AgriCensus Report

EU to cash $70bn in from trade war, Brazil to benefit $10bn: UN

The European Union will profit the most from changes in global trade due to the US-China trade war, with Brazil cashing in $10.5 billion annually if the world’s two largest economies expand the trade war, a UN report published this week showed.

The study by the United Nations Conference on Trade and Development shows that the EU will benefit from $70 billion worth of increased trade, equivalent to 0.9% of the bloc’s total exports.

Of that headline figure, $50 billion will replace Chinese exports to the US, with $20 billion capturing US exports to China.

President Trump has warned that if no deal is reached by March 1, the additional tax rates on Chinese goods will increase from 10% to 25% with China to react reciprocally.

The UN estimates that of the $250 billion of Chinese exports taxed by the US, 82% will be snatched up by firms in third countries, with 12% to be retained by Chinese firms and just 6% by US companies.

Conversely, of the $110 billion of US exports taxed by China, 85% will go to other countries, with US firms holding on to 10%, and Chinese companies only seeing a 5% increase.

“The reason is simple: bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them,” UNCTAD concluded.

The EU is able to step into the void as it is best placed to offer the goods and services at a competitive rate while having the economic capacity to do so.

“Our analysis shows that while bilateral tariffs are not very effective in protecting domestic firms, they are valid instruments to limit trade from the targeted country,” UNCTAD’s head of international trade division, Pamela Coke-Hamilton, said.

Brazilian beans

Brazil, who became China’s number one soybean supplier in 2018 following the trade war, will benefit to the tune of $10.5 billion, equivalent to a 3.8% increase in annual exports and making it the eight largest beneficiary from the trade war.

Yet, only 20% of that increase is due to Chinese tariffs on US goods, meaning that the largest benefits for Brazil are to be reaped from additional trade with the US, such as metals and machinery, rather than additional soybean sales to China.

While higher cash prices for soybeans were welcomed by Brazilian farmers, industry concerns remain over what will happen when the trade war ends and tariffs imposed on US beans are lifted.

“Because the magnitude and duration of tariffs is unclear, Brazilian producers have been reluctant to make investment decisions that may turn out to be unprofitable if the tariffs are revoked,” the study said.

In 2018, Brazil exported 69 million mt of soybeans to China worth $27.5 billion, up from $20.3 billion the year before, Brazilian customs data showed.

Mexico, Japan and Canada were other large beneficiaries, following the EU, and each captured more than $20 billion.

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ADM Q4 profits slump despite surging crush margins

Agribusiness major Archer Daniels Midland posted a 60% slump in profits in the fourth quarter of last year, falling from earnings per share of 139 cents in Q4 2017 to just 55 cents in Q4 2018.

ADM reported earnings per share of 88 cents on revenue of $15.95 billion for the fourth quarter last year, falling short of analyst estimates of 92 cents and $16.8 billion.

The results came despite soaring profits in its oilseeds and origination business, which more than doubled to $432 million from $201 million in the fourth quarter last year as the company cashed in on low soybean prices in the US and high global soymeal prices.

Lower revenues from the company’s origination business, which includes grain trading and handling, hit profits after China slapped a tax on US soybeans, seeing a collapse in trading volumes in the US.

“Looking forward, the crush environment in 2019 will not be as spectacular as 2018. Given global demand and the strength we have outside China this business will maintain crush margins well above average over the last five years,” Juan Luciano, ADM CEO, told investors Tuesday.

Operating profit in the company’s carbohydrate solutions business, which includes its biofuels production, fell 31% due to poor ethanol margins amid record US supply.

ADM has been investing downstream in the feed chain in an attempt to gain a foothold in higher margin businesses.

In terms of soybean crush margins, ADM said it had locked in gross margins of $30-35/mt at its crushing facilities in the US with high utilisation rates. Meanwhile, in canola, margins were in the region of $42-45/mt.

In terms of rapeseed crush in Europe, the company said meal replacement from China as well as good demand in Europe had kept meal prices high, leaving margins at around $35/mt.

Finally, in Brazil it said its crush facilities at ports had locked in margins of $10-15/mt and $25-30/mt gross margins at “facilities that are geared towards the domestic market”.

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Russia’s 2019/20 wheat production forecast at 67m mt: minister

Russia’s 2019/20 wheat production will come in at around 67 million mt at its current trajectory, which would be a fall of about 4% from last year’s output, the country’s agriculture minister said in a meeting Monday.

“We will probably have about 108-110 million mt (of grain) … We plan to collect around 67 million mt of wheat,” Minister of Agriculture, Dmitry Patrushev, told President Vladimir Putin in a meeting transcript released by the Kremlin on Monday.

When asked about the target for the 2018/19 season’s exports, Patrushev estimated total grain exports of 42 million mt with wheat contributing 36 million mt.

Patrushev stressed the goal of becoming an exporter of “high quality wheat”.

The meeting comes on the same day Russia’s agriculture ministry was due to publish its weekly grain export figures, although it was yet to publish at the time of writing.

The pace of wheat exports this marketing year has been controversial, with the government looking at informal ways of slowing sales that have raced ahead despite output falling by about 20% year-on-year.

The most recent data, published a week ago, put wheat exports 11% higher year-on-year at 25.3 million mt.

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Bunge cuts 2018 EBIT outlook on trade war, appoints new CEO

Bunge, one of the world’s biggest agribusiness companies, has cited the impact of the US-China trade war in lowering its income outlook for the full 2018 fiscal year ending in December, according to a statement released Tuesday.

The company rolled the revision into an announcement over the appointment of a new CEO, with current board member Gregory A. Heckman revealed as the acting CEO with immediate effect. 

Adjusted EBIT will fall by about $90-$100 million in the Agribusiness segment and $60-$70 million in the Sugar and Bioenergy segment, compared to the low end of its previous forecast which was $1.045 billion.

“The Agribusiness shortfall was largely due to the reduction in value of the company’s Brazilian soybean ownership as factors related to China trade and demand caused Brazilian prices to converge with US prices,” the company said.

“The Sugar and Bioenergy shortfall was primarily due to lower Brazilian ethanol prices, and a weather-related reduction in yields as a poor crop year came to a close.”

The New York-based agribusiness has been suffering from a global glut of grains and oilseeds in the past year, with its share price falling over 30% in the past year.

Despite the downward revision in its EBIT outlook, Bunge’s share price rose 1.5% Tuesday as the company also announced Heckman had replaced former CEO Soren Schroder who announced in December he was stepping down after five years in the role.

“I look forward to further collaboration with Kathi (Bunge’s Non-Executive Board Chair, Kathleen Hyle), the Board and our management team, focusing on ways to improve performance and create shareholder value,” Heckman said in response to his appointment.

At the end of October, Bunge – part of the industry’s ABCD quartet of agri-trading giants – agreed to add four directors to its board after pressure from investors to create a strategic review committee to examine the company’s operations.

Last year, the company became a takeover target for Glencore and rival agribusiness giant Archer Daniels Midland (ADM), but ADM’s CEO debunked that in a January interview with newswire Reuters saying it is the wrong time for “monster” acquisitions.

In the 2017 fiscal year, Bunge’s turnover rose 7.3% to $45.79 billion, resulting in a total EBIT of $436 million, down nearly 61% on the year, with 60% attributed to its Agribusiness segment, and with the Sugar and Bioenergy making a loss of $12 million.

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Brazil soybean exports slow as China demand, early harvest disappoints

Soybean exports out of Brazil in January will not reach 2 million mt, according to Agricensus calculations using export and line-up data.

Brazil exported just over 1 million mt of soybeans during the first two weeks in January with a further 800,000 mt in the line up data.

And while that will eclipse last year’s record of 1.5 million mt exported over the whole month, it does not reflect recent expectations that exports will be much higher due to an early harvest in Brazil’s southern states.

Sources say the trade war and the uncertain picture of Chinese demand has deterred buying of soybeans by private crushers, many of which have been impacted by negative crush margins.

Typically, Chinese crushers would buy US beans for January shipments to cover March crush, but with US imports taxed at 25%, US bean sales have been limited to state-sponsored purchases of 5 million mt, leaving a big question of what China will do for March supply.

“It depends how much of that (5 million mt) finds its ways to crushers,” said one soybean trader at an international trading house, adding that if much of it does trickle out then buying will remain muted.

Brazil remains the cheapest origin for Chinese crushers to buy beans, but trade has been “very quiet” for weeks, according to Brazilian and Chinese sources, with about 20 cargoes being bought since December.

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As trade talks kick-off, Sinograin, Cofco buy more US soybeans

After much speculation, Chinese state-owned entities returned to the market on Monday to buy US soybeans, purchasing up to 25 cargoes (900,000 mt), according to several market sources.

Just hours after trade talks between US and Chinese delegates kicked off in Beijing, several sources reported between 20-25 cargoes were bought by state-owned stockpiler Sinograin and Chinese agribusiness Cofco International.

The panamax-sized vessels were bought for loading January and February out of the US Gulf and some vessels loading February and March were heard loading out of the Pacific Northwest.

“The price is estimated at 148 cents per bushel FOB US Gulf over March futures,” said one trader, equating to $394/mt.

A second source said the price for US Gulf was “150 cents per bushel” with PNW cargoes 10 cents per bushel ($3.70/mt) cheaper.

While a third source said the price paid for beans off the Pacific Northwest for February and March loading was 142 cents per bushel over March futures ($392/mt).

Cofco and Sinograin were unavailable for comment.

If true this would be the third round of buying in the past month, with estimates that between 4 and 5 million mt have now been purchased.

In July, China slapped an additional 25% import tax on US soybeans in a retaliation for US taxing some of the nation’s technology exports – effectively blocking US suppliers from the world’s number one buyer of soybeans.

But after talks between President Xi and President Trump last month at the G20 summit in Buenos Aires, President Xi pledged to buy more US agricultural goods while negotiations to find a resolution to the trade spat were ongoing.

Chinese state-owned buyers had been rumoured to be in the market last week, but with a government shutdown in the US preventing the release of export data, the market will have to wait for exact details.

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Real impact of swine fever to be felt in China next year: sources

Pork prices in China could see a spike in 2019 due to a potential pig supply shortage caused by the ongoing African Swine Fever (ASF) incident in the country, according to government and market sources.

A government official from the Chinese National Development and Reform Commission (NDRC) said at an industry event in China on Saturday that, unless controlled quickly, the spread of the fatal disease could have a long-term impact on meat prices.

A shortage of pig supply may occur “if the disease cannot be effectively controlled or [if it] spreads even further, causing farmers’ willingness to replenish stock to be weak,” the chief from the price-monitoring centre at NDRC told Chinese private newswire Caixin.

Two new ASF outbreaks were found in both western and north-eastern parts of China on Sunday, taking the total number of outbreaks this year to 92.

However, the impact of more than 600,000 dead pigs has been deemed minimal for China’s pig supply in the short-term, but will have a bigger impact next year.

“The culling of pigs has little direct impact on pig stocks as China produces more than 700 million a year and culls 2 million pigs on average per day,” a China-based analyst from an international crusher told AgriCensus.

“It mainly effects stock replenishment. The replenishment declines 10% if there is no margin. The long-term effect is bigger,” he added.

China’s soybean crushers have been closely watching the potential impact of ASF on pig supply as soymeal – the main product from crushed soybean – is a main source of protein in pig feed.

“The impact on soymeal demand will firstly depend on pig stock level and secondly rely on the margin [for pig farmers],” the same analyst said.

China’s government says it will import 84 million mt of soybeans in the 12 months starting October, down about 10% on a year earlier and the first time that China has seen a substantial reduction in imports since records began.

 

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Drought, currency & El Nino combine to panic South Africa’s corn market

South Africa’s domestic corn prices have spiked as fears mount over the impact of dry weather during the critical planting period and as the country’s currency depreciates on the international market, sources have told Agricensus Tuesday.

The move is enough to again bring the country close to import parity and has seen limits applied to trading on the Johannesburg Stock Exchange’s corn futures contract.

“Things are not looking great on the weather this side, the market is in a bit of a panic,” one trading source said, as rains that were expected in the last few weeks have failed to materialise.

“It is still early days, but the optimistic outlook at the opening of the season has changed,” Wandile Sihlobo, head of agribusiness intelligence at South Africa’s agricultural business chamber, said in a note and the dryness hampering planting could shave 5% off the country’s corn crop.

Sihlobo currently expects the corn crop to come in at around 12.2 million mt, with the USDA forecasting production of 12 million mt.

El Nino

However, the anticipation of an El Nino weather pattern forming through the latter stages of 2018 and beginning of 2019, which typically brings less rainfall to South Africa, is also fostering fears for the coming key crop development stages.

“There are fears of an El Nino later in the 2019 summer season… this implies that the summer crop growing areas could experience more acute dryness from the end of February,” Sihlobo said.

Worries around planting progress – with some states already out of the optimal planting window – have also driven domestic fears, with the December and March corn futures contract seeing trading suspended as prices surged through the daily limit.

According to JSE data, the March contract rose by ZAR100/mt ($5.60/mt) on both Friday and Monday, for the first time since early 2017, to reach ZAR2,776/mt ($193.29/mt) at Monday’s close with the December contract climbing even more sharply to ZAR2,789/mt ($194.19/mt).

On December 4, the March contract had ended at ZAR2,470/mt, and December at ZAR2,393/mt.

“We’re very close to booking yellow corn shipments for imports in March,” the trading source said, with Agricensus assessing Argentina FOB Up River corn prices at $171.75/mt, while sources put freight at around $30/mt.

“White maize prices are higher on the back of a lack of rain and of course the weakening rand,” an email from the JSE said, with the rand moving from around 13.691 to the US dollar on December 3, to reach 14.385 against the dollar by December 10.

The higher prices may encourage farmers to plant later into the season, however, as they try and capitalise on the increase and amid hopes that rains will come in the days ahead.

“If we only plant 65% at an average yield, we should have enough stock,” the source said, with the country already seeing a build in stocks as exports have slowed.

“If prices stay at these levels, we could expect farmers planting deep into January, if they receive rain”.

 

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Brazil to export 83m mt of beans as November shipments double

Brazilian soybean exports during November more than doubled on the year to 5.07 million mt as Chinese buyers cleared out Brazil’s storage bins, customs data showed.

The figure is a new record for the month and surpasses the previous record hit last year of 2.14 million mt.

Chinese crushers have shifted their Q4 soybean purchases from the US to South America after President Xi Jinping hiked import taxes on US beans as part of a tit-for-tat trade war with the US.

The data means that Brazilian soybean exports during the first 11 months just came in under the 80 million mt at 79.63 million mt, while another 3.17 million mt is lined up at Brazilian ports to leave during December with most vessels bound for China.

That will mean that Brazil will have exported an estimated 83 million mt of beans by the end of the year, or 14.7 million mt more than over the same period last year, which was a record in itself.

Meanwhile, corn exports during November were up on the year as well, following disappointing monthly export figures over the past few months as ports focussed on soybeans instead.

November exports came in just under 4 million mt, 13.6% up on the year, bringing total 2018 exports so far to 19.9 million mt, with another 2.82 million mt lined up, mainly in the port of Santos, to leave during December.

That would place 2018 exports at 22.72 million mt, some 6.55 million mt behind last year’s progress.

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Grain markets wait and watch as tensions mount over Azov Sea

Black Sea grain markets were unmoved during early trade Monday despite increased tensions on the Azov Sea after the Ukrainian and Russian navies clashed on Sunday, sources have told Agricensus.

Several Ukrainian sailors were injured and three naval vessels were seized after a Russian tanker blocked access to the Azov Sea via the Kerch Strait on Sunday morning.

Global grain markets shrugged off the news, with the cash trade opting to sit back and watch the political situation unfold rather than moving bids and offers.

The bulk of Ukraine’s grain exports leave via ports in the south west of the country, with its Azov Sea ports accounting for just 6% of total grain volumes during October, according to port line up data.

Other markets were also calm, with Black Sea wheat and corn futures in the cleared and bilateral markets steady from Friday.

“Ukrainian clients don’t seem that worried, there’s not been any aggressive buying or selling so far,” one futures broker told Agricensus.

Major US wheat contracts were up in overnight trading, with SRW March up 1.1% to $5.1275/bu and HRW up 0.6% to $4.89/bu – although traded volumes were thin.

The ruble fell about 1% against the dollar over the weekend to 12-day lows, while the hryvnia was unchanged.

Operational

Freight markets were touted as the most likely to experience volatility in the short run.

“The main thing is that owners are not to willing to go to the Azov Sea because at any time the Kerch Strait may be blocked,” a Black Sea grain trader told Agricensus.

“This is going to be main obstacle, but it is all about how much people are going to be willing to pay for the freight,” he said.

There are potential longer-term operational implications should Kyiv pass an emergency security bill, with increased security and border checks likely to add to costs.

A proposal to introduce 30 days of martial law has been tabled by President Petro Poroshenko and is due to be voted on by parliament on Monday.

History

Access to the Azov Sea has threatened to be a flashpoint in tense relations between Moscow and Kyiv since Russia annexed Crimea in 2014, with an increase in tit-for-tat naval skirmishes seen this year.

In July, Ukrainian ministers called for international support after complaining that vessels docking in Mariupol and Berdyansk were being stopped and searched for several days at a time by Russian forces.

And in August, Ukrainian authorities seized a Russian-flagged oil tanker that docked in Kherson, claiming its owner was on a register of international sanctions.

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