With the Northern Hemisphere completing its 2015 harvest, we look at global factors affecting the grain and oilseed commodities market.
The 2015 Northern Hemisphere harvest is all but completed and again large crops have been reported across the various regions. We are currently seeing high levels of grain and oilseed production and while this represents good news for some, it does generate pressure on commodity pricing. In addition to this, the global economic situation has created a softening of demand, particularly on commodities like wheat and corn. The structural bull market on agri-commodities is now behind us and we have clearly entered a period where stocks are at record levels and demand is rather flat - meaning a bearish sentiment now prevails.
Now we have the figures for last season’s exports of grains and oilseeds, we can again see a record level of cross border trade. A new feature seen was a substantial rise in feed-grain imports into China, created by the global commodity price being much lower than locally sourced supplies. During the year, 19 million metric tonnes of corn, barley and sorghum entered the country and this created a big market for exporters, such as France, the Ukraine and the US. Due to the likelihood of eventual government intervention, it is probable that this trading opportunity will only exist for a short period.
Overall the outlook appears to be one of a plateau in terms of demand, pricing and export. However, we must always remember that we are only one crop away from a major issue and so traders will be closely watching their screens for developments over the winter as some interesting features have already started to emerge.
El Niño Effects
Dry winter planting weather has been experienced in parts of the Ukraine and Russia and, if this remains, it may represent a significant challenge to wheat production levels in 2016. We are also seeing the effects of an El Niño which may be the strongest ever recorded, with dryness appearing in the palm production regions of Asia, corn production areas of Columbia and grain production areas of Africa. This phenomenon has already led to the Ethiopian Government entering the market to purchase 800,000 metric tonnes of wheat in what may possibly be the first of a number of similar purchases. By building strategic stocks, they hope to create a buffer to avoid eventual food shortages if the country’s drought situation worsens.
In addition to these climatic challenges, we are also seeing restructuring and repositioning of major international companies and we are apparently moving into a period of adjustment and change.
As we look forward, it is clear that, in addition to the lessons that can be learnt from these developments, the industry will also see a renewed emphasis on food safety and supply chain transparency. With the world’s most extensive network of agriculture experts and accredited laboratories, SGS offers a broad range of testing, inspection, market research, audit and certification services to help you maximise productivity, yields and profitability.
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