Maria Cappuccio 

FEED GRAINS HARVEST LOWER IN 2017 

The International Monetary Fund (IMF) forecast a positive outlook for the global economy with recent data pointing to the broadest upswing in a decade, with improvements in emerging and developing Asian economies including China, and in major developed economies like Japan and Europe, with global growth projected at 3.6% for 2018.

Prospects for global wheat, coarse grain and oilseed crops improved too, despite smaller plantings in some countries and weather set-backs anticipated to lower overall output to 2.6bn/t in 2017, below last year’s exceptional record. Global grain consumption is expected to outpace production reducing global stocks and although grain stocks remain adequate, they are expected to fall for the first time in five years. The preliminary forecast for oilseeds indicates output to surpass last season’s record.

LOW PRICES REDUCE PLANTINGS

Lower wheat crops are anticipated in the US, Canada, Australia and the EU, partially offset by Russia’s exceptional harvest and larger crops in Ukraine, Kazakhstan, Argentina and India, with global wheat output forecast at 743mt (metric tonnes) in 2017/18. Smaller crops for corn, barley and sorghum reduce coarse grain output to 1,314mt, below last year, mainly due to reduced output expected in the US, China, Brazil, South Africa, Australia and EU. For oilseeds, with a larger planted area, the global oilseed crop is forecast by USDA to rise to 577mt, a fall in soybean output to 347mt, offset by gains in other major oilseeds, including sunflower seed, palm kernel rapeseed and cottonseed.

RISING FEED DEMAND IN 2017

Global supply of grains and oilseeds more than adequate to meet projected demand of 2,086mt, 3mt below last year. Feed grain demand forecast by USDA to increase by 8mt to 955mt, while feed wheat is expected to decline due to competition with other ingredients and increased use of coarse grains, mainly corn. Oilseed crushing is expected to increase by 20mt to 488mt driven by strong demand for oil meals for animal feed expected to rise by 14mt to 326mt.

Global grain stocks are expected to fall by 29mt to 493mt by the end of 2017/18. This includes China’s 210mt stock-pile of wheat and coarse grains, representing nearly 43% of the global total.

EXCEPTIONAL RUSSIAN WHEAT HARVEST

Good weather led to a significant upward revision to the global wheat crop in August, mainly due to a further 3mt upgrade to 80mt for the Russian wheat crop, with improvements also for Kazakhstan 14mt and Ukraine 26.5mt.

SIGNIFICANT FALL IN NORTH AMERICAN OUTPUT

US wheat, output forecast to fall by 25% to 47mt, due to a lower planted area with drought affecting yields for spring and durum wheat across the US Northern Plains. Drought has also reduced yields in Canada, with wheat production forecast at 27mt. Strategie Grains recently down- graded the EU crop by 4mt to146mt, wet weather delayed the harvest and affected quality and protein contents in Germany, Poland, UK and in other EU countries, likely to increase supplies of feed wheat.

AUSTRALIA, ARGENTINA WHEAT LOWER

Argentine wheat production is expected to be lower in 2017/18 partly due to a smaller wheat area of 5.2–5.4m/ha. The National Australia Bank (NAB) cut its forecast for the Australian wheat crop by 600,000/t to an eight-year low of 22.7mt (USDA 23.5mt) citing below average rains, which affected the country in May–June, with June being the second driest month on record, despite decent rain falls in August, across Western Australia, South Australia, Victoria and southern New South Wales, dryness remaining a threat.

FEED WHEAT DISPLACED BY CORN

Despite ample supplies of feed wheat especially in the EU, wheat for feed use is forecast to fall by 6mt to 141mt, due to competition from corn and other feed products, with the biggest decline expected in China, other Asian countries, North America and the EU, while wheat used for food, starch and ethanol is forecast rise by 4mt.

RUSSIAN WHEAT DOMINATES EXPORTS

Global wheat trade is forecast at 182mt, similar to last year. Black Sea exporters are expected to take the lion’s share of the global market forecast at 55mt (Russia 31.5mt, Ukraine 16mt and Kazakhstan 7.5mt). French wheat quality, despite the rains, is better than anticipated, although wheat quality issues, especially in Germany, may affect EU exports of 29.5mt. US wheat exports are expected to fall to 26mt. Tight domestic supplies of US high-protein wheat to prompt a rise in imports to over 4mt, mainly sourced from Canada, while EU wheat imports to rise to 6.5mt. Larger imports are also forecast for Bangladesh, Iraq and Turkey.

LARGE SUPPLIES PRESSURE FEED VALUES

The outlook for wheat remains bearish due to large Black Sea crops especially in Russia, muted demand, with global stocks expected to grow to 265mt by the close of 2017/18. Egypt, confirmed that Russian suppliers made the lowest offer in a tender for wheat with 12.5% protein for August delivery $192/t FOB (free on board) (11 August 2017). CBOT Wheat Contract Dec closed down at $4.37/bu ($158.94/t — 21 Aug) with feed wheat qualities setting new lows — UK feed wheat £137.50/t ($176.50/t — 22 Aug).

LOWER COARSE GRAIN HARVEST IN 2017/18

Global coarse grain output is tentatively forecast at 1,314mt, with the major crops corn 1,034mt, barley 140mt and sorghum 60mt, all below last year, but still the second largest crop on record, with smaller crops especially in the US, Brazil, China, South Africa, Australia and EU.

GLOBAL COARSE GRAIN STOCKS FALL

Overall, global use of coarse grains is projected lower at 1349mt in 2017/18 and masks a rise in feed use, up by 14mt to 814mt, offset by a fall of 15mt to 535mt for food and industrial use. The increase in feed use is mainly for corn, as smaller supplies expected to reduce barley feed use down by 7mt and sorghum by 1mt. Feed use over the last three years has risen by over 60mt in response to livestock demand, with coarse grain consumption to outstrip production this year. Trade is boosted 3mt to 186mt, with global stocks, expected to fall from 263mt to 228mt mainly in China and the US, with key exporter stocks at 78mt by the end of 2017/18.

LOWER CORN OUTPUT IN 2017/18

Following last year’s exceptional crop, global corn production is forecast to fall by 37mt to 1,034mt in 2017/18, mainly due to lower US corn plantings and yields. USDA pegs the US corn crop at 360mt based on yields of 169/bu/acre. Smaller crops are also expected in a number of countries including China revised down from 215mt to 211mt, the EU 60mt, South Africa 13mt with better crops in Russia 16.5mt and the Ukraine 28.5mt.

ARGENTINE CORN AREA TO EXPAND

With planting under way on a record 5.4m/ha (13.3m/acres) Buenos Aires Grain Exchange forecast the corn crop at 46mt, with huge global soybean supplies and falling prices, growers expect corn to be more profitable this season despite the crop’s higher production costs.

LARGE SUPPLIES TEST STORAGE IN BRAZIL

Brazil’s corn crop forecast at 95mt in 2017/18 is expected to be lower than last year. Farmer reluctance to sell soybeans in a falling market highlighted, amongst other things, lack of adequate storage. With newly harvested corn stored in temporary bags or piling up outdoors, increased the tempo and pace of corn exports in recent months, despite less favourable exchange rates, higher freight and lower prices — Conab estimates exports of 28mt and higher stocks of 21.6mt by close of 2016/17. Brazil opened its first large-scale corn ethanol plant in August.  The $115m FS Bioenergia facility located in Mato Grosso, is expected to process 22m/bu (558,000/t) of corn to produce ethanol and feed products for the livestock industry.

CORN FEED USE TO RISE BY 21MT

Based on USDA’s current projections, for the first time in five years, global corn production at 1,034mt will be 27mt short of projected demand at 1,061mt. Food, starch and ethanol use expected to fall by15mt to 410mt-a recent report by Rabobank highlighted the global trend for healthier food and snacks long-term likely to reduce sugar and the use of corn syrups in processed foods. By contrast feed use,  is forecast to grow by 21mt to 651mt, with the increase expected to occur in China, EU, South America, US and in some other countries including South Korea, where demand for corn in compound feeds for swine and poultry rations is expected to rise by 400,000/t to 8mt. Iran’s increased feed use is due to poultry industry expansion supported by growing corn imports up to 1mt, with larger corn use in Mexico to support rising poultry, pork and beef output.

GLOBAL DEMAND FOR MEAT REFLECTED IN VIBRANT TRADE
The UN’s Food and Agriculture Organ- ization (FAO) forecasts growth in meat production for almost all countries to rise by 1.9%, but offset by a fall in China’s output of poultry and pig meat (hit by outbreaks of Highly Pathogenic Avian Influenza (HPAI) and ongoing restructure), to below 0.3%, with world meat output at 322mt. The largest growth in production is forecast for beef, with smaller increases for sheep meat and poultry. Outbreaks of HPAI combined with reduced producer returns in several countries, expected to dampen growth, with a small decline in pig meat mainly in China.While global markets for pig and poultry meat remained well supplied, meat prices could have declined further if not underpinned by strong consumer demand. FAO expect trade to grow by 2.5%, fuelled by strong demand, especially in China, met by increased shipments from the US and Brazil. 

SMALL INCREASE IN CORN USE FOR ETHANOL

Following persistent lobbying by the US Renewable Fuel Association (RFA), the Renewable Fuel Standard (RFS) was re- established at the 15bn/gallons level for conventional renewable fuels like corn ethanol. The USDA projects corn use for ethanol in 2017/18 at 140mt, to produce over 15bn/gallons of ethanol and 42mt of livestock feed (37mt Distillers Dried Grains and Solubles [DDGS] 5mt corn gluten- feed/meal). Falling corn prices pushed US ethanol margins to their highest levels with lower corn prices and higher DDGs values, since the beginning of the year, ethanol output has averaged near or above 1/m barrels per day.

BRAZIL SLAPS TAX ON US ETHANOL

US ethanol exports reached an all-time high of 1.15bn/gallons (September–June 2017), including significant exports to Brazil, with notable increases for India, Canada and other countries. Last month, the Brazilian government introduced a 20% tax on US ethanol imports. The tax will apply beyond the first 600/litres, and, in place for two years, will likely close a lucrative US market-last year Brazil imported around 24% of the total US ethanol exports. Competition for ethanol markets to grow as China ramps-up ethanol output and exports, at the same time reducing the corn stock-pile. China’s ethanol exports Jan–Jul 25,660,875 gallons (97,137m3).

LARGER IMPORTS SUPPORT FEED DEMAND

Global corn trade expected to rise by 4mt to 152mt, with exports from the US 47mt lower than last year, and improved export prospects for Brazil 35mt, Argentina 28mt and Ukraine 22mt, to meet rising demand in a number of countries including, Mexico, Colombia, South Korea, Iran, and also to shore-up smaller corn crops in China and the EU. In the EU imports are forecast at 16mt, better yields in France offset by drought and heat strained crops in Hungary and Italy. Drought and a 4mt cut in corn output in China fuelled a rise in domestic prices, with 910,000/t of corn imported in July. Imports for this year are forecast at 3mt, and may be revised up.

LARGE SUPPLIES, PRESSURE EXPORT VALUES

Reports that Brazilian farmers’ stored corn in the open and on the ground, confirmed the exceptional corn crop outweighed storage capacity, and further pressured US and Brazilian export prices. Taiwan's feed industry procurement association MFIG purchased 130,000/t of corn (Aug 23), likely to be sourced from Brazil, in an international tender. The corn was purchased in two 65,000/t consignments, the first tranche bought at a premium of $114.60 c&f over the Chicago December 2017 corn contract; the second at a premium of $105.68 c&f over the Chicago March 2018 corn contract

BANK SEES RISE IN CORN PRICE

Commerzbank revised its forecast for the corn price to $3.80/bu for the Oct-Dec period, citing a drop in global corn output, a supply deficit, reduction in global stocks, lower export availability in the EU and rising imports, to support a corn price above the $3.571⁄2/bu that the December contract traded at the CBOT on 23 August 2017.

RECORD OILSEED OUTPUT IN 2017/18

Good prospects for almost all major oilseeds are expected to lift production to a new record in 2017/18. USDA forecasts a large US crop and lower soybean crops in South America, where lack of finance and ongoing political upheaval in Brazil, may result in reduced plantings. CBOT Nov ’17 contract closed at $938.0/bu (23 Aug ’17).

SMALLER SOYA OFFSET BY OTHER MAJOR OILSEEDS

Oilseed production is forecast by USDA to rise to a record of 577mt in 2017/18.

Lower soybean output at 347mt, due to smaller crops anticipated for Brazil 107mt and Argentina 57mt, with prospects for a larger US crop of 119mt (although some market analysts see lower US soy yields) and firm gains for other oilseeds, including palm kernel 18mt, expected to ease the former tightness in global palm oil supplies, the Malaysian Palm Oil Board upgraded its forecast to 20mt, with better crops expected for rapeseed 73mt, cottonseed 43mt, sunflower seed 47mt, while copra 6mt and groundnut at 43mt similar to last year.

THIN RAPESEED SUPPLIES

A large rapeseed crop is projected for the EU forecast at 22mt, although stocks expected to remain tight. Dry conditions that persisted in Canada may reduce canola estimated from below 18mt to over 20mt. As the rapeseed season develops, any further production shortfalls in the major producing and exporting countries would further tighten the global rapeseed market, with potential price premiums for rape over other oilseeds. Canola Futures- Winnipeg closed at Can$504.50/t (21 Aug ’17) for November delivery, with a significant premium U$57/t over the Chicago soybean contract.

TRADE BOOSTED BY RISE IN CHINA’S SOYBEAN IMPORTS
Global trade in oilseeds is forecast to rise by 5mt to 174mt, led by larger imports to China. With Brazil expected to export

15mt meal/64mt beans, US 11mt meal/62mt beans and Argentina 32mt meal/9mt beans. Ample oilseed stocks are forecast at 109mt slightly above last year, including lower stocks of rapeseed 4.8mt and sunflower seed 2.3mt.

RISE IN GLOBAL OILSEED CRUSHINGS

Global oilseed crush is expected to rise by 20mt to 488mt, mainly led by soy bean meal, with oil meal consumption up by 14mt to 331mt, supported by increased feed demand for oil meals and oils/fats for the food/Industry. The US Commerce Department's recent decision to impose duties of 40–68% on biodiesel imports from Argentina and Indonesia, expected to halt imports, lent support to US soybean values, with the gap to be filled by domestic soy oil supplies.

MEAT AND AQUACULTURE DRIVE RISING FEED DEMAND

Perversely, while China’s meat production is expected to contract in 2017 as they continue to up-scale facilities from back- yard to more commercial operations, the uptake of oil meals by the country’s pig and poultry sectors and a growing aquaculture industry is expected to expand. Compound feed contributes to increased demand for soybean products in China as a majority of commercial farms use soybean meal in mixed feed rations. Elsewhere in Asia, oil meal consumption is expected to rise with higher consumption also envisaged in Brazil and Argentina, modest increase in EU and US.