Grain Snippet: Global Feed Grain Stocks Tighten

Grain Snippet: Global Feed Grain Stocks Tighten

Over the past fortnight we have seen local barley prices drop $10 – $12/MT at all major port zones. History shows us that this is a critical time of year to capitalise on forward sales. We regularly see US corn futures seasonal lows for both drought and non-drought years in November, and seasonal lows in non-drought years for local barley prices in November – December. Seasonality is working against us! Grower watching malt markets will note that premiums have been improving, with specific varieties priced higher than others. The major driver of this is the quality issue from European barley harvest, with less malting grade barley produced than first thought. ISCC malt prices are consistently better with traders citing floating ISCC premiums will outperform their non sustainable counterparts.

WASDE – The latest WASDE report came out from the USDA over the weekend. It was an uneventful report, with very few surprises for the corn market. In the WASDE, the USDA increased US corn exports and domestic use. They also increased production and carry in stocks from the previous year. All in all, this increased the stocks-to-use from 7.94% to 9.52%. This is still very tight (9th tightest on record since 1960.) US corn yields were raised to 179bu/acre. Private analysts are still adamant that the USDA is too optimistic, with yield ideas around 173bu/acre. Private analysts also expect that US corn exports will be higher than the USDA expects, primarily to offset losses from Brazil and greater demand from China. Assuming higher exports and lower yields, private analysts peg US corn stocks to use at 5.51%. Regardless, US corn production is expected to be the second largest on record.

Barely any barley around – Using the latest figures from the recent WASDE report, we see that global barley stocks-to-use are at 9.36%, the second lowest on record (going back to 1960). World barley stocks-to-use have been steadily grinding lower since 2015. Several factors have caused barley stocks to dwindle. One of them being the shift in Australia from barley to other commodities following the diplomatic spat between us and China. Another reason is likely due to growers in other countries favouring other high value commodities over barley. COVID-19 drastically reduced malt barley demand and that likely converted many tonnes from barley to other commodities. Major barley exporters have also not had easy seasons, with Australia having a run of bad years, Canada currently experiencing a record-breaking drought and other major exporters such as Kazakhstan and the European Union having production cuts.

Our barley crop this season is looking good. In ABARES last crop report, they estimated the total Australian barley crop at 12.5MMT, which is the third largest on record. While the season has started to go backwards for areas of South Australia, the Australia is still expected to produce a very large barley crop.

Chinese hoarding – It’s a well-known fact that China has substantial grain stockpiles to feed their massive population and livestock industry. The graph to the bottom right shows the impact China has on the world corn balance sheet. If you include China, world stocks to use are at 21.68%. If we make some assumptions, that’s around 2 and a half months of supply. That doesn’t sound too bad really, but removing China from the equation, global corn stocks-to-use falls to 8.39%, about a months’ worth of supply and the fifth tightest on record. The USDA pegs Chinese ending stocks at approximately 207MMT which accounts for 70% of all the worlds ending stocks of corn. This is a huge quantity of grain, however when you consider that China is expected to consume close to 300MMT this year alone you can see why they have such extensive

stockpiles. With these immense stockpiles available and what is expected to be a bumper year for Chinese corn farmers, its easy to see why the some believe China’s feed grain demand will be reduced. Current USDA estimates peg Chinese corn imports at 26MMT, 6MMT higher than to their Chinese equivalent (CASDE) who peg Chinese corn imports at 20MMT. However, multiple reports have been cited stating that corn held in state stockpiles is of very poor quality, with damage from mould, fungi and insects rendering it unsuitable for human and animal consumption.

Expansion of Chinese corn – Chinese government rhetoric supports the narrative that China will be less reliant on imports. In previous years, they encouraged farmers to reduce corn area to ease state held stockpiles. In recent years, demand skyrocketed during the recovery of China’s pig herd following African Swine Fever. Domestic prices were elevated, corn stockpiles were inaccessible and of poor quality and so imports dramatically increased. This year the government provided incentives for farmers to grow corn on fields they typically would leave to fallow. They have also put into effect policy to protect soil in agricultural areas and provide subsidies and incentives to increased corn processing and ethanol production. All of this has contributed to a larger area sown to corn. The year has been very kind for many corn growers and China is expecting record yields. This makes major global corn exporters nervous, as their demand may be less than first thought. On the other side of the coin however, some market analysts still believe that Chinese demand will continue to run hot. China banned feeding food waste to animals from September last year and has subsequently had a massive impact on the grain demand, with an additional 30 to 34 million tonnes of alternative feed suddenly needed. Private analysts are also at odds with the USDA on China’s pig herd size, with private analysts expecting the pig herd greater than the USDA’s estimate and to increase further as it recovers from African Swine Fever.

Argentina – A major competitor of ours is Argentina. Growers over there have planted an estimated 1.25 million hectares of barley, approximately 13% more than last year. With the China no longer buying Australian barley, they have been public in their intention to supply the Chinese barley market. This doesn’t affect us, however if China’s feed barley demand is less than the market expects, than we will certainly have issue with the extra Argentine barley tonnes seeking new homes into our new markets.

Looking at the weather, its clear that they have recently had a pretty good run. Large areas of Buenos Aires have received more than 100mm of rain over the past two weeks. Overall, they are well above their monthly average at this stage. There have been some anecdotal reports from Bolsa de Cereales regarding some flooding occurring in central Buenos Aires, however overall, the rain has been welcomed. There has been a lot of talk recently about La Nina. The Bureau of Meteorology being relatively blasé about if it will occur or not, whereas US market analysts seem more certain that La Nina is on its way. La Nina will likely have a negative impact on Argentina’s cropping regions. Cereal growth stages are irregular; however, most are through tillering and are close to putting out heads. La Nina will also be unwelcomed in Brazil, where after a terrible season corn growers will be hoping for decent rainfall to restore their soil moisture profile for next seasons anticipated bumper corn crop.

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