Paris – January 29, 2021
Increase of 20% for wheat, 30% for malting barley and corn, 40% for soybean meal, 50% for sunflower oil… for a year, both cereals oilseeds are affected by a general surge in prices, sometimes reaching the highest for 8 years.
The movement is not linked to a one-off climatic accident affecting the prices of a specific product, but concerns all agricultural raw materials.
The reasons for this inflation are multiple.
Already, 2020 has seen a number of setbacks on the production side, with a drop in wheat production in France and Europe, and less corn than expected in the United States and Ukraine.
The risks of drought linked to the La Niña weather phenomenon in South America are also sources of fears for the upcoming soybean and corn harvests.
In this context, Russia’s decision to introduce export taxes to protect its domestic market has accelerated the reduction in supply at the global level.
AT THE SAME TIME, DEMAND FROM IMPORTING COUNTRIES HAS NOT WEAKENED, IN A CONTEXT WHERE THE COVID-19 PANDEMIC IS PUSHING STATES TO SECURE THEIR FOOD STOCKS.
THIS IS THE CASE OF CHINA, WHICH IMPORTS SPECTACULAR QUANTITIES OF GRAIN, LARGELY CONTRIBUTING TO THE SUPPORT OF WORLD PRICES.
THE COUNTRY IS REBUILDING ITS HERD OF PIGS DECIMATED BY SWINE FEVER, GENERATING A STRONG DEMAND FOR ANIMAL FEED, SOYBEANS AND CORN IN THE LEAD.
Bullish trend
How long can this bullish environment last?
The president of the Ag American firm , considers that the future will be green for the next few years.
The American expert, who spoke on January 27 during the Paris Grain Day, the meeting place for international players in the grain market , sees China as the real engine of world demand.
According to him, agricultural markets will be on the rise for the next 24 months.
Armed with the trade agreement between the two countries, the flow of corn and soybeans from the United States to China peaked in 2020, and trade is expected to intensify in the coming years.
Analyst in Shanghai, Rosa Wang, who also spoke at this meeting, however insisted that China was not intended to remain an eternal importer of cereals.
The country plans to increase its maize production in the next two years thanks to a combined increase in areas and yields.
The latter could also increase with the upcoming authorization on Chinese soil of two varieties of GMO corn, said the analyst.
But until then, Chinese appetite will undoubtedly continue to drive the markets.
CHINA CORN S&D
Corn production for 2020/21 is adjusted to 260 MMT, down slightly by 100,000 metric tons (MT) from last year because of lower planted acreage but improved yields.
While the Chinese government has reiterated that severe lodging caused by typhoons in the major corn belt of the Northeast had a limited impact on production, industry sources paint a different picture.
In addition to a much more difficult and costly harvest, industry sources estimate a loss of at least 8 MMT due largely to higher grain toxicity.
In addition, less production was lost to drought than was typically witnessed.
The forecast for 2020/21 feed corn and residual use consumption is 6.0 MMT less than the official forecast due to high prices.
While overall feed demand continues to recover, high prices and high rates of mould from lodged corn limit feed consumption.
Corn demand for industrial use is recovering.
The starch industry average capacity utilization rate for November was 69 percent.
The average corn ethanol plant capacity utilization rate was 55 percent, up 6 percent still down 15 percent from last year.
After finally decreasing slightly for two weeks in November, corn prices rebounded to a new high.
Chinese Futures prices were close to U.S. $417 (RMB 2,700) per metric ton (MT) in early December, as a result of continued hog restocking, higher harvest costs caused by lodging, increased state-owned enterprise (SOE) procurement, and other market volatility.
Official newspapers called on the public to see the corn price increase with a more rational view.
The newspapers argued that, “grain supply and farmer income shall both be guaranteed.
China’s 2020/21 corn import forecast remains at 22 MMT, still 4.5 MMT tons higher than the official forecast due to continued strong import demand fuelled by high domestic prices, the need and drive to restock grain reserves, and growth in feed consumption.
China imported more than the 7.2 MMT tariff-rate-quota (TRQ) in calendar year 2020 with no slowdown in sight.
2020/21 ending stocks are forecast at 202 MMT, up 10.7 MMT from last year on higher imports to restock reserves used to fill the supply gap created by growing feed demand.
In mid December, in response to high corn prices, the state resumed temporary corn auctions by offering 576,574 tons of 2015 corn crop for processing plants in the Northeast.
China’s official news outlets reported cases of grain storage silo scandals, resulting in over 4 MMT of “disappeared grain.”
In response, on September 24, the State Council announced it will no longer issue new certificates to approve private grain storage silos for central grain reserves and that central reserve grain will only be stored in facilities directly managed by Sinograin.
The international experts participating in Paris Grain Day have also concluded, after a vote, an upward trend of 3.63 out of 5 (5 being very bullish) for 2021. In 2020, this indicator was to 3.08.
