AgriCensus Report

South America loses edge as US flash sales reclaim corn exports

Higher basis prices in South America’s FOB corn markets are finally stimulating a switch in demand for some destination markets back to US corn supply, with two consecutive daily private sales announcements highlighting an improvement in demand.

US net sales are lagging well behind last year’s pace, but Monday and Tuesday brought announcements from the USDA of private sales of 132,000 mt and 191,000 mt of corn to unknown destinations.

“Given Argentina premiums are close to the 60s, the US should be taking back Latin and Central America demand if anyone is still open for December,” one market source said, with recent net sales and export inspection data showing a pick-up in demand from those destinations.

“My guess yesterday was Japan, the odd 191,000 mt size makes me think Mexico… The FTA quota from Colombia resets to 0% for US corn for January 1, so it will most certainly be the Gulf versus South America,” the source said.

The twin sales notices follow an announcement on November 8 from the USDA for 217,040 mt of corn – also for unknown destinations but thought to be heading to Mexico.

South American basis values began to climb in October, as a combination of the approaching end of harvest, appreciating currencies, and a lack of farmer selling drove basis values higher in Argentina and Brazil.

As a consequence, this tipped the balance towards Ukraine’s huge corn harvest.

Overnight, FOB Santos Brazil corn for December shipment was heard bid at 70 cents over December, with the same loading period offered at 65 cents just a week earlier.

Meanwhile, US Gulf December cargoes were heard offered at 66 cents over December, while Argentina’s basis premiums have jumped from single figure premiums to now stand at around 55 cents.

The switch was underscored by the wholesale ousting of South America from a recent burst of buying from South Korea, which stocked up on over 500,000 mt of corn in the space of a week in early November – the bulk of it from the Black Sea.

However, US domestic values have remained well supported as a slow harvest and strong domestic demand kept internal basis values high and starved supply to the Gulf and Pacific Northwest export hubs.

This has meant the country has continued to struggle to compete.

However, for countries with existing free trade agreements in place, the US is proving to be competitive, with much of the recent buying heading to Mexico, Japan or Colombia.

US weekly net sales data shows Mexico has bought 6.3 million mt of net sales in the 2019/20 marketing year to date, followed by Japan with 1.7 million mt and Colombia on 650,001 mt.

However, the figures are well behind last year’s pace, with Mexico on 7.3 million mt, Japan on 3.7 million mt and Colombia on 1.1 million mt at the same point of 2018/19.

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ANALYSIS: EU faces fresh fears of tight rapeseed supply in 2020

The European Union is facing another period of tight rapeseed supply through the second half of its marketing year after drought left its crop at its lowest  level in 13 years, while exports from Ukraine are showing signs of drying up.

Imports of the oilseed surged 77% on last year to 2.67 million mt between July and November, leaving a gap of 3.91 million mt still to be imported before June 2020 if the import forecast by the European Commission is to be met.

Nearly 80% of this year’s imports have been supplied by Ukraine, but exports for this season are now running dry as shipped volumes near the 2.85 million mt ceiling of Ukraine’s exportable surplus.

“There are only crumbs left to be shipped, while the main volumes are already contracted. The season has almost finished in Ukraine,” a Ukraine-based market analyst said.

“We are fully sold out on old crop seeds, there isn’t anything left to sell and discussions are now focusing on new crop, which will be harvested next June,” a Ukrainian broker said.

Ukraine started its export program in June and had already shipped 2.54 million mt by the start of November – mostly to the EU – leaving around 300,000 mt still to be shipped.

“We were heavily dependent on Ukrainian rapeseed but that looks to be ending now… Volumes are still coming in but it’s basically impossible to get any new business done,” a Dutch broker said.

“We will have a shortage of rapeseed in Europe, some expect there will be no seed left from May. It looks like we are heading for a squeeze,” he added, leaving European importers to look to Australia and Canada to fill the gap until Ukraine starts exporting again next June.

But those origins bring challenges, not least the issue of genetic modification.

Canadian supply

“With imports from Ukraine falling, I expect some coverage to come from Canadian canola, but it is a tricky situation selling the GM meal. The feed sector just doesn’t want it,” a German broker said.

Europe excludes the use of any genetically-modified products, making meal or oils derived from GM-based Canadian canola hard to place, while a fall in meal prices means the feed sector is mostly using soymeal.

Even biodiesel does not have the same cold properties as European material, producing less glycerine during esterification and requiring segregation in tanks, while its GM nature means that it is not rated as EU sustainable, further slashing its value to blenders.

“Some expect one million mt of Canadian canola to come into Europe, that means around 400,000 mt of rapeseed oil, but it will be tough to place that volume, I just don’t see how that will happen,” the Dutch broker said.

On top of that, meal prices in Europe have fallen, the Dutch broker added, with the feed sector mostly taking soymeal, which in turn could hamper rapeseed crush margins if more Canadian canola is crushed.

Australian supply

“The only solution is Australia, which has good greenhouse gas savings values [making it more attractive for the biodiesel sector], but they are of course not exporting much at all,” the Dutch broker said.

Australia has been hit by a third consecutive year of drought, slashing its output estimates to 2.3 million mt – around 1.6 million mt of which is expected to be exported, according to Australia’s agriculture ministry.

That export figure – which market analysts call optimistic – is up 3% from last year’s lows but it is still the second-lowest level in a decade.

Europe’s new crop

On top of the supply worries in the current marketing year in Europe, questions about next year’s crop have emerged as autumn plantings of the seed faced a third consecutive year of dry weather, which could limit emergence next year.

Despite high rapeseed prices on the Paris-based Euronext exchange, Europe’s farmers only marginally expanded their planted area from last season’s multi-year low as EU-wide pesticide bans have made it harder for farmers to ensure a good yield.

“It was too dry for plantings this autumn, and acreage isn’t up that much, so we’ll face another year of a tight supply and demand,” the Dutch broker said.

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Bunge to work with Wilmar in Vietnam’s ‘tough’ market

Agribusiness majors Bunge and Wilmar are expected to cooperate in Vietnam’s meal market, as the country’s tough market conditions continue to pose challenges for agriculture suppliers, market sources told Agricensus Tuesday.

The shake up comes as Japan’s Marubeni transferred all its operations to Enerfo from November 1 amid difficult trading conditions as the country grapples with an outbreak of African swine fever and slim margins.

The note, seen by Agricensus, states Wilmar Marketing CLV would be the agent for Vietnam Agribusiness Limited, Vietnam Agribusiness Holdings PTE Ltd and Bunge Asia PTE Ltd with effect from November 1.

All three companies are part of Bunge, the B in the ABCD quartet of global agribusiness giants, with market sources saying the statement follows rumours that the two companies had been exploring ways to work together in the country.

According to the note, Wilmar will assume responsibility for sales of soymeal, corn, feed wheat and other agri products.

Vietnam’s feed supply sector has been hit hard by shifting dynamics in its pig sector, with the industry undergoing huge expansion as it catered for China’s pork demand and burgeoning domestic demand.

However, a slowdown in demand from China in 2017 hit the sector hard, before China’s outbreak of ASF spread across the country’s border in early 2019 and infected most of Vietnam within months, with the loss of 5.7 million pigs

The feed sector continues to see major corn imports arriving, with November likely to see up to 1.4 million mt arrive again, as poultry and aquaculture pick up some of the slack.

But the rampant price of pigs domestically is likely to bring further incentive amongst farmers to repopulate their pig herds.

“The market is tough, life is very difficult. People are coming in and out of the market, but people are only losing money in Vietnam trades,” one market source said.

Both Singapore-based Wilmar and US-based Bunge were contacted for comment but Agricensus had received no reply by the time of publication.

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Argentina farmers face agriculture policy overhaul after Peronist victory

Sunday’s election that swept the Peronist parties back into government in Argentina after a four-year hiatus has prompted traders and farmers to brace for a return of export taxes as the country scrambles for foreign currency reserves.

In a result that was widely expected, Alberto Fernandez of Frente de Todos (Front for All) trounced the incumbent centre-right president, Mauricio Macri, in the polls, winning 48% of the vote versus 40.5% with the remaining 6.2% picked up by independent candidate Roberto Lavagne.

By attracting more than 45% of the vote, the result means Fernandez will avoid a run-off between the top two candidates and will take office in the Casa Rosada on December 10.

However, his support was lower than the 15-percentage point lead the opinion polls pointed to.

And while he attracted support in Buenos Aires province, which is the largest province in terms of agriculture production, Fernandez got fewer votes than Macri in other key agriculture provinces such as Cordoba, Santa Fe and Entre Rios.

To prop up the battered peso, which has lost 50% of its value this year, the Argentina Central Bank on Monday limited the purchase of dollars by citizens to $200 per month.

While this does not impact foreign trade, the trading community is already fearing a potential return to the restrictive export and interventionist policies in the agriculture market that were widely adopted by Peronists from 2008 through to 2015.

While a return to higher export taxes is seen as a given, a bigger fear is the imposition of export quotas or even limits on land ownership to appease a voter base that advocated redistribution of wealth.

Indeed, earlier this year lawmaker Felipe Sola of Frente de Todos had called for interventionist measures in the domestic wheat market to regulate the domestic price of bread.

And Juan Grabois, a social leader with very close ties with the Frente de Todos coalition recently suggested that the next government should limit land ownership to 5,000 hectares.

With inflation running at 55% this year, and given the need to attract foreign reserves, few analysts expect quotas and land restrictions this early in the government.

Meanwhile, the prospect of a dual exchange rate will almost certainly become increasingly apparent, with one for financial markets and a lower rate for trade to ensure farmers are competitive.

Tax hike

“The new government is prone to increasing tax exports. Nobody in the world will give them even a coin as a loan, so they’ll have to look for a way to get money to finance the public expenditure. I think they´ll rise tax exports on cereals and oilseeds,” said one market source.

Current taxes on cereals stand at 4 pesos per goods exported – around 7%.

But in addition, exports of soybeans, soyoil and soymeal, attract an 18% flat rate taking the total to 25%.

Some market participants now expect those rates to rise to 20% for cereals and 30% for oilseeds and their derivatives – close to the 23% and 20% that was in place at the end of the last Peronist government.

Although others are less pessimistic, expecting a less onerous increase on grains at around 10%.

If taxes reach the higher end of those estimates, analysts at the Buenos Aires Grain Exchange anticipate that grain production will fall by 5.6% with exports slumping 14.4%.

That compares with overall grain production in the 2019/20 estimated at 131.7 million mt, down 3% compared with the previous year’s volume.

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SNAP ANALYSIS: Does China need another 10m mt of US soybeans?

On Tuesday, news emerged that Chinese authorities were poised to exempt 10 million mt of US soybeans from additional import tariffs arising from the trade war with the US, taking the total that can be imported without the 30% levy to 30 million mt.

The announcement comes ahead of a next round of trade talks expected to make headway in Santiago, Chile next month.

It is part of a long running saga that has seen the US hold off on escalating the trade war by raising tariffs on Chinese goods, providing China continues to purchase US agricultural goods.

However, it’s likely for two reasons that this quota may not be fully used.

Firstly, Chinese demand for beans is expected to fall by 10-15% this year compared to 2017 due to the ongoing outbreak of African swine fever.

China’s ministry of agriculture estimates that soybean imports will fall in the 2019/20 marketing year to 84 million mt from 94 million mt two years earlier, although private estimates are as low as 81 million mt.

And trade sources estimate that following yesterday’s buying spree of November cargoes from Brazil, just 7 million mt of Chinese demand is still open before yet another mammoth Brazilian harvest hits in February.

Secondly, Brazil soybeans are simply much cheaper from February onwards.

According to Agricensus data, from February onwards delivered Brazilian soybeans into North China are 40-60 c/bu cheaper than the US oilseed on a like-for-like basis.

That means in the absence of Chinese government stockpiling, the quota of 10 million mt is unlikely to be used.

“It is interesting… As the Chinese government releases quota, some parts of it have to be fulfilled, but there might not be profits in those purchases. US margins cannot compete with Brazil’s,” said one soybean trader at an international crusher.

With offers in the US Gulf for January shipment at 50 c/bu over futures, for US farmers to be competitive, they would have to offer soybeans at ports at parity to futures contract – a dynamic that rarely happens.

“US beans [crush] margins are pretty bad,” a second trader said, responding to the news that some Chinese crushers could be seeking December shipment out of the US Gulf on Tuesday.

It boils down to this, given China has said any purchases will be in line with market competitiveness, this will not be a blank cheque for US farmers.

And US soybean exports to China will still hit a six-year low in 2019, and largely because of a decline in demand rather than any trade war impact.

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China confirms trade agreement with US, more agricultural purchases to come

The Chinese government officially confirmed that a tentative trade deal has been reached between China and the US with additional Chinese purchases of US agricultural products likely occuring later this year.

China’s Ministry of Foreign Affairs stated on Tuesday that the US’ announcement of a partial trade deal between the world’s two largest economies are true.

“What the US said was the real situation, and was consistent with the situation we know,” said Geng Shuang, the spokesperson for the ministry during a press conference.

“The two sides are also unanimous in the issue of reaching an economic and trade agreement. There is no difference,” Geng added.

This was the first time that China has officially responded since US President Donald Trump announced a “substantial phase one deal” shortly following the conclusion of trade talks last Friday.

Meanwhile, the ministry confirmed that Chinese companies have imported large volume of US agricultural products since the beginning of this year and will purchase more, although declined to give details.

The ministry said Chinese companies had already purchased 20 million mt of soybeans, 700,000 mt of pork, 700,000 mt of sorghum, 230,000 mt of wheat as well as 320,000 mt of cotton.

The amount of soybeans bought by China in 2019 so far is similar to the country’s total import of 22.15 million mt from the US in 2018, but remains sharply lower than the 32.85 million mt it imported in 2017.

That contrasts with US pork imports, which at 700,000 mt this year is five times higher than before the trade war started in 2018.

China’s total import of pork in the first nine months of 2019 reached 1.33 million mt, up nearly 44% year-on-year.

The total imports in 2018 was only 1.19 million mt.

Regarding wheat imports, China only bought 361,292 mt from US in 2018.

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After four years of de-stocking, China is to end 2019 corn auctions

China’s national grain trade centre (NGTC) has announced that state-held auctions for corn reserves in the 2019 calendar year will conclude by the end of next week, which would mark an end to four years of auctions.

“After the research and decision from concerned departments, the auctions for national temporary corn reserves will be suspended as of October 18, 2019,” said NGTC in a statement published on its official website.

NGTC did not specify the reason for ending corn auctions next week.

China also concluded corn auctions in October last year as the new harvest of corn crops normally enters the market at this time each year.

Although there are still two more rounds of corn auctions to be held this Thursday and next Thursday, with each offering nearly 3.5 million mt, the country has already sold nearly 22 million mt of corn reserves in 2019 through 19 rounds of weekly auctions since late May this year.

However, the pace was much slower compared to the sales volume of more than 100 million mt in 2018.

China has been offering to sell between 3.5-4 million mt of corn reserves during every week’s auction this year, but weekly sales volumes plunged from more than 3 million mt in late May to as low as 105,000 mt two weeks ago.

The overall clearance rate of corn auctions this year was below 30%, out of a cumulative offer of more than 73.5 million mt, reflecting poor demand in the world’s number one feed consumer.

China has been cutting down its massive corn reserves through state auctions since 2016 and has been aiming to transform the domestic corn market from a policy-dictated system to a market-driven one.

Earlier this year, officials from China’s Ministry of Agriculture and Rural Affairs (MARA) said “2019 is likely to see the last round of destocking in China,” meaning that the country could end state auctions after four consecutive years.

The market expects China to still have around 56 million mt of corn reserves by the end of this year’s auctions.

China’s corn production this year is expected to reach more than 255 million mt of which 174 million mt will be used in animal feed and 84.5 million mt is expected to be consumed by industry including ethanol producers, according to recent estimates from MARA.

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Chinese crushers seek another 1-2m mt of US soybeans after 3rd tariff exemption

Chinese authorities gave seven companies a third exemption from paying stiff import taxes on buying US soybeans on Monday, three market sources said, raising the prospect that another 1-2 million mt could be contracted this week.

The well-placed sources confirmed that five privately-owned crushers and two state-owned companies received permission on Monday to import an undisclosed volume of soybeans from US suppliers without having to pay a 30% levy.

The total volume is thought to be in the range of 1-2 million mt, although none of the sources would confirm the exact figure.

“[The volume] is said to be similar to the last round,” one soybean trader from an international trading house told Agricensus.

“This is a new quota,” said a soybean broker who works directly with the Chinese market.

Several sources confirmed that Chinese buyers were seeking offers from US trading houses on Monday for November and December shipments following the exemption.

In the past two rounds of quotas, Chinese crushers are thought to have bought 2-3 million mt of soybeans, and in the last round (since mid-September) an estimated 1-1.5 million mt was said to have been contracted for Q4 shipment.

Since December 1, China has pledged to buy 20 million mt of soybeans in a bid to smooth negotiations during a trade war with the US.

Of that total Chinese companies have either imported or contracted at least 16.5 million mt, according to USDA data.

Market sources claim that figure is as high as 18 million mt.

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Chinese crushers snap up US soybeans after quota exemption meeting

Chinese private and state-owned crushers bought between 800,000 and 1.5 million mt of US soybeans on Monday, market sources told Agricensus, after a meeting in which the Chinese government said it would exempt about 1.5-1.6 million mt of imports from a 30% import tariff.

According to several market sources, purchasing managers at least six crushers met with officials from China’s commerce ministry on Monday, in which it was agreed to exempt the tariff for Q4 shipments.

“I heard several people who are in charge of [US soybean] quotas at private crushers were summoned to Beijing for meetings,” said one market participant who declined to be named.

“Yes, I heard that as well. They were summoned separately. Heard it was about a quota,” a second source said.

Market rumours suggest another 800,000-1.5 million mt was contracted – equivalent to 10-15 cargoes, with prices around 140 c/bu over November futures for November shipment.

Cargoes were also purchased for October and December loading.

Companies that were said to have received a quota include Cofco, Jiusan, Wilmar and Sinograin.

This week’s purchases come on top of about 1 million mt of US soybeans that crushers have made in the past fornight, with rumours suggesting a total of 5 million mt may be exempt from the tax, providing they are bought for shipment in the next five months and contracted in the next month.

The so-called “good-will” exemptions come as Chinese and US officials re-engaged in trade talks last week in a bid to resolve a trade dispute that has seen more than $500 billion worth of goods hit with import taxes.

The latest round of negotiations finished last Friday amid pessimism that little had been achieved after Chinese officials cancelled a field trip to see US crops.

Soybean futures on CME rallied 1.5% on the rumours to hit a six-day high of $8.99/bu.

US soybeans are offered on a delivered basis ex-PNW for delivery into North China at around 141 c/bu over November futures for October shipment CFR China.

That equates to around 64 c/bu ($23.5/mt) cheaper than Brazilian soybeans.

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Latest US soybean sales to China push week’s total to 720,000 mt

China picked up an additional 260,000 mt of US soybeans overnight to take total volumes booked since Thursday to 720,000 mt – equivalent to 11 full cargoes – according to reports on Tuesday from the USDA.

China removed import tariffs on an unspecified quota of US beans for a handful of private and state crushers last week as relations in the trade war between Beijing and Washington calmed, paving the way for new purchases.

The most recent purchases were likely lifted from the PNW for delivery in the fourth quarter, according to market sources, with purchased values on a CFR basis currently unknown.

It comes after Chinese importers booked seven cargoes – 204,000 mt on Thursday and 256,000 mt on Friday – at 148 c/bu over November futures out of the PNW on a CFR China basis.

With allocated tariff-free quotas estimated at 2-2.2 million mt by the market, more purchasing of US soybeans could be expected.

But with falling crush margins in China, this quota might not be filled as quickly as had been previously anticipated, despite US soybeans now being the most cost competitive at origin if shipped out of the PNW.

On Thursday, trade estimates had highlighted that up to 15 cargoes were concluded on that day alone.

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