Rail blockades across Canada continue to paralyse grain movements, leaving export grain stranded on the nation’s Prairies and slashing grain export income by as much as US$7 million per day from lost sales, contract penalties and demurrage.In early February protesters set up blockades east of Belleville, Ontario, and west of Prince George, British Columbia in solidarity with Indigenous leaders from the Wet’suwet’en Nation who oppose construction of a natural gas pipeline. Wet'suwet'en chiefs claim the proposed pipeline would run through the hereditary land of their people.The blockades have since sprung up at several strategic locations across the country disrupting most key rail corridors bringing both passenger and freight train services to a grinding halt.They have cut off critical crude-by-rail shipments to three eastern refineries that account for about a third of the country’s refining capacity. And farmers who rely on propane to heat livestock barns during the winter and keep animals comfortable are having to ration their supplies because of the blockades.The dispute has struck a chord across the country and led to widespread protests that are about far more than the future of a single pipeline. It is giving voice to those who believe the Trudeau government is not delivering on its pledges to take climate change more seriously and transform its relationship with Canada’s indigenous people, who make up about 5 per cent of the population.This is the latest crisis to face Justin Trudeau at the start of his second term as Canadian prime minister. After spending days calling for talks and making clear he didn’t want police to dismantle the blockades by force, Trudeau’s tone hardened late last week. He demanded aboriginal protesters lift the rail blockades that are hurting the economy and made it clear police would, if necessary, enforce injunctions to remove the obstacles.About 94 per cent of Canada’s grain exports travel to port by rail on an annual basis. The blockades are further impeding grain shipments that already faced severe backlogs stemming from a delayed harvest and a week-long strike at the Canadian National Railway Company back in November last year.According to data released by the Canadian government last Friday, wheat exports from all ports were less than 174,000 metric tonne in the week concluding Sunday February 16, down 37 per cent compared to the previous week and 28 per cent below the five-year average. Shipments of wheat from Vancouver, Canada’s main grain export hub, fell 68 per cent to 44,200 mt while exports from Prince Rupert decreased from 77,000 mt to zero.The latest weekly grain monitoring report stated there were 40 vessels lined up at the port of Vancouver and ten at Prince Rupert as of February 16. The Vancouver line-up compares with the average of 24 vessels for the port, while the yearly average at Prince Rupert is only five. Eight grain vessels were cleared to sail from Vancouver in week 29 of the Canadian grain shipping calendar, but none from Prince Rupert.The blockades are not only disrupting the passage of grain to port for export but seriously impeding each rail company’s ability to reposition empty rail cars back upcountry for loading. This has led to a sharp increase in upcountry elevator stocks. Growers have been delivering as arranged with exporters, but the grain is not being railed out of the sites at the same pace.The effects on the Canadian farmer is real. As elevators fill up, growers have to stop delivering, and they don’t get paid when they are unable to deliver their grain. This may lead to a financial squeeze as farmers need the money to cover the costs to seed and fertilise the upcoming spring crop,The ships currentl

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Rail blockades hindering Canadian grain exports…

Two weeks ago it was French wheat, and last week it was Ukrainian corn. China’s actions in the agricultural commodity space in recent weeks certainly have many wondering if they are serious about the Phase 1 trade deal with the United States (US). Or are they merely having a lend of President Trump and his merry band of negotiators?Beijing has said on numerous occasions since the document was signed last month that they would meet their commitment to increase their purchases of US agricultural products. In the meantime, they have purchased corn from Ukraine, wheat from France, Canada and Australia and soybeans from Brazil.The latest round of corn purchases comes after Ukraine’s export Black Sea market softened on the back of a record 36 million metric tonne harvest and slow export demand which has dragged prices lower. Export values fell around US$3 per metric tonne across the week, which was enough to convert the previous week's Chinese enquiry into firm demand.The actual quantity booked is still uncertain. However, it is reported to be at least 200,000 metric tonne, but possibly as high as 500,000 metric tonne. Prices are believed to be in the US$181-184 range Free on Board (FOB), which equates to US$212-215 Cost & Freight (CFR) China for March-April delivery.The fall in Ukraine prices comes after the US has clawed back market share into other key Asian destinations. Many of these consumers had previously been forced to pay more for higher-quality corn from the Black Sea region as the US struggled with poor quality from the recent weather-damaged crop.The US corn crop is graded on a scale of one to four in descending order of quality, with the grain traded against the CBOT futures contract falling in the number two category. This season there was much more number three and number four grade corn harvested than average. This was the case particularly for corn being shipped from the Pacific Northwest ports, the traditional loadport region for Asian shipments. The Gulf ports have been getting better quality, but it is a lot more expensive to ship corn from the Gulf terminals into Asia.Ukraine is the number one supplier of corn to China. According to customs data China imported 3.84 million metric tonne of Ukrainian corn in the 2018/19 marketing year. Current season data indicated that 1.7 million metric tonne was shipped in the September 2019 to January 2020 period and as of last week 316,000 metric tonne was nominated for February loading.Ukraine corn exports for the 2019/20 season had reached 14.2 million metric tonnes by January 20, compared to 11.2 million metric tonnes at the same time last year. However, as of the same date, The Black Sea exporter still had around 13 million metric tonne of corn available for export this marketing season.The quality supply crunch is expected to ease once Argentine corn enters the market in March. And the recent downward trend in Black Sea values is also expected to continue as the size of both the Brazilian and Argentinian crops continue to grow.Brazilian agribusiness consultant Agroconsult last week called the Brazilian safrinha crop 74.7 million metric tonne, up from its previous estimate of 74 million metric tonne. Their forecast for the total Brazilian corn crop is now 101 million metric tonne, against last month’s estimate of 101.6 million metric tonne. Government agency CONAB also raised their corn production estimate from 98.7 million metric tonne to 100.5 million metric tonne. Both agency forecasts are in line with the February USDA estimate of 101 million metric tonne, which is equal to the countries production record set just last season.Brazil has two seasons for corn production. First-season corn is planted in September and harvested in March. A much larger second-season, or safrinha crop, is planted immediately after the early season soybean harvest, typically in January and F

China holds the key to US export corn demand…

Rumours emerged on Thursday of last week that China had purchased French wheat and by Friday the wires seemed to confirm that the French had sold between 6 and 12 panamax cargoes for first half 2020 delivery.This fresh round of purchases is purported to be under China’s 2020 tariff rate quota system. However, some traders cautioned that this number may include cargoes already sold last year under China’s 2019 tariff rate quota, which has been extended to the end of February 2020.A tariff rate quota is a two-tiered import tariff system endorsed by the World Trade Organisation (WTO). The first tier has a lower tariff rate that applies up to a specified quantity of in-quota imports. The second tier has a higher tariff rate that applies to imports that are in excess of the quota quantity.Tariff rate quotas are designed to allow at least some market access for commodities where the second-tier tariff provides high protection. Some forty countries world-wide have a total of 1,128 WTO tariff rate quotas on agricultural commodities.In acceding to the WTO in 2001, China agreed to allow global access for imports of specific quantities of corn, rice, and wheat at a low 1% in-quota tariff.  Maximum annual first-tier tariff rate quota imports by China from all sources are 9.64 million metric tonnes of wheat, 7.2 million metric tonnes of corn and 5.32 million metric tonnes of rice.The latest French sales come after more than 640,000 metric tonne of French wheat has been already shipped to China since the start of the 2019/20 marketing season in July last year. Total European Union shipments to China in the first half of the marketing year total 950,000 metric tonne. This compares to a total of just 130,000 metric tonne in the full 2018/19 marketing year.French wheat is currently the cheapest in the world and China's tariff rate quota commitments are dependent neither on origin nor on the Phase 1 deal with America. The competitiveness of French wheat was reflected in the results of the latest Egyptian tender, won solely by French exporters.Surprisingly, French transport strikes, that have been running for more than two months, haven’t slowed the pace of wheat shipments. France exported 1.2 million metric tonne of soft wheat to countries outside of the European Union in December, the highest monthly volume since the start of the 2019/20 season.However, in a potential blow to French export demand, Algeria has given preliminary approval for the importation of Russian wheat. Algeria has traditionally been a very loyal French customer. Russia is also sending wheat samples to Iraq in an attempt to gain access to some of the higher quality middle eastern demand.That said, Russia is struggling to meet current demand, and it seems that the remaining exportable surplus is far less than previously suggested. The latest 2019/20 wheat export estimate from IKAR, Russia’s leading agricultural consultancy, is less than 32 million metric tonne, compared to 33.5 million metric tonne in January.Russian agricultural infrastructure operator Rusagrotrans forecasts total wheat exports lower at just 30 million metric tonne. With 22 million metric tonne already shipped in the current marketing year, that implies just 8 million metric tonne remains available for the rest of the season. A meagre number, especially when countries such as Algeria, Morocco, Tunisia and Egypt still have old crop requirements to cover.Australian exporters also scored an invitation to the recent wheat soiree, with substantial Chinese purchases in late December and again in January. Three cargoes were booked in December, all of which have now arrived in China, and as much as 350,000 metric tonne was booked last month for first half 2020 shipment.China has now purchased more than 1 million metric tonne of Australian, Canadian and French wheat in the past two months as Beijing looks to fill the import q

China courting the French at the expense of the US farmer…

After almost five decades as a member of the powerful European Union (EU) trading bloc, Britain has struck out on its lonesome. At 23:00 Greenwich Mean Time (GMT) last Friday, January 31 2020, Prime Minister Boris Johnson delivered Brexit to the third-largest economy in Europe.It is almost four years since 17.4 million British voters opted for Brexit in the EU Referendum, giving the ‘Leave’ side a decisive, but divisive, 52 per cent of the vote. Four painful and profoundly uncertain years have ensued, stifling the economy and unsettling investors.The United Kingdom (UK) has now entered an 11-month transition period during which Johnson must finalise new trade deals with the country’s most important economic partners. During this phase, which ends on December 31 2020, the UK will continue to adhere to all of the EU's rules and its trading relationship will remain the same.This transition period, which some prefer to call the implementation period, comes at a critical time for the British economy, which grew in 2019 at its slowest annual rate in almost a decade. Failure to strike a deal with Brussels would mean significant new trade barriers. This would be a disaster for economic growth and could push Britain into recession.Agriculture's importance to the UK economy is emphasised by the fact that it has 149,000 farm businesses. That’s more than the number of businesses involved in the motor trade, in education, in finance and in insurance. The farming sector contributes more than £120 billion (AU$237 billion) to the economy and employs over 4 million people.However, food self-sufficiency has been declining steadily for more than 35 years since it peaked at 78 per cent in 1984. That figure was down to 61 per cent in 2018, and the downward trend is forecast to continue.In mid-January, the UK government tabled radical changes to £3 billion (AU$5.9 billion) a year in agricultural spending that will focus the money on benefits to ecosystems, the climate and the public. The UK’s food security is to be regularly assessed by parliament to ensure minimal disruption to supplies while new trade deals are sought.The UK’s new Agriculture Bill has been called “one of the most significant pieces of legislation for farmers in England for over 70 years”. It has the potential to affect the livelihoods of more than 460,000 people and determine the future of the 70 per cent of the UK land area (17.4 million hectares) currently under agricultural management.At the bill’s core is a swing away from direct payments to farmers based upon the area of agricultural land they manage. This was a feature of the EU’s Common Agricultural Policy (CAP) that was widely criticised as it pushed up land values, creating an entry barrier for younger farmers, and benefited large landowners disproportionately.Instead, landowners will in future be paid to produce “public goods”. These are things that can benefit everyone but bring no financial reward to those who produce them, like clean air and water. Over the next seven years, farmers will move from the CAP regulations to a new system of environmental land management contracts. These will detail the terms a

Brexit delivered but will pulling out really work?

Ongoing strikes in France over pension reform are disrupting the country’s rail services and port activities, and have the potential to severely impact the grains sector if a quick resolution is not found to the dispute that has now been running for almost eight weeks.Like so many countries in the developed world, France is wrestling with how to fund its relatively generous pension schemes amidst falling birth rates and an ageing workforce. The country’s hard-left trade unions are trying to force President Emmanuel Macron to abandon the biggest overhaul to the French pension system since World War II.France has 42 different pension schemes, each with varying levels of contributions and benefits, and Macron wants to streamline them into a single system that gives every pensioner the same rights for each euro contributed.At just under 14% of economic output, French spending on public pensions is among the highest in the world, a vital component of an expensive but treasured welfare state. The government says the new system would reduce billions in future deficits in pension funds.The public transport strike that has stymied rail freight services and a series of rolling stoppages by stevedores have left merchants struggling to get wheat and barley to port for export and to domestic consumers across the country.According to the French grain organisation Intercereales, the situation is now getting quite drastic. There are more than 450,000 metric tonnes of grain, worth around 100 million euros (AU$166 million), blocked in French ports, unable to be loaded onto export vessels that are lined up at anchorage off the French coast.The strikes are paralysing this season’s grain marketing campaign in the European Union’s biggest grain producer. The big concern now is that merchants will be forced into loading optional origin sales via alternate export pathways out of competing countries to meet their contractual obligations.Additionally, buyers are reported to be switching purchases to other exporting regions such as northern Europe, Baltic countries, the Black Sea, the United States or Canada to avoid the possibility of getting squeezed on delivery due to inadequate logistics. This was evident in the latest Egyptian tender, where there was only one French offer, and all the business went to Black Sea exporters.France harvested 39.5 million metric tonne (MT) of soft wheat this season (July 2019 to June 2020) it's second-largest crop on record, and up 16 per cent on the drought reduced 2018/19 crop. Before the strikes, current season exports outside of the European Union were estimated to reach more than 12MT, a four year high and up 14 per cent on 2018/19.  The grain industry in France is extremely reliant on rail freight to execute the massive grain transport task from interior storages and railheads to ports around the country each season. It is estimated that road freight costs an additional 4 and 6 euros per tonne depending on the distance to port, effectively reducing France’s competitiveness in the global marketplace.That said, French 11.5 per cent protein wheat is quoted at US$224 Free on Board (FOB) for a February loader, maintaining its discount to Black Sea values which closed last week quoted at US$229 FOB.German and Baltic export premiums have been strengthening against French wheat values as domestic merchants and exporters look for alternate European Union supplies in the wake of the French crisis. They closed the week quoted at around US$228 and US$227 respectively for 12.5 per cent protein wheat. If you call the 11.5 per cent protein discount $3, they remain quite competitive and provide a cheap means of avoiding the French system.All this comes at a time when French exporters were hoping to rebuild their export clientele after a poor production year in 2018/19 reduced the exportable surplus, forcing traditional wheat customers to o

Ongoing strikes slowing French exports…

There are no more soothing or relaxing sounds than the rumblings of distant thunder followed by the pitter patter of rain on a corrugated tin roof; an experience revived for those fortunate enough to receive rain in the last week.While there is still the prospect of more falls this week, the rainfall recordings to date have been a touch disappointing compared to the forecasts prior to the change moving through the eastern states late last week and over the weekend.The drought has definitely not broken, but it is a start and all falls were gratefully received in the regions lucky enough to make the scorecard. People are now looking for some follow up falls in the next few weeks to confirm a change to the record dry pattern that has haunted and stymied agricultural production on the east coast since 2016.It is too late to plant cotton, but forage sorghum, grain sorghum and mung beans are all options available to those growers in Queensland and northern New South Wales who received enough rain to join up with their existing subsoil moisture or those who can’t resist the temptation to get back in the game even though the rainfall was less than ideal.At this stage, it is hard to see a substantial change to the summer crop production numbers and the eastern state consumer will continue to rely on grain movements from Victoria, South Australia and Western Australia to satisfy the majority of their requirements through to late 2020.The headers are now back in the shed in all regions except the Western Districts of Victoria, and the final winter crop production numbers certainly reveal how deep the drought cut in 2019.Western Australia disappointed, compared to pre-harvest expectations, with wheat, barley and canola production coming in at 5.5 million metric tonne (MMT), 3.5MMT and 1.1MMT respectively. With a late break in many regions followed by poor winter rainfall, the crops entered spring well behind the eight ball. Below average spring precipitation meant the crops never got close to average potential in most districts.While production in South Australia was marginally better than in 2018, it was still well below average. Wheat, barley and canola production finished up at around 3.0MMT, 1.7MMT and 0.35MMT respectively. Harvest receivals into the Viterra system were extremely disappointing and appear to be a reflection of increased storage competition and the immediate movement of grain direct into domestic demand points in the eastern states. The Victorian harvest is almost complete, and it is the only state where yields in 2019 have significantly surpassed the drought-ravaged 2018 numbers. Final wheat production is expected to be 3.5MMT, barley production is forecast to finish at 2.4MMT and canola production at 0.55MMT.In a big year, New South Wales can challenge Western Australia as the biggest grain-producing state of Australia. Not in 2019. While the south of the state generally had better crops than in 2018, other parts were much worse. The area of wheat, barley and canola that was cut for hay was enormous. Add the proliferation of on-farm storages in recent years, and the state production guessing game gets increasingly difficult with each passing year.That said, it seems that total wheat production finished up slightly less than in 2018 at 1.6MMT. Barley production was also down year-on-year at 0.6MMT, but canola bucked the trend with output a little higher at 0.25MMT.That leaves the “Sunshine State” of Queensland where wheat production increased year-on-year to 0.6MMT thanks to a better than average season in Central Queensland. However, barley production remained static at 0.1MMT.The washup is an Australian wheat crop of just 14.2MMT, the lowest since 2007 and the third-lowest in the last 25 years. Barley ended up at 8.3MMT and canola at 2.25MMT. That means that national production of wheat, barley and canola was collectively less

Wheat export pace solid but barley lagging…

Released late last week, the January World Agricultural Supply and Demand Estimates (WASDE) report tends to be quite significant, given that it’s usually the final numbers in terms of yields, harvested area and production for the crop year in the United States (US). However, the case is not closed on 2019 US production just yet as the United States Department of Agriculture (USDA) acknowledged it would resurvey producers in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin for corn production and Michigan, North Dakota and Wisconsin when it comes to soybean production.Heading into last Friday’s release, much of the market chatter suggested that the report would be bullish, based on the expectation of lower summer crop yields. But the opposite happened with the USDA raising the national yield for both corn and soybeans.US corn production was forecast at 347.7 million metric tonne (MMT) with an average national yield of 10.55 metric tonne per hectare (mt/ha), slightly higher than last month's yield estimate of 10.48mt/ha.Globally, corn production in South America was left unchanged by the USDA with Brazil and Argentina forecast to produce 101MMT and 50MMT respectively. These numbers seem to belie the dry conditions being experienced in many parts of Brazil and Argentina this summer.The only production increase amongst the major exporters was Russia which the USDA increased by 0.5MMT to 14.5MMT. The washup of all the changes was an increase in global output by a little more than 2 MMT to 850MMT excluding China, and 1,111MMT including China.However, the bullish part of the corn equation comes in the demand number, increased by more than 6MMT globally compared to the December report. The US accounted for just under 6MMT with a 1MMT increase in China countered by a 0.5MMT decrease in Ukraine and several other minor downward revisions.The USDA pegged final 2019 US soybean production 90.4MMT, on an average yield of 3.19mt/ha compared to 90.2MMT and an average yield of 3.15mt/ha in the December report. This was a surprise to most analysts who expected to see the impact of the extremely challenging season continue to ripple through the country's soybean supplies. Nonetheless, this is still 20 per cent lower than the previous season's production of 112.5MMT.Like corn, the South American soybean production numbers remain steady with Brazil estimated to produce 123MMT this summer and Argentina expected to harvest 53MMT. Brazil’s National Supply Company (Conab) released estimates last week that seem to ignore drought worries and support the USDA number. They are forecasting soybean production at 122.2MMT off 36.8 million hectares.Eventually, soybean losses will happen if it remains dry, but most agronomists believe that the current lack of moisture only affects the first corn crop at this point in the season. The state raising the biggest concern is Rio Grande do Sul, the top summer corn producer in the country. Conab maintained its estimate for first crop corn production at 26.6MMT, down 3.8 per cent compared with 2019, based on a 1.1 per cent increase in the seeded area.When it comes to wheat, global production for the 2019/20 marketing year was reduced by a meagre 1MMT to 764.4MMT. Half of that decrease was in Australia, where the USDA decreased production by 0.5MMT to 15.6MMT. While this is getting closer to reality, it is still at least 1MMT higher than the majority of domestic estimates.Argentine production remained at 19MMT against the latest Buenos Aires Grain Exchange estimate of 18.8MMT. Buenos Aires Grain Exchange increased their estimate by 0.3MMT last week on the back of better than expected yields in the late-harvested regions. The balance of the global production decrease was in Europe with the Russian crop decreased by 1MMT to 73.5MMT an

USDA welcomes the New Year with very little fanfare…

Extreme weather conditions and unprecedented bushfires across many parts of the Australian continent have been dominating the news cycle over the past few weeks. The extent of the catastrophe and the tragic loss of human life has touched all Australians, and many across the globe.While all this has been happening the weather phenomena that underpinned Australia’s warmest and driest year since records began has finally broken down, returning to a neutral state in late December after sitting in positive territory since July last year.The Indian Ocean Dipole (IOD) is one of the key drivers of Australia’s climate. The IOD measures the difference between seas surface temperatures in the tropical parts of the western and eastern Indian Ocean.It has three phases; positive, neutral and negative. The different phases impact rainfall and temperature patterns over the Australian continent by influencing the trajectory of weather systems to the south of the country.Under a negative IOD phase the sea surface temperatures in the eastern Indian Ocean (off the northwest coast of Australia) are warmer than average, while in the western Indian Ocean the sea surface temperatures are cooler than average.This usually results in above-average winter and spring rainfall over many parts of southern Australia as the warmer waters off the northwest coast deliver more available moisture to weather systems crossing the country. This is the most favourable phase for agricultural production in Australia, particularly in the southern two thirds of the continent.A positive phase means that the sea surface temperatures in the eastern Indian Ocean are cooler than average with the opposite occurring in the western Indian Ocean. The result is an increase in the intensity of easterly winds across the equatorial Indian Ocean region pushing the warmer waters towards Africa. This generally means there is less moisture than normal in the atmosphere to the northwest of Australia, frequently resulting in less rainfall and higher than normal temperatures over Australia during winter and spring. The impact of a strongly positive IOD on agricultural production can be dramatic, as we have seen over the past six months. A positive IOD is also often associated with a more severe bushfire season in the southeast of the continent.The latest positive IOD phase peaked in mid-October with a weekly index value of +2.2 °C, one of the highest readings since IOD records began. Since then the temperature gradient across the Indian Ocean has continued to ease. The latest value (for the week ending 5 January) is +0.17 °C, well below the +0.4 °C threshold for a positive IOD phase.IOD events, whether positive or negative, generally end in late spring or early December, meaning the decline of the positive event in 2019 was much later than normal. This is tied to the delayed migration of the monsoon trough into the southern hemisphere and the accompanying changes to wind patterns over the tropical reaches of the Indian Ocean.It is the monsoon's interaction with the IOD that normally brings about the end of an IOD phase. The delay in the southern passage of the monsoon in late 2019 has meant the widespread drier and warmer than average conditions have continued well into the southern hemisphere summer.The majority of global climate models are now predicting that IOD values will remain in the 0.0 °C to +0.4 °C range in the first half of 2020. Meanwhile, most models of the El Niño–Southern Oscillation (ENSO), the primary climate driver in the Pacific Ocean, have it continuing in a neutral band until at least April of this year. The latest sea surface temperatures have cooled compared to the preceding two weeks, but they do remain warmer than average in the far western equatorial Pacific.Under a neutral ENSO (neither El Niño nor La Niña) the trade winds blow as normal from east to west across

Indian Ocean Dipole returns to neutral territory…

Farmers in the United States have received an early Christmas present after Beijing and Washington finally arrived at a preliminary agreement to lift some tariffs of Chinese imports in exchange for purchases of a range of US goods and services, including agricultural commodities. China was first to announce the deal, which follows almost two years of protracted negotiations, punctuated by Trump's tariff hikes and Beijing's immediate retaliation.The US trade representative Robert Lighthizer was quite upbeat about the phase one deal saying it was ‘totally done’ and would be signed in January. However, the Chinese were far more guarded in their comments, stating that they would act reciprocally and that they had not decided when they would ink the deal.The US is ostensibly retaining 25 per cent tariffs on US$250 billion of Chinese imports while halving the tariff rate it imposed in September on US$120 billion of Chinese goods from 15 per cent to 7.5 per cent. The US has agreed not to proceed with 15 per cent tariffs scheduled to take effect on December 15 on almost US$160 billion of Chinese imports, and Beijing has cancelled its retaliatory tariffs which were due to commence at the same time.China has committed to increase purchases of US agriculture products by US$32 billion over two years, but this appears to fall well short of Trump's boast in October that China would increase purchases of US farm goods to as high as $50 billion annually in two years.The increase will be measured against the 2017 level of US agricultural and related product exports to China, the last full year before the trade war commenced. In that year, China’s purchases totalled $24 billion, bringing the annual commitment to just US$40 billion, or US$10 billion short of Trump’s objective. Lighthizer said Beijing would aim for an additional US$5 billion in farm purchases annually, but there were no guarantees. He said broad targets for Chinese acquisitions would be released publicly. There would also be more specific targets for purchases on a range of products, but those would not be made public to avoid distorting markets.US exports of soybeans have been hit hard by the trade dispute, and China said they would immediately increase their purchases of US beans. However, they did place a significant caveat on that action saying imports would be based on domestic demand, and the US had to be competitive compared to alternative origins.Lighthizer confirmed that notion by declaring Beijing would be free to buy "when it's the perfect time to buy". Given that from February onwards, South American soybeans are generally cheaper than US imports, even without tariffs, it begs the questions as to eventual subsidies by the Chinese government on purchases of US soybeans.The China trade representative stated that they would increase their buying of US wheat and corn, not hard since they bought nothing over the last year, but the quantities would be subject to quotas. In any case, the deal is supposedly bullish on corn, with potential for an additional 3-4MMT of imports from the US, and as one market pundit said, ‘corn is the locomotive that pulls the wheat train”.  But many in the trade question whether it is actually feasible to achieve the additional purchases of US$16 billion per annum in 2020 and 2021. Under China's Tariff Rate Quota (TRQ) system for certain agricultural products, the total quotas of 9.2 million metric tonne (MMT) for wheat and 7.6MMT for corn equate to just US$3.5 billion.On the futures market, it was a case of buy the rumour, sell the fact. The news of an impending deal surfaced on Thursday last week and corn, wheat and soybean futures were all up. Come Friday, the markets started the day in positive territory but gave away those gains when the deal was announced. A very subdued response from the funds which are sitting on short positions in both corn and

US-China trade deal 'totally done'…

Canadian farmers produced the smallest canola crop in four years on the back of lower plantings and unusually wet autumn weather that left crops sitting in the paddock unharvested, the latest blow in a miserable year which started with the Chinese ban on canola imports.The heavy snow and rain during harvest across the Canadian Prairies have left around 810,000 hectares of canola buried under snow until spring.Crops that remain in the fields over the winter are subject to wildlife damage and moisture spoilage, but some of it can usually be salvaged and marketed at a discount in the spring. However, the need to harvest the previous crop once fields dry can seriously delay the commencement of the spring planting program in affected districts.Statistics Canada released their Production of Principal Field Crops report last Friday stating than 700,000mt was dropped off the countries 2019/20 canola production. Estimated production came in at 18.65 million metric tonne (MMT), down 8.3 per cent on last season, and 2.9 per cent below the five-year average.The total harvested area fell 8.8 per cent to 8.34 million hectares but yields did rise by 0.5 per cent compared to the 2018/19 season to 2.24 metric tonne per hectare.Canada is the world’s biggest producer and exporter of canola, and the crop has long been regarded as the most profitable for the Canadian farmer. China, Japan and Mexico have traditionally been the key export destinations, with the seed primarily used for the production of cooking grade vegetable oil and canola meal for stockfeed rations.In the absence of their largest export customer, demand has been falling, inventories have been rising, and prices have been lower as a result. Nonetheless, Canadian farmers are adjusting to the reality of life without China by working on cutting costs, improving efficiency and modifying crop rotations to decrease their reliance on canola.As of November 24, Canadian canola exports had decreased by 9.5 per cent compared to a year earlier. But the decline is much less than many had feared and is a reflection of the success in finding alternative consumers for the surplus export stocks. Several European countries are importing more Canadian canola for biofuel production, and shipments to the Middle East have also picked up in recent months.In terms of wheat, Statistics Canada estimated current season production at 32.3MMT, a minor reduction of 140,000 compared to their previous all wheat production forecast. This put production around 0.5 per cent higher than last season and 6.5 per cent above the five-year average.While all wheat classes were revised lower compared to the September estimates, it was a year-on-year rebound in spring wheat production that drove wheat production higher overall.Spring wheat production is forecast to rise by 7.2 per cent to 25.67MMT, the largest spring wheat crop in six years. The harvested area is estimated to be 6.5 per cent higher than last year, and the average yield of 3.48 metric tonne per hectare is slightly higher than the 2018 harvest.Canada western red spring makes up 86.4 per cent of all spring wheat produced, up from 83.7 per cent in 2018/19 and well above both the five and ten-year averages. Durum production was estimated to fall by 13.4 per cent to 4.98MMT, with a year-on-year increase in yield unable to offset a 22.6 per cent decline in the harvested area.Barley estimates were revised higher compared to those released earlier in the northern hemisphere autumn. Statistics Canada put total production at 10.38MMT, an increase of 23.9 per cent over the 2018 number and 28.2 per cent above the five-year average. The increase was due to harvested area, up by 13.9 per cent, and yields, which rose by nearly 9 per cent to 3.81 metric tonnes per hectare.Agriculture and Agri-Food Canada are suggesting that year-on-year barley stocks will double, quite a bearish sce

Canadian farmers can’t take a trick this year…

A couple of big weeks in the header has pushed the Australian winter crop harvest well past the half-way mark as we enter the month of December. However, total production, particularly wheat, continues to decline as yields disappoint. A national wheat crop of under 14.5 million metric tonne (MMT) is looking highly probable.In Western Australia, total receivals will be lucky to top 10MMT, a fall of almost 40 per cent on the 16.2MMT received last season. Canola receivals will certainly edge past the 1MMT mark but will struggle to go much higher as the harvest has finished in most regions.The barley harvest is also winding down across the state, even in the southern reaches of the state. Yields have not lived up to expectations, and total production of less than 3.2MMT is expected. The malting barley selection rate has also been quite poor. While it has improved as the harvest has progressed south, at around 23 per cent (including Malt2), it sits well below the long term average.The Western Australian wheat harvest has been an even bigger disappointment with yields coming in well below expectations, and total production could easily be less than 5.5MMT. While it shouldn’t be surprising considering the hard finish, protein levels have been well above that of recent years with only 10 per cent of deliveries going into the ASW bin, down from 46 per cent last season.This has led to a rally at the low-quality end of the market as exporters scramble to buy wheat to blend away on feed shipments into Asia. The grade spreads narrowed across the week. Kwinana H2 was up around $5 week-on-week to finish Friday at around $339 Free in Store (FIS). APW1 rallied $8 to close the week at $338 FIS, APW2 was up $11 to $335 FIS but the biggest rise for the week belonged to ASW, up $13 to $334 FIS, only $5 under H2.The story on the eastern side of the Nullarbor is not much different. While production of wheat, barley and canola in South Australia will each edge higher than last year’s drought-ravaged numbers, the difference will only be minimal.At this stage, it looks like wheat production will exceed 3MMT, but only just, unless the yields in the south are better than expected. Barley yields have surprised to the upside pushing production north of the 1.7MMT produced last season, and canola deliveries are projected to be around 320,000 by the time harvest has concluded.High protein has also been a feature of the South Australian wheat harvest, but the spread between H2 and ASW has remained relatively constant at around $8-10 over the last couple of weeks.Victoria has fared the best this season with a substantial turnaround in production compared to last year’s drought impaired yields. The hot, dry and extremely windy weather mid-way through November did take its toll, particularly in paddocks that were ready for harvest, but yields continue to hold up reasonably well. Production of around 3.5MMT and 2.5MMT for wheat and barley respectively is on the cards. As harvest pressure has mounted in recent weeks, prices have dropped enough to entice domestic consumers and the trade to buy up, especially with Western Australia and South Australia now finding export demand for both wheat and barley. Meanwhile, the Bureau of Meteorology (BOM) released its summer outlook last Friday and the news was not good for large tracts of the Australian continent. The outlook summary suggests that the December to February period will be drier than average for much of the nation, particularly across eastern states, and there is a high likelihood of warmer than average days and nights for a majority of the continent.The dry signal is expected to contract to the east of the country as the summer progresses with much of the Western Australian coastline, particularly the Gascoyne, Pilbara and parts of the Kimberly regions, having a high chance of being wetter than average in January and Febr

Weather outlook great for harvest but not for summer crop prospects

African Swine Fever (ASF) continues to decimate the domestic pig herd in China with hundreds of millions of animals now lost, either dying as a result of the devastating disease or killed in an attempt to contain the spread of the highly contagious virus.According to the Chinese government, 40 per cent of the countries pig population has been lost since the outbreak was first discovered in August 2018. However, unofficial reports suggest that Beijing is being extremely conservative, and the world’s biggest swine herd is now more than 50 per cent lower than before the outbreak was announced. That equates to around 250 million pigs or almost 20 per cent of the global herd.The double-stranded DNA virus causes a haemorrhagic fever with extremely high mortality rates in domestic pigs. In many instances, death can occur as quickly as one week after infection.Infected pigs develop a high fever but show no other noticeable symptoms for the first few days. They then gradually lose their appetite and become depressed. In white-skinned pigs, the extremities such as ears, nose and abdomen turn blueish-purple. Eventually, they become unsteady on their legs, enter a comatose state and die.The virus is amazingly resilient to a variety of curing methods and environmental conditions. There is currently no vaccine, it can endure extreme temperatures and can survive in frozen meat for several years.The Chinese love their pork. It is a staple in their diet and accounts for more than 60 per cent of the country’s meat consumption. In 2017, the last full year before the outbreak of ASF, they consumed an average of 33 kilograms per capita. To put that in perspective, the average Australian consumed 28 kilograms, and in the US per capita consumption was 23 kilograms in the same year.The significant decrease in the pig herd has led to an unprecedented shortage of pork in the world’s biggest pork market and has seen the ex-farm price increase by more than 125 per cent since July this year. Retail prices are said to have increased by almost 150 per cent in 2019. The soaring prices have been a significant contributing factor to rising inflation in China which hit an annualised rate of 3.8% in October. In a bid to meet demand and arrest the surge in prices, the Chinese government has begun auctioning frozen pork from its state reserves. However, analysts indicate that deploying the pork reserves will not be enough to stabilise prices let alone reduce them, and they are expected to continue rising in the run-up to Chinese New Year in January.One of the first ASF control measures implemented across the country last year was to close down small pig farms. In quite a controversial backflip, and despite the continued spread of the epidemic, Beijing is asking local government to reverse this policy in an attempt to arrest the production decline and shore up future supply.The combination of strong demand, falling production, and spiralling prices have also put a rocket under Chinese imports. In September 2018, China imported 94,000 tonnes of pork. Twelve months later that number had increased by more than 71 per cent to 161,000 tonnes. And in October they were up to 177,500 tonnes. That pushed year-to-date imports past 1.5 million tonnes, an increase of 49.4 per cent on the previous corresponding period.In addition to traditional suppliers such as Spain and Germany, China has been scrambling to approve new import origins such as Brazil, Argentina, Britain and Ireland. In early November they lifted a ban on imports of Canadian pork and beef that had been in place since June. This action suggests that Beijing does not want to be overly reliant on pork imports from the United States, especially as the “phase one” trade negotiations enter a critical phase. The increase in global trade has led to a rise in pork prices in the major exporting regions. Pork prices in the European Un

China’s pork plight intensifies...

The nature of the Australian grain producer is a varied and wonderful thing.  So too are marketing strategies.  Due to the many years of regulated markets and single desks the Australian grain producer and associated government departments were wired to focus on producing the best possible crop they could and leave the marketing up to the statutory bodies.  We still see evidence of that today with yield being a big driver of the grain producer’s motivation for what they do.  It is further demonstrated from an observation perspective that growers’ spirits seem impacted more by yield results than profitability.  The higher the yield, the better the spirits irrespective of the gross margin achieved.  A few points on marketing that need to be observed; grain marketing is all about managing risk and reward.  The price, production and profitability risk against the reward of the final sales revenue for the production achieved.  And, unlike a trader who can buy or sell depending on their market view, a grain producer effectively only gets one shot at selling physical production. Yes, we can break price down and fixed the individual components of futures, basis and foreign exchange or we can hedge in different months on the speculation of protecting prices.  But at the end of the day a final price is achieved for the sale and one-time transfer of a fixed parcel of physical grain.  An important message in this is if you are hedging using any derivative type produce, at the end of the day there is a physical commitment to offset the hedge.  If you aren’t committing physical grain in one form or another, you are purely speculating the market.We continuously see different marketing organisations producing and marketing products and strategies with associated discussion and evidence as to the effectiveness of the strategy over time horizons of numerous seasons.  While a high average return over a certain time horizon using one strategy or another is good, it does discount the impact of the poor performing years.  Each year the markets behave differently, and the seasons production varies; so, the question is why any single strategy would be applicable to every season.  A rule in grain marketing is “price always has location”.  What gives price location is its relative difference to another pricing point or what is defined as basis.  So, even at a farm gate level markets and prices are impacted purely on the quality and quantity of grain being produced on farm, its costs to move and store, and the supply demand relative to other regions, expanding all the way up to a global perspective.  Therefore, with the seasonal differences in the markets behaviour why would we expect a certain product or marketing strategy to perform consistently well from one season to the next.     In the Australian market today we have many forms of grain marketing strategies and what I like to call levers available for you to activate in your marketing; we have pool providers, we have cash buyers, we have derivative strategy wholesales, we even have marketers that purport to be able to predict with some certainty what value grain will have in the future.  There are marketers that recommend selling on the decile value of grain, we have marketers pushing pool products, we have markets chasing selling 100% of production at the top of the market and even spread sellers.Our message is that grain marketing isn’t easy and it is important to have all the levers available to you to effectively market your grain over the longer term.  The market will generally show signals of what the best lever is to pull in any given market circumstance and markets are very rarely the same. Individual growers’ requirements also very based on business structures and cash flow requirements; so one single marketing strategy will never consistently provid

What is a grain marketing strategy?

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