Miller Magazine Issue: 120 December 2019

96 MARKET ANALYSIS MILLER / DECEMBER 2019 China Hog Prices back above $300/cwt US Equiv. Another year of record US hog slaughter is expected in 2020, driven by modest improvements in productivity and herd growth. US pork shipments to China could be record-large (up 16% YOY) in 2020, as the full impact of ASF is recognized by the market. But LatAm and EU producers also expected to increase sup- ply to cover China’s appetite. An outbreak of ASF in an export region outside of the US, e.g. Europe or Brazil, could drive higher export demand to the US – and with it, higher prices. Feed costs are expected to remain moderate and have a lim- ited impact on production. The US-China trade relationship since the beginning to nowadays has seen several changes to market sentiment as a result of geopolitics. “Phase 1 agreement” still not signed and idea that China will buy increasing quantities of US ag- ricultural products – including soy, feed grains, cotton, and animal protein – in the hope that the US will delay the intro- duction of new tariffs, while possibly also lowering some ex- isting ones. China announced on Friday the 6th of December that it would exempt US soybeans and pork from tariffs. The customs tariff commission of the State Council said in a brief statement that some purchases of US soybeans and pork by Chinese enterprises would not be hit by tariffs that were imposed as a countermeasure in the trade war with the US. The US is set to impose 15 percent tariffs on US$160 billion of Chinese imports on December 15. At a press conference in Beijing on Thursday, the Ministry of Commerce spokesman Gao Feng again said that if the two sides agreed on an interim trade deal, “tariffs should be reduced accordingly”. WHEAT In the northern hemisphere, spring wheat harvest wraps up in the US and Canada under mixed conditions. Winter wheat conditions remain generally favorable except for a few areas. But expectations are not such optimistic: plant- ing areas decreased. The USA has the lowest winter wheat areas in the last 100 year, Europe is not in time on rains, Ukraine too dry and also cut planting numbers. Just Russia now looks good. In the southern hemisphere, mixed condi- tions remain in Australia and Argentina – both of them also decreased production as per unfavorable weather. In the EU, the sowing of winter wheat started under mixed con- ditions due to variable climate conditions. In Ukraine, winter wheat conditions have improved as very warm and too dry weather in October - November is facilitating crop devel- opment despite some areas of low soil moisture. In Russia, conditions are favorable for winter wheat entering dormancy with only spot areas of dryness in the south. In Kazakhstan, winter wheat conditions are favorable as the crop enters dormancy? But this year could be a good example of how summer can change expectations. Winter wheat is under mixed conditions going into winter due to the late sowing caused by the delayed harvest of spring crops. In Australia, below-average rainfall and above-average temperatures in early spring, particularly in Western Australia and southern New South Wales, have significantly reduced yields. In Argentina, the harvest is wrapping up in the northern region under generally favorable conditions. Firstly, Australia is seeing a third consecutive year of drought, and we expect the lowest crop there in over a decade. Secondly, dry condi- tions are also challenging the 2019/20 Argentine crop, and a change in government will likely result in export challenges in years to come. Wheat prices have taken a lot of volatility from shakier corn and soybean prices during much of 2019. And while much of 1H was dominated by increasing expectations surrounding global wheat production, the reality turned out to be slightly disappointing. While the EU showed a recovery from last year’s drought, and yields in the US were impressive, productivity in Russia – the largest exporter – came in below early-season expec- tations. Overall, all main importers bought a lot since the be- ginning of the marketing year and prices a ready for rally. De- spite these issues, all in all, global wheat production showed a good recovery in 2019/20. Global stocks are expected to grow by a modest amount but still lead to record levels in 2019/20. Stocks-to-use will increase by less than 1% on a global level and remain flat in the world outside of China. This is partly due to a very good global demand, with the highest growth rate in three years. The largest demand changes will come from the EU, where there was a 13mmt YOY produc- tion increase, Rabobank reported. However, feed demand also increased by 5mmt, and exports are expected to go up by 4mmt, largely driven by France. Also, France expected to increase exports up to 19%, mainly to Egypt and Turkey, but Algeria and Tunisia are not active enough. Global import demand is forecast at strong levels, in part because low pric- es are encouraging stocking at the destination, and also be- cause wheat is clawing back share in global feed – ground it had lost to corn last season. Wheat prices are expected to re- main supported during the coming months. Harvest pressure from the Black Sea and the EU has been overcome, Ukraine pushed wheat into the exports their record 28 MMT crop at a rocket-high pace: up to 70% of exports capacity sold out for today. However, record global stock levels are expected by the end of 2019/20, and any price increase will be capped as long as the global corn market doesn’t also bring serious price excitement to wheat. Given record ending stock levels in the 2019/20 season, any price upside is likely to be limited. Russia, in particular, could see a large recovery in production, with exports that will challenge global wheat price levels. Also, we can only expect normalization in the weather in Australia through 2020, but it’s not so true. Global grain supplies will impact pricing on wheat. If the US plants more corn, and if