Global Grain Market Update
Grain supply increases globally, impacting commodity prices, while in some regions quality has been an issue due to challenging harvest conditions.
The 2014/2015 season has brought a different emphasis to global grain markets. "Carry-in" and "restocking" are the prevalent themes amid harvest data that confirms increased supply of grains across the main global production regions.
This time of abundance brings new challenges. As the world’s farmers continue to plant and produce more, commodity prices have dropped. Indeed, markets have reached four-year pricing lows and the resulting bearish sentiment is also reducing trade flows, particularly for wheat and corn. In the meantime, soybeans continue their steady growth as South East Asia’s compelling demand story evolves.
Last season saw the world’s largest ever movement of grain across borders and while it is already apparent that this will not be repeated for 2014/2015, volumes will still remain high. The continued shift from a sellers’ to a buyers’ market brings a very different focus to the industry, when compared to just a few years ago.
In Europe, France has had the most challenging harvest weather for years, with record rainfall recorded in many regions. While the overall quantity of available cereals is positive, some severe damage was caused to the wheat crop quality. This is giving rise to doubts about the ability of this crop to meet the requirements of France’s traditional export destinations. SGS has mobilised across France to focus on organising segregation efficiently as well as testing grain quality accurately and reliably. With wetter summertime conditions however came excellent growing conditions for corn. A record crop is expected.
Elsewhere, Russia has experienced better than expected yields and higher quality than in the previous season. This has, to date, resulted in record exports, mainly to Middle Eastern and North African destinations. Asian buyers look more to the Black Sea region to source corn and the Ukraine is particularly benefitting from this. When this crop is in, it is expected that Ukraine will export large volumes to China and other destinations in the Far East. All of this, in the midst of geopolitical issues that so far have had little or no impact on these country’s exports.
In North America, large crops mean that, for now at least, exporters are lacking a particular demand story and trade is cautious after the MIR 162 experience of last season. As a result of that experience, China is currently excluded as a destination for corn cargoes. Canada remains the origin of choice for quality wheat. Large carryover stocks from the previous season ensure large volumes are available for export. The logistical issues experienced last season appear largely to have been resolved.
Finally, shifting to the southern hemisphere, Australia is expecting lower production than last year due to dryer growing conditions. Argentina is expected to increase production on last year, which will increase the potential for exports to well in excess of what has been seen in recent years. Brazil has also had a very positive wheat harvest and while exports were anticipated, wheat is still lacking a demand story, a situation that could last well into next year.
In the mix of all this ‘plenty’ we see a developing focus on food security and food safety issues. The main driver is consumers who would like all food raw materials to come from safe and sustainable origins. There is much work to do here, but with this driver impacting most of the larger retail groups, it is no doubt here to stay. While this is good news for the consumer, for those in the origination, transportation, trade and processing businesses handling these commodities, it brings challenges and possibly new ways of doing things.
SGS continues to build its capability delivering solutions across the value chain to ensure we help our customers deliver according to these requirements.
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Vice President - Global Sales & Customer Care
SGS Group Management Ltd.
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t: +41 22 739 94 42