Much will depend on how the unpopular austerity measures, promised by the Greek government to secure the E130bn package, will be implemented. Addressing a group meeting of the G20 finance ministers and central bank governors, managing director of the IMF Christine Lagarde concluded that while a number of measures had already been taken in the Eurozone, the decision to boost the IMF’s lending capacity to $500bn combined with an equally credible properly-sized firewall at the European level, would help restore confidence and guard against further shocks. High-frequency indicators suggest an uptick in activity, mostly in the US, but the global economy remains in the danger zone; the IMF revised global growth down to 3.25% in 2012, due to the combination of recession in Europe and slower growth across much of Asia, including China.
For global crops, it is widely anticipated that the 2012 season will be a transition from the current environment of tight stocks and high prices, to large crops, ample stocks, and lower prices. The UN’s Food and Agricultural Organization (FAO) expect crop prices to stabilize, easing fears of food inflation, as the season progresses in the main producing countries. And, while there is general agreement on the likely direction of production and stocks in the year ahead, a number of uncertainties remain.
Despite dry conditions in parts of the US and Ukraine, and the severe cold-snap in early February, which affected parts of Western and Central Europe, the condition of winter wheat in the northern hemisphere is mostly reported to be good.
Plantings have increased in many countries and expected to expand to over 225m/ha, in response to strong prices; but a return to average yields is expected to occur, where record highs were achieved last year — the International Grains Council (IGC) forecast world wheat production at 690mt (million tonnes) in 2012.
NORTH AMERICAN AND EU PLANTINGS TO RISEIn the US early indications point to a considerable increase in the area planted to wheat, higher than initially expected at 58m/acres with production forecast at 60mt in 2012. The winter wheat area is forecast up by 3% to 41.9m/acres (Hard Red Winter 30.1, Soft Red Winter 8.37 and White Winter 3.49); while, spring wheat plantings are expected to rebound from last year's levels. In Canada the bulk of the wheat is spring planted and farmers are expected to expand the area significantly.
Despite competition for land in the EU, the wheat area is expected to increase, with growers planting over 23m/ha, with the EU crop forecast at 138mt. The threat from drought in parts of Portugal and Spain — with rainfall less than 20–50% of normal levels and bitter cold weather in many areas including France, Germany and Poland, where losses are likely.
UKRAINE EXPERIENCES SIGNIFICANT WINTER LOSSESWinter cereal plantings in the Russian federation, are estimated to increase by 11% (13.1m/ha) due to attractive prices and beneficial weather conditions at sowing time, with spring wheat plantings also expected to record a small increase. In the Ukraine, due to a combination of a dry autumn and higher winterkill following February’s cold-snap and limited snow cover. Although some replanting with spring wheat is expected, wheat output in 2012 is forecast to fall from last year. Poor weather conditions have also affected Kazakhstan, although the bulk of the wheat crop is spring planted, but due to last year’s record production, there is a shortage of elevators, storage and transportation equipment, with no plans to increase the area planted to wheat in 2012.
Northern parts of China subject to persistent dryness, although no significant change in area is expected, output may fall slightly from last year’s record high, assuming a return to average yields while the Indian Rabi season rains have been much below the long-term average, reservoir levels are plentiful; record high crops are forecast, for India and Pakistan, as good price prospects encourage an increased use of inputs to boost yields.
SOUTHERN HEMISPHEREWheat supplies were further bolstered by a high-quality bumper Australian wheat crop of almost 30mt with up to 75% milling grade quality.
RECORD OUTPUT ADDS TO AMPLE WHEAT SUPPLIESWhile global wheat production is on track for a record 694mt in 2011/12. Consumption is also growing at a faster than average pace hitting a new high of 684mt. Feed demand increased by 19mt to 131mt, boosted by ample supplies of lower cost wheat, with several countries, EU, China, Kazakhstan, Ukraine, Canada and the US posting increases; food/industrial use also increased by 11mt to 553mt. Even with growing consumption, world stocks are projected to rise to a record 210mt by the end of 2011/12.
As a result of strong demand for feed-quality wheat, global trade is forecast at 142mt. With export restrictions lifted, Russian shipments surged and are expected to quadruple to 21mt, Kazakhstan 9mt, while Ukraine’s exports at 6mt. From 2012, while Black sea exports declined, due to severe weather conditions snarling-up port traffic in deep water and the shallow water ports in the Azov Sea, US grain became more competitive. Spain bought a 30,000t cargo of US soft red winter wheat from Louis Dreyfus c. $286/t C&F (February 22). Prompt feed wheat in leading grains port Tarragona was quoted flat 221–223 EUR/t ($287.55/t – February 22). Recently, Black sea exporters are rumoured to be offer wheat from the 2012 harvest at $255/t, some $20 below the nearby market. Futures prices for wheat fell in March, as weather turned more helpful to farmers, with dry areas shrinking in the south, and improving weather conditions in the northern US Plains following months of dryness; slower economic growth in China, contributing to the bearish tone — wheat for May was down at $6.38.6 (9 March 2012-07:42 CST).
RECORD CORN AND BARLEY SOWINGS IN 2012With coarse grain plantings under way in the northern hemisphere, the global corn area is forecast to increase to a record 167m/ha. World barley sowings are set to increase by 8% from last year’s low level, with the spring barley area in particular to expand after a very harsh season for winter crops.
USDA forecast US farmers will sow crops on a record 254m/acres this year reflecting a drop in land for conservation projects and a scramble by farmers to cash in on higher prices; expected returns for corn and soyabeans are against historically high, reflecting strong new-crop futures and cash forward prices. Corn acreage to rise to a record 94m/acres (Informa forecast 95m/acres), amid favourable conditions with yields expected to rebound to 164bu/acre (well above trend), implying a huge crop of some 356mt; while corn use is expected to increase by 19mt, USDA forecast a decline of over 1mt in corn use for ethanol in 2012/13 offset by higher corn exports.
In contrast the Food and Agricultural Policy Research Institute (FAPRI) forecast corn use for ethanol to increase by 3mt, and do not expect to see a drop in corn use for ethanol, for several years. FAPRI also forecast lower corn yields (161bu/acre), resulting in a lower stocks-to-use-ratio of 10%, tighter than the 12% foreseen by USDA.
CHINA’S CORN IMPORTS A HOT TOPICA dry autumn and drier-than-normal winter in China’s key growing corn areas left soil moisture levels low, making timely rains around planting more important than normal for the region. FC Stone’s senior risk manager, Mike O’Dea, said that China’s corn crop was unlikely to reach 187mt this year, well below last year and not enough to satisfy growing feed demand, implying imports may need to rise significantly above the 4mt forecast in the current season and in 2012/13; Chinese officials fiercely deny purchases are necessary, claiming the corn harvest will be large, and that feed mills can switch to wheat or to other feed by-products including distillers Dried Grains and Solubles (DDGS) to replace corn in the rations. Investors remain sceptical-noting that China’s corn crop may be overstated by as much as 14%, pointing to future corn imports that could squeeze already tight global supplies of corn.
HIGHER PRICES AND ROBUST DEMAND DRIVE COARSE GRAIN OUTPUT
Global coarse grain production rose to a record level of 1,144mt. Growing feed industrial and ethanol use has driven demand to a record 1,152mt, outstripping production by 8mt. Feed use is forecast up by over 17mt, to 665mt, mainly due to increased use in China and recovery in the CIS countries, while food/industrial growth is forecast to increase by 6mt to 487mt. Amid solid buying by a number of importers in Asia (principally
China), Middle East and North Africa, world trade is forecast to rise to a four-year high of 121mt. With demand outpacing supply, stocks have been drawn-down to 158mt, the lowest level for five years.
Global corn production is forecast at 864mt in 2011/12, 37mt more than last season. Bumper crops in several countries including China 192mt, Ukraine 23mt, Brazil 62mt (helped by planting a second corn crop in response to dry weather), the EU 65mt are likely to compensate for a smaller US crop 314mt, and the drought-reduced Argentine crop 22mt. Improved supplies in some countries are boosting consumption, with overall use forecast at a record high of 868mt. Feed use of corn is expectedtoincrease especiallyinEU,Ukraine,Russia,Brazil, Mexico and China.
FEED USE IN 2012 DRIVEN BY STRONG DEMAND IN PIG AND POULTRY SECTORS
China’s pig production is set to recover to almost 52mt in response to strong demand for pork, sharply higher prices and recent government incentives; while swine inventories are less likely to fully recover in 2012 — small-scale operations not helped by higher feed costs and swine disease threats-large-scale operations land constraints prevent expansion. Despite the devastating foot and mouth disease (FMD) outbreak that slashed South Korean production by 25%, and even with higher compound feed prices, record swine and pork prices have encouraged producers to quickly rebuild, with production forecast at 1mt, but unlikely to reach pre FMD levels due to new environmental regulations. Russian production is also up to 2mt supported by government investment, positive producer gains (breeding herd expansion), in the face of lower feed prices, less competition (sharp reduction in the import quota). Global pork production is forecast 2% higher to a record 103mt. Poultry, growth will be slower than the previous two years given the rising cost of feed and a slowdown in US output, with global production forecast at 83mt up by 3%, driven by strong domestic demand in China and Brazil.
Global beef production has declined and is forecast at 57mt — a significant cut in US production offset by gains for India, Brazil and Argentina, while the EU and China will remain relatively stagnant; the sector is characterized by strong demand from Russia, Southeast Asia, the Middle East, North Africa and tight supplies. Beef exports from Australia, Brazil and India are forecast to rise 5% in 2012 to over 8mt — India’s price competitive beef shipments to emerging markets forecast to overtake the US, for the first time.
ETHANOL OUTLOOK SLOWING BUT FUTURE SECUREThe USDA, forecast an increase in demand for corn used by the paper and construction industries with high fructose corn syrup (HFCS) to stabilize — but expects corn use for ethanol to fall by over 1mt to 126mt (producing 13.8Bn gallons of ethanol and 39mt of feed products) in 2012/13, due to slower US economic growth (lower gasoline consumption and less E10 biofuel), and to smaller exports to Brazil, whose production of cane-based biofuels is expected to recover.
While some significant changes in US ethanol policy at the beginning of 2012,VEETC blending credit and tax on imports have been removed — London-based EIC Consult forecast US ethanol production to increase in 2012, with greater amounts for export. Last year, US ethanol exports tripled to 1.1bn gallons (worth around $2.5Bn) with 33% destined for Brazil — the remainder to other countries. The EIC view that ethanol production and exports, will increase is shared by the Renewable Fuels Association (RFA). According to the RFA, the US ethanol industry has for some time focused on widening the appeal of blends like E15 and other advanced biofuels, that increase the proportion of bio-fuel to every gallon of gasoline, with ethanol production likely to increase as more vehicles with the capacity to utilize higher blend biofuels come onto the market. A more efficient transport sector is a fundamental aspect of US ambitions to move towards a lower emissions economy, securing a long-term demand for ethanol. According to Pike Research, future production of biologically based fuels, such as ethanol and biodiesel are likely to increase in value from $82.7Bn in 2011 to $185.3Bn by 2021, with the US followed by Brazil accounting for 71% of total global biofuels production for most of the period 2012-2021.
CORN EXPORTS AT A FOUR YEAR HIGHGlobal corn trade is forecast to rise to a four-year high at 96mt, up 5mt on last year lifted by solid demand by a number of importers including, Japan 16mt, China 4mt and Mexico 10mt, where imports are forecast to rise. Despite recent higher prices, South Korean feed grain companies returned to the US corn market, buying over 323,000/t — post-FMD Korean imports are expected to rebound in 2012. US corn exports are forecast at 44mt, with Ukraine’s to almost triple to 14mt as loadings take priority over wheat and barley (both lowered). Argentine exports have been cut to 14mt reflecting smaller supplies and Brazil 9mt. Global corn stocks are expected to fall to 125mt, with US stocks down to 20mt-stocks-to-use-ratio of 6.5%. Average export prices for Corn (yc3) FOB $279/t (March
8). Futures prices reflected active interest in old crop supplies and sharply reduced competition from the Argentine’s new crop supplies US Corn 6.37.4/bu (9 March 2012 — 07:42 CST).
IMPROVED YIELDS AND RUSSIAN CROP RECOVERY BOOST BARLEY OUTPUT
Even with a lower planted area, improved yields and recovery in Russia’s-17mt crop, lifted barley output to 134mt, despite a smaller EU crop. Trade is also forecast up by 2mt to 17mt. Global consumption rose to 136mt, due to increased demand for feed barley, notably in Russia, Saudi Arabia, while in Australia increased use has been tempered by a switch to wheat as international prices for barley and sorghum have risen. Stocks are forecast lower at 22mt with export prices remaining firm — EU (France) Barley FOB Rouen $275/t (March 8).
GLOBAL SORGHUM OUTPUT DUE TO SMALLER US CROPGlobal sorghum production is forecast at 60mt down 7mt in 2011/12. Mainly due to a much smaller crop of 5.4mt in the US and to smaller crops in Ethiopia, Mexico, Nigeria, India and Sudan, and lower consumption. Prices for sorghum have tracked corn-Sorghum FOB Nola at $281.48/t (March 9). Australia is a major supplier of sorghum to East Asian countries, including Japan and South Korea.
US SOYABEAN ACREAGE TO INCREASE IN 2012US farmers are expected to increase the planted acreage for soya to 75m/acres in 2012; based on yields of 43.9bu/acre, implies a soyabean crop of 3.25Bn/bu (90mt). Falling global soyabean output and rising prices-triggered by poor crop prospects in South America, reduced global stocks-much tighter- than-envisaged by the end of 2011/12.
SIGNIFICANT DOWNGRADE TO SOUTH AMERICA SOYABEAN HARVEST
USDA estimates global oilseed output to fall in 2011 to 446mt mainly due to poor weather in South America cutting output; soyabean production is forecast lower at 245mt. Larger crops of groundnut 35mt, cottonseed 47mt, palm kernel 13mt and sunflowerseed 39mt, only partly offsetting the decline in soya. Global exports of oilseeds similar at 108mt — larger exports of Rapeseed 11.5mt and Sunflowerseed 2.5mt, lower exports of soyabeans 91mt, cutting global stocks to 68mt.
WORLD — MAJOR OILSEED PRODUCTIONLast year many US farmers prompted by high corn prices, planted corn, soyabean sowings fell to their lowest level in more than a decade, with production forecast down to 83mt. Additionally, poor crop prospects in South America-Oil World downgraded its forecasts for Argentina, Paraguay and southern Brazil-where significant drought increased losses to 25%, and unlikely to be offset by better yields in some areas of the centre- west and north-east regions of Brazil. The La Nin~a weather pattern, blamed for dryness in southern Brazil, is also seen as responsible for heavier-than-normal rains in central areas of Goias and Mato Grosso, boosting yields, but requiring greater input of fungicide to guard against Asian Rust.
Meanwhile drenching rains in many areas in Argentina have helped the crop to stabilize, while several analysts have downgraded their forecasts for South American output. Informa, surprised many investors at the beginning of March, by cutting
the estimate for Brazil to 68mt (at the low-end of the range), Paraguay 4mt with Argentina 47.5mt; USDA’s recent estimate for soyabean production has been revised down to 245mt.
CHINA’S SOYABEAN IMPORTS TO HIT 59MT IN 2012/13
The drop in soya production, fast pace of exports (October–December) and higher crush has reduced supply from the previous year. Global soyabean trade is lowered to 91mt as the pace of imports in major buying countries is slower than anticipated, while forecast exports by Brazil and Paraguay are further reduced due to deteriorating crop prospects. China’s recent purchases from the US (3.3mt and 285,000/t), are proving particularly strong in 2012 due to disappointing South American crops. China’s imports expected to increase to 55mt in 2011/12 and to 59mt in 2012/13-well over half of world trade. In contrast, minimal increases are anticipated in soyabean demand in the EU-27, Japan, and South Korea. US soyabean prices have risen sharply, especially since mid-January, coinciding with a near 12 mt drop in South American production over the past two months — with average export bids for soyabeans $518/t (March 8), the strength in prices attributed to shrinking crops and shipping delays (port strikes in Argentina and reported delays for up to 150 ships).
Global oilseed crush is expected to rise by almost 12mt to 388mt, with China and Russia accounting for two-thirds of the increase. Larger crops of sunflowerseed and cottonseed boosted crushings up by 5mt and 3mt respectively; soya crush is expected to rise by 4mt to 225mt. Demand for global oil meal is forecast to rise to 261mt by the end of 2011/12, 10mt up on last year. China’s consumption of oil meals is increasing driven by growth in the rapidly maturing animal husbandry and feed industries (including aquaculture), expansion in crush capacity and growing consumption of vegetable oils. For crush levels to continue at the same rate, would make a sizeable dent in global stocks-while renewed competition for land, between grains and soyabeans in 2012/13, adds further uncertainty.
CHINESE OIL MEAL CONSUMPTION DRIVEN BY RISING FEED DEMAND
Larger imports of soya were prompted by a smaller Chinese domestic crop, dwindling stocks and growing consumption of oil meals forecast to rise by 4mt to 67mt, in response to growing pig herd expansion and booming demand for pork, poultry and aquaculture products.
Chinese officials revealed that domestic crushers’ appetite for soyabeans was suppressed for much of last year by negative processing margins that are now operating at a profit, with planned expansions to capacity. Imports of rapeseed meal to China are expected to come from Canada, following the Chinese ban on Indian rapeseed meal from 1 January, due to the detection of hazardous chemicals.
Strong demand for soyabeans, shrinking supplies and news that China’s inflation had fallen, drove soyabean futures to their highest level since September ($13.55) before settling lower at $13.51 (March 9th, 2012 – 07:13 CST).