In April the International Grains Council (ICG) estimated world grain production in 2019-20 would increase two per cent over last year to 2.18 billion tonnes. Their estimate for total consumption (food, feed and industrial use) is 2.20 billion tonnes. The math suggests that demand will outpace production, meaning the supply carried forward will be drawn down for a third consecutive year. The ICG estimates world carry out stocks will be reduced to a five-year low of 588 million metric tons (MMT). It would be logical to assume that prices should trend upward as the year goes on.
World grain inventories had been building over the past several years but with weather uncertainties, we are now seeing world stocks decline. If demand outpaces production and carry out supplies are reduced, prices should improve.
The summer growing season from April to September is important when it comes to world grain production, as it is when the vast majority of crops are planted. Buyers watch this period closely for weather events that could impact new crop production. If the weather starts to pose a potential threat, buyers start pre-buying enough grain to meet their immediate needs, before prices push too high.
On the other hand, if world crop conditions look good and the weather is behaving, buyers will likely wait to see how the crop progresses, without pre-buying. With good conditions, prices will trend lower as harvest approaches.
We have seen continued drought in parts of Australia for a third year. India’s monsoon rains are less than stellar. Dryness through parts of the EU is impacting crop production. Across the U.S., “too wet” and “too dry” delayed seeding and is impacting the growing season, which will likely reduce production.
Dryness across most of the prairies this spring hurt germination. Rains in some areas helped alleviate this concern, but now too much rain is becoming a problem.
The ICG was forecasting an increase in wheat production in the Baltic Region of around 2.4 MMT back in April, but SovEkon has lowered that forecast by 500,000 tonnes due to dry weather in the area.
With production uncertainties across the globe, you would expect grain prices to climb, but there is a lot of growing season left. Buyers aren’t ready to start buying just yet. If weather uncertainties persist or get worse you will start to see some buying activity.
If the Number 1 importer of U.S. beans and Canadian canola (China) shifts its buying away from North America because of politically motivated trade disputes, we will see a long-term impact on world grain trade patterns. No one expected China’s purchase patterns to change, but we were wrong. Canada has been caught in a war of words between the U.S. and China and is now paying the price.
China and the U.S. aren’t making headway on their trade negotiations. China won’t talk to Canada until we release Meng Wanzhou, and that is not going to happen until after the federal election. Canadian canola producers won’t have access to the Chinese market for at least another three months, and I believe it may be a year or longer.
Over the past decade, China and Russia have been increasing trade between the two countries. New roads and railways allow for more direct overland movement between China and Russia. With increasing grain production, Russia is positioning itself to displace grains from North America into China.
The current trade dispute is the ideal opportunity for China to tell the U.S. to go fly a kite, then gain the upper hand in negotiations by turning to Russia for grain needs, freezing out U.S. grains with no negative impact to China.
Canada was asked to do something for its best friend — detaining Meng Wanzhou. This upset China, and look where it got us. We may have lost our Number 1 canola customer for good.