For the first time in several years, it looks like the prospects for grain prices will remain strong for a year or two. This was the message from global market analyst Dan Basse, president of the AgResource market analysis company in Chicago, to a Barnett-Hall (R&H Hall) webinar last week.
Supply, relative to demand, is limited by the acres that can go into grain production in the coming year.
Dan indicated that any acreage swing will be limited and that it would take an additional 8-9 million new acres somewhere to reverse market sentiment in the short term.
A year ago, indeed less than six months ago, the view was that the grain market faced a decade of low prices. The pace of increased global production meant that surpluses were inevitable unless a new demand source emerged.
Even since Dan wrote his article for our 2020 Vision publication, a new demand source has emerged – China. Little more than six months ago analysts had forecasted a record global harvest but nature intervened to reduce production. Now the market has lower supply and higher demand.
China rebuilding pig
production capacity
When US President Donald Trump signed his gentleman’s agreement with the Chinese vice-president earlier this year, a certain level of trade was agreed for maize and soya beans. This volume of business has already been done for maize, indeed exceeded, and it now seems likely that the agreed US trade volume of around 7mt tonnes for 2020 will swell to around 20mt, with total US ag exports to China put at $28-$30bn. That additional and unanticipated demand has livened up international grain markets.
The new system will require far more feed than previously as household slops will not be an option
This level of imports is not happening out of any support or favour for Trump, Dan said. “China only buys what China wants” and it is buying more maize than ever before – up to 30mt. The demand is real and it is driven from the rebuilding of its pork industry following its decimation as a result of the obligatory cull arising from the outbreak of African swine fever.
Like many others, Dan believes that this rebuilding of the Chinese pig sector is quite different to the traditional industry. The belief is that pig production capacity is being rebuilt in specialist intensive units that will have high biosecurity standards to protect them from similar disasters in the future.
Traditional pig production in China had many millions of small farmers keeping a few pigs each and these were largely fed on household wastes. This seems unlikely to continue in future and the new system will require far more feed than previously as household slops will not be an option.
Asked if the Chinese pig sector is likely to push for even higher numbers of breeding pigs than before, Dan believes that expansion will continue for as long as the economic signals point to profitability. The higher than anticipated feed demand reflects the rapid incentivised rebuild of the pig herd and the additional feed needed to replace household slops as a source of feed.
Dan commented that the Chinese pig herd is likely to get back to its traditional output levels by mid-2021, after which further expansion is possible. However, it is likely that imports of pork products will then cease and the availability of adequate pork could see a swing away from the meats that replaced pork. However, we must wait to see if the Chinese consumer has developed a taste for alternative meats and if that demand will remain into the future.
The current price of maize in China is around $10/bushel (bu) compared with a Chicago price of $4.20/bu for December.
European maize
Maize production in Europe will be well back on previous years, especially in countries such as Ukraine and Romania. So, the question is where will the EU import its maize from? Sources such as the US and south America are not an option because most GM varieties are not cleared for import. Canada will be an option but its 1.0-1.5mt exports will not meet EU import requirements. So, “what will replace maize in EU rations in 2021”, Dan asked? Wheat may fill some of the void but it is also scarce in Europe. However, barley is a definite option.
Price implications
for maize
It is seldom that a marketing year starts out with pre-Christmas concern for the crops already in the ground. But that is the case this year and one must wonder if the impact of dryness in the northern hemisphere, plus an active La Niña in the southern hemisphere, could seriously affect production of maize and soya beans in the year ahead.
Maize production has been hit in most major countries to leave a global supply deficit that is being reflected in price movements.
Allowing for a somewhat normal year relative to where we are today, Dan expects that maize prices in Chicago could rise to around $5.5/bu to $6/bu. Equivalent prices today are floating between $4.12/bu and $4.35/bu, and they were back at $3.20/bu for a period in August. Where price goes depends on the ability to get supply back up to global demand levels but Dan believes that this will take some time to achieve.
A few months ago, higher production seemed like a likely outcome from the harvest of 2020/21. We were heading for the biggest global maize crop ever, with record yield and production forecast in the US. Then Mother Nature intervened to hit production capacity in all cereals in different parts of the world. Maize went from being in surplus to being in deficit for the demand level forecast at the time. Now the additional demand from China is likely to result in a significant drawdown of global stocks.
That surge in Chinese demand, if it continues, is likely to keep maize demand above supply for another season or two. The parallel scarcity of soya beans, arising from the reduced production in Brazil, is unlikely to be reversed in the near future either. Already there are fears for the 2021 soya bean crop and maize and soya beans compete for the same acres. Price will be used to attempt to drive planting decisions in one direction or another. Either way, there is not that much scope for acres to swing much more than 1.0-1.5 million either way and neither will fix the supply situation.
Soya beans also
under pressure
If the dryness issues currently being experienced in parts of south America, the western US and parts of the Black Sea region persist to dramatically hit production of maize, soya beans and wheat across these regions in 2021, then the production, supply and price challenges could be even greater, Dan indicated.
Fears of drought threaten the output of soya beans in exporting countries like Brazil.
Soya beans in Mato Grosso in Brazil flower in December and that is a critical time for the crop. That state continues to have its lowest September to November rainfall level for over 40 years. If the dryness continues for four to six more weeks, it is likely that this will strongly affect the potential output of Brazilian soya. Dryness will also affect maize production there and output from the main maize crop may be insufficient to enable exports from that country.
The dryness situation is somewhat similar in Argentina but an added situation there is that farmers have little desire to sell the crop in store. Low currency value and high inflation make grains in store one of the best ways to hold money.
Soya bean stocks are forecast to become very low in all markets and price levels of $12/t seem inevitable. But if the weather situation in south American countries worsens, Dan said soya beans could get up around $13.25/bu.
US soya bean prices have already risen from around $8.50/bu back in May/June to up around $11.850 last week.
Forecasts for global grain production in 2020/2021 have been reduced due to weather issues in many production regions.Higher than anticipated demand, mainly from China, has added to the imbalance between maize demand and production for 2020/21. It seems unlikely that the production levels will move back into surplus for a year or two and this leaves moderate prospects for all grain prices. Prices could rise to $6/bu (€200/t) for maize and up to $13.25/bu (€412/t) for soya beans if 2021 production continues to be hit by dryness issues.
For the first time in several years, it looks like the prospects for grain prices will remain strong for a year or two. This was the message from global market analyst Dan Basse, president of the AgResource market analysis company in Chicago, to a Barnett-Hall (R&H Hall) webinar last week.
Supply, relative to demand, is limited by the acres that can go into grain production in the coming year.
Dan indicated that any acreage swing will be limited and that it would take an additional 8-9 million new acres somewhere to reverse market sentiment in the short term.
A year ago, indeed less than six months ago, the view was that the grain market faced a decade of low prices. The pace of increased global production meant that surpluses were inevitable unless a new demand source emerged.
Even since Dan wrote his article for our 2020 Vision publication, a new demand source has emerged – China. Little more than six months ago analysts had forecasted a record global harvest but nature intervened to reduce production. Now the market has lower supply and higher demand.
China rebuilding pig
production capacity
When US President Donald Trump signed his gentleman’s agreement with the Chinese vice-president earlier this year, a certain level of trade was agreed for maize and soya beans. This volume of business has already been done for maize, indeed exceeded, and it now seems likely that the agreed US trade volume of around 7mt tonnes for 2020 will swell to around 20mt, with total US ag exports to China put at $28-$30bn. That additional and unanticipated demand has livened up international grain markets.
The new system will require far more feed than previously as household slops will not be an option
This level of imports is not happening out of any support or favour for Trump, Dan said. “China only buys what China wants” and it is buying more maize than ever before – up to 30mt. The demand is real and it is driven from the rebuilding of its pork industry following its decimation as a result of the obligatory cull arising from the outbreak of African swine fever.
Like many others, Dan believes that this rebuilding of the Chinese pig sector is quite different to the traditional industry. The belief is that pig production capacity is being rebuilt in specialist intensive units that will have high biosecurity standards to protect them from similar disasters in the future.
Traditional pig production in China had many millions of small farmers keeping a few pigs each and these were largely fed on household wastes. This seems unlikely to continue in future and the new system will require far more feed than previously as household slops will not be an option.
Asked if the Chinese pig sector is likely to push for even higher numbers of breeding pigs than before, Dan believes that expansion will continue for as long as the economic signals point to profitability. The higher than anticipated feed demand reflects the rapid incentivised rebuild of the pig herd and the additional feed needed to replace household slops as a source of feed.
Dan commented that the Chinese pig herd is likely to get back to its traditional output levels by mid-2021, after which further expansion is possible. However, it is likely that imports of pork products will then cease and the availability of adequate pork could see a swing away from the meats that replaced pork. However, we must wait to see if the Chinese consumer has developed a taste for alternative meats and if that demand will remain into the future.
The current price of maize in China is around $10/bushel (bu) compared with a Chicago price of $4.20/bu for December.
European maize
Maize production in Europe will be well back on previous years, especially in countries such as Ukraine and Romania. So, the question is where will the EU import its maize from? Sources such as the US and south America are not an option because most GM varieties are not cleared for import. Canada will be an option but its 1.0-1.5mt exports will not meet EU import requirements. So, “what will replace maize in EU rations in 2021”, Dan asked? Wheat may fill some of the void but it is also scarce in Europe. However, barley is a definite option.
Price implications
for maize
It is seldom that a marketing year starts out with pre-Christmas concern for the crops already in the ground. But that is the case this year and one must wonder if the impact of dryness in the northern hemisphere, plus an active La Niña in the southern hemisphere, could seriously affect production of maize and soya beans in the year ahead.
Maize production has been hit in most major countries to leave a global supply deficit that is being reflected in price movements.
Allowing for a somewhat normal year relative to where we are today, Dan expects that maize prices in Chicago could rise to around $5.5/bu to $6/bu. Equivalent prices today are floating between $4.12/bu and $4.35/bu, and they were back at $3.20/bu for a period in August. Where price goes depends on the ability to get supply back up to global demand levels but Dan believes that this will take some time to achieve.
A few months ago, higher production seemed like a likely outcome from the harvest of 2020/21. We were heading for the biggest global maize crop ever, with record yield and production forecast in the US. Then Mother Nature intervened to hit production capacity in all cereals in different parts of the world. Maize went from being in surplus to being in deficit for the demand level forecast at the time. Now the additional demand from China is likely to result in a significant drawdown of global stocks.
That surge in Chinese demand, if it continues, is likely to keep maize demand above supply for another season or two. The parallel scarcity of soya beans, arising from the reduced production in Brazil, is unlikely to be reversed in the near future either. Already there are fears for the 2021 soya bean crop and maize and soya beans compete for the same acres. Price will be used to attempt to drive planting decisions in one direction or another. Either way, there is not that much scope for acres to swing much more than 1.0-1.5 million either way and neither will fix the supply situation.
Soya beans also
under pressure
If the dryness issues currently being experienced in parts of south America, the western US and parts of the Black Sea region persist to dramatically hit production of maize, soya beans and wheat across these regions in 2021, then the production, supply and price challenges could be even greater, Dan indicated.
Fears of drought threaten the output of soya beans in exporting countries like Brazil.
Soya beans in Mato Grosso in Brazil flower in December and that is a critical time for the crop. That state continues to have its lowest September to November rainfall level for over 40 years. If the dryness continues for four to six more weeks, it is likely that this will strongly affect the potential output of Brazilian soya. Dryness will also affect maize production there and output from the main maize crop may be insufficient to enable exports from that country.
The dryness situation is somewhat similar in Argentina but an added situation there is that farmers have little desire to sell the crop in store. Low currency value and high inflation make grains in store one of the best ways to hold money.
Soya bean stocks are forecast to become very low in all markets and price levels of $12/t seem inevitable. But if the weather situation in south American countries worsens, Dan said soya beans could get up around $13.25/bu.
US soya bean prices have already risen from around $8.50/bu back in May/June to up around $11.850 last week.
Forecasts for global grain production in 2020/2021 have been reduced due to weather issues in many production regions.Higher than anticipated demand, mainly from China, has added to the imbalance between maize demand and production for 2020/21. It seems unlikely that the production levels will move back into surplus for a year or two and this leaves moderate prospects for all grain prices. Prices could rise to $6/bu (€200/t) for maize and up to $13.25/bu (€412/t) for soya beans if 2021 production continues to be hit by dryness issues.
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