Miller Magazine Issue: 118 October 2019

100 MARKET ANALYSIS MILLER / OCTOBER 2019 crops. There are two reasons for this at once: the ASF epidemic and the tense situation between the largest world economies. Insignificant pressure on prices will create a forecast of a decrease in stock-to-use in the States by more than 10 percentage points compared to the previous season, but it is still greater, for example, in the 17/18 marketing year. At the same time, the average price of soybeans on the Chicago Stock Exchange de- creased by 15% compared with 17/18 MY. This is due to the fact that, as a whole, over the three marketing years, this ratio decreased by only 1 percentage point due to the growth of production in Latin America first of all. And although the latest USDA data indicate a decrease in China’s expectations of soybean consumption, these fig- ures are still underestimated, as ASF infection has not stopped, but, on the contrary, is spreading across the region. Despite the fact that China bought another batch of American soybeans, this factor is not a bullish signal for the market, because these volumes are not compa- rable with those familiar to the market. An attempt to find alternative sources of protein is also indicated by the agreement signed with Argentina for the supply of soy- bean meal. The license has already received 7 Argentine producers. The next round of negotiations will take place on October 10, but market no longer has any hopes for it. In addition, China bought another 3,400 MT of pork from the United States, which is absolutely not indicative of the level of consumption in the Middle Kingdom. For comparison, Mexico bought 13,400 MT per week, and South Korea - 4,600 MT. Brazil also received a correction of the weather and waited for the rains, which had a ben- eficial effect on the campaign. Brazil is a country that has received maximum benefits due to the trade war. The difference between Brazilian and American soybeans to- day is $ 20 / MT. Not the best price situation in the corn market. Har- vesting has already begun in the Northern Hemisphere. More than 6 MMT of corn was harvested in Ukraine, the yield is extremely low - about 6 MT / ha, and the average market expectations are far from last year’s 7.7 MT / ha. The data of local analysts agree on a crop forecast of 34-35 MMT, although the sown area is larger than last year. The strengthening of the Ukrainian currency makes corn from this country more expensive than its Latin and American competitors, whose currencies are now weak, and stocks and yields are quite high. Talking about the US crop “quite high”, we, of course, understand that it is significantly lower than the average for recent years due to the difficult sowing conditions. But the market has already taken these forecasts into account, and they are reflected in the summer price rally. Today, only a signifi- cant change in the figures of the balance of supply and demand can affect the market. In terms of wheat, supply is still higher than demand. Production has increased: for example, Ukraine and Ar- gentina are showing records, and even Australia is trying to restore past volumes. True, the drought in Australia has dragged on, and this may moderate expectations in terms of production. Argentina, where quite arid weather has also been observed lately, still has time to recover and local analysts do not lower their expectations for a 21 MMT crop. The latest news about increasing the forecast for wheat production in Russia from the Agrarian Minis- try to 78 MMT seems a little exaggerated. It is possible that we will return to the 75-76 MMT range again. Lo- cal analytical agencies confirm this idea: IKAR - 75MMT, SovEkon 74.9 MMT. Egypt, one of the key consumers of wheat, is making careful purchases. To date, almost 30% less wheat has been bought at tenders than on the same date last year. At the same time, the share of Russia has so far decreased, but Romania and Ukraine have already sold more than during the same period of the last mar- keting season. This is due to high bid prices from Russia, where manufacturers expected a premium for protein. But recent tenders, Russia is trying to win its monop- oly in this market. Although the presence of France in the procurement structure, which was absent for quite a while on the Egyptian market, suggests that overpro- duction is also taking place in Europe. Syria abandoned the attempt to exchange 100 kMT of durum for Russian wheat. In addition, Russia plans to ship 600 kMT to Ven- ezuela, as well as to continue the expansion of the Bra- zilian market. At this time, Brazil will purchase out of the quota of 750 kMT of American wheat by the end of 2019. It is important to note that Ukraine has already sold 48% of the export potential of this season. Even French barley today is cheaper than Ukrainian by 3-4 USD / MT, due to which the pace of its exports exceeds last year. Although production in Europe de- creased by 5 MMT, but in Ukraine, on the contrary, in- creased. The most unpleasant news is the growth of BDI. The cost of freight is forcing to lower the price on the part of the seller, but this process is limited by the profitabil- ity of production, so in the near future either the growth of freight will stop, or these costs will be transferred to buyers. In general, the season begins on the buyer’s side. It re- mains only to assume that the price bottom has already been found and the market is waiting for an adjustment, if not a reversal.