I have been reading about avian flu crossing over to cattle in the US. How big an issue is it?
We’ve never seen it before.
The USDA confirmed that a virulent strain of avian flu is shifting over to bovines and dairy cattle. Four herds are impacted in two states, Texas and Kansas. People on these farms are getting sick, so there is a concern it may be crossing over to humans. They’re also now finding avian flu pathogens in unpasteurized milk. I hesitate to say it is like COVID-19, but there are some similarities.
We’re wondering what happens if the US export markets for beef or dairy get closed down. It’s a big issue; we are trying to determine how the US government will respond. We’re following it hour by hour. It could have a significant impact on the markets.
What else is driving the ag markets?
Rising interest rates have been driving grain prices lower over the last 18 months. They have forced money to leave the ag-markets. Funds have been going short in response.
Record high production in South America, principally Brazil in soybeans and corn, has shifted the dynamics.
We must also include China. China approved Brazilian corn imports in December 2022 and has been buying record amounts. Meanwhile, the US has been left as an island, with 2 billion bushels of US corn in stock.
There is nothing tight in terms of soybeans or wheat. The US is losing its thunder to the Black Sea in wheat and to Brazil in soybeans. We look at a landscape where the US is a residual supply holder. As a result, Chicago and world grain prices have come down to three-year lows.
What are the unknowns?
There are so many unknowns geopolitically.
The collapse of the bridge in Baltimore makes me wonder what would happen if the Kerch Bridge to Crimea were to come down in the Black Sea and Russian wheat exports were to stop. It would significantly impact the landscape. It could be a choke point.
There is also an ongoing rivalry between the US and China. Neither Trump nor Biden will miss a chance to bash the Chinese. The US exported around $36 billion of agricultural products to China in 2022. It would be a big deal if there were a breakdown in the relationship between the US and China, whether over Taiwan or economic issues.
You’ve seen in the news that former President Trump wants to impose 60 per cent tariffs on Chinese imports if he is elected. The Chinese are diversifying their supply as much as they can. They just approved Argentinian wheat, and we expect they will also approve Argentinian corn.
It is a free-for-all right now in terms of geopolitics.
Climate change or weather has been challenging. Last September, October, and November, we had an unusual drought in northern Brazil. Will weather problems occur across the Black Sea, Europe, or North America? It’s unknown.
These are the things that keep us up at night. There are more unknowns now than I remember in my 43-year career in this business, and the markets are volatile.
How is the situation in the Black Sea?
We’re in the third year of war. It’s taken its toll on the farmers in Ukraine.
Ukraine exported about 4.5 million tonnes of grains in March, so the pace is reasonable at slightly below last year. Still, the Russians continue to target port facilities in Odessa and electrical and energy infrastructure elsewhere. We’re concerned about sliding export volumes in the future.
Ukrainian farmers are suffering from low margins and poor profitability. The average price of corn in Ukraine is around $2.90 a bushel. There is not a lot of profit there for the farmer. He can’t find financing, so it’s a relatively tough year. The Ukrainian government is trying to give seeds to the farmers to ensure they plant their crops.
Meanwhile, Russian agriculture seems to be booming. Mother Nature has been kind to Russian farmers, who produced back-to-back record or near-record large crops. The Russians have continually lowered grain export prices as they need hard currency. In the case of wheat, this is the first ten days in the last 18 months that Russian wheat prices have been rising.
Russia is experiencing a political dispute over who will export wheat. It increasingly looks as if the government wants to take control. A year ago, they kicked out the multinationals, and there is now a dispute between the most prominent private exporter, TD Rif, and the government.
Dimitry Rylko will try to lay the groundwork at our conference regarding what the Russians are looking at. Are they moving towards a national grain board? Are they taking their foot off the brake in terms of selling wheat more cheaply almost every week?
Interestingly, if I look beyond the Russians, the world stocks-to-use ratio of global wheat exporters is at a record low. If the Russians stop exporting, become more passive in their exports, or have a weather problem, the world wheat market will turn around. It’s an intriguing dynamic for wheat going forward.
What will you discuss at the Graincom24 conference, and why should people attend?
We will hold this conference in mid-May, right after the USDA’s first look at global crops for the 24/25 crop year. We will discuss the supply availability in the coming year and the challenges exporters face. We will spend time on India, Brazil and China, the three behemoths in the agriculture trade.
This year’s agenda has a broad scope.
We will discuss AI’s importance to agriculture. For many of us, this is a new dynamic. How does it fit into trading, farm marketing, and agronomic programs?
We will hold a legal panel on sanctions. How are they impacting agricultural trade?
We want attendees to leave the conference with a clear understanding of the world’s economic and political landscape. We want to give attendees the information and the analysis they need to decide whether they should buy or sell the grains – and where the opportunities are – over the next six months.
We expect to have a full house, around 600 to 650 people. It should make it a great networking opportunity as well.
I look forward to seeing you there!
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