particularly opaque.One thing that is certain is that China’s appetite is partic-ularly manifest at the moment, and even seems insatia-ble. It is clearly tightening the global balance sheets and becoming one of the key components of the 2020/2021 cereal campaign.

CHINA'S IMPORTS FROM JULY 2020 TO SEPTEMBER 2020 (T)

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