Miller Magazine Issue:114 June 2019

93 MARKET ANALYSIS JUNE 2019 BRAZIL Brazilian corn exports already have the best May ever and sales may exceed 1.1 MMT if sales remain at the same pace this last week of the month. The best year beginning since 2015/2016. Brazil’s grain exporters as- sociation ANEC sees corn exports in 2019 surpassing 30 MMT and possibly beating a previous 2015 record of 30.7 MMT. But not just exports capacity increase: Brazil corn ethanol industry booms as cereal’s output more than 97 MMT, Reuters says after recently surveyed 11 analysts in Brazil. New corn-based ethanol plant is built in Mato Grosso. Impasa, a company operating two corn ethanol plants in Paraguay, will open its first unit in Brazil in July. Besides ethanol, byproducts such as DDGs and corn oil are also in demand. Mato Grosso is Brazil’s leading cattle producer, with 14 % of the country’s 220 million herd. Ethanol demand may increase next year when Brazil begins the RenovaBio program. Meat demand could increase on Asi- an ASF crisis. So there is good opportunities to increase domestic consumption too. According to Conab, there are 2,192 storage units in Mato Grosso with a capacity of 37.4 million tons. A lot of those storage units still conta- in soybeans, so some of the corn will have to be stored outside temporarily. But in the same time, in an effort to modernize and streamline their operations, Conab is now in the process of closing some of its grain storage facili- ties in Brazil. Conab maintained a grain storage operation as a way to smooth out grain prices in Brazil, but many of the facilities had fallen into a state of disrepair due to a lack of funds for maintenance. The closures will be in locations where there is ample private storage capacity. A total of 27 facilities will close with 13 of those units in the center-west region, 5 in the southeast, 4 in the north, 3 in the northeast, and 2 in the south. The Center for Advanced Studies in Applied Economics (Cepa) reported to Reuters that the Chinese purchased more than 5 million tons of soybeans over the past few days for delivery in June-July-August, which is equivalent to about 100 vessels. Farmer selling in Brazil had been relatively slow in recent weeks as farmers were hoping for better prices. That se- ems to have now turned around with the Chinese busi- ness being sent to Brazil. Another factor that seemed to stimulate soybean sales is the delayed spring planting in the U.S. caused by wet weather. That would give sup- port for soybean prices but not for a long time as soy is overproduced and the US stocks are huge. Therefore, it looked like Brazilians one more time could take advanta- ge of this brief window of opportunity to lock in prices. AUSTRALIA As drought persists, Australia restricts water use in po- pulous state. The country’s east coast, as Reuters menti- oned, has suffered through two years of below average rainfall, devastating agricultural production and stoking a political debate over the impact of climate change. Aust- ralia importing high protein wheat for first time in 12 years as drought eats into grain production. That was the second main news for last month. Not big volume but big boom. Winter crop production in Australia is fore- cast to drop to 29.3 MMT in 2018-2019, 20% below the 20-year long-term average, because of severe drou- ght conditions in Victoria, New South Wales and parts of South Australia and Queensland. The wheat crop is also forecast to be down 20% to 17mmt. The difficult season is compounded by the impact on dairy farmers, who are a key domestic market for bulk grain but were forced to reduce their stock numbers, and therefore their grain requirements, due to drought. Ca- nadian vessels coming soon. CHINA Last week, Beijing announced that negotiations would not resume until Washington corrects its wrong actions, but Trump continued to talk about the possibility of an “early” conclusion of the deal. On Monday, at a press conference as part of his visit to Japan, the American le- ader said that the States were not ready to make a deal, but noted that a great agreement would be reached in the future. Tan Min Lang of UBS Global Wealth Management belie- ves that the parties can reach an agreement not earlier than before the arrival of 2020. So far, both economies manage to avoid the harsh effects of a trade war, which means they don’t have any need for prompt conclusi- on of a transaction, the bank believes. Also, the Trump administration has placed the Chinese giant Huawei on a blacklist, banning it from making purchases from US companies without special government permission. Trump cannot afford to fight simultaneously with China and Japan, I am sure an expert UBS, but both countries are interested in the final conclusion of the transaction. Trump, who hopes for re-election in 2020, will want to increase his chances of winning, and the Chinese autho-