The grain markets have had a turbulent first half. This is mainly due to the trade dispute between the US and China. In addition, the changing weather conditions have a strong influence on prices. ABN Amro reports this in a report on the grain market.
The difference between the high and the lowest price in the corn market is 24% so far. This difference is 22% for the wheat price and 15% for the soybean price, according to the reporting from the bank. It is striking that the peaks and valleys in the prices of the three grain markets occur at almost the same time. The common denominator is the trade conflict between the US and China, which is a major concern. The outcome of the trade negotiations will have a direct impact on future demand for grains.
Again decisive for output
Unrest on the supply side also causes price volatility. The weather conditions in particular have an influence. A lot of rain and flooding in the US had a negative effect. The plantings were delayed, which was at the expense of quality. Farmers in Russia, Ukraine, the EU and Australia are dealing with drought, which means less production. The United States Department of Agriculture (USDA) has already revised its forecasts more than once this year production need to adjust.
Investors use these trends to translate these trends into the future supply and demand situation on the grain markets. It often causes a lot of volatility in the price on the short-term. Investors are now biting into news about heat in the US, the good wheat harvest in Germany and soy sales in Russia to China.
Soybean shortage, rising price
In the short term, the trade dispute continues to impact soybean prices. Uncertainty about Chinese demand remains high. Due to the African swine fever, pig farmers in China are buying fewer soybeans worldwide. This primarily affects exports from Latin America.
Next season, global demand for soybeans will grow by a total of 2%, according to the International Grains Council (IGC). However, total production will shrink by almost 4%. Inventories therefore drop to 13% of total consumption, or 6-7 weeks of available consumption. In this scenario, the price of soybeans is able to recover in the 2019/2020 season.
Higher corn price expected
ABN Amro expects a higher corn price in 2019/2020. According to the IGC, both global production and demand for corn will decline. Because production is declining faster than demand, the corn market will also face a shortage next season. As a result, inventories continue to decrease. These fall from a level of 28% of consumption to 24%. This is approximately 12 weeks of consumption.
Due to the extremely wet past few months in the US, plantings have slowed down considerably. This has a major influence on the quality and final quantity of corn. The USDA indicates that by mid-July, 58% of the corn crop is in good to excellent condition. A year ago that was 72%. This uncertainty about the harvest in the US will determine price volatility in the coming months. This also increases the chance that the market will face a shortage next season. On balance, this has an upward effect on prices and ABN Amro expects a higher corn price in 2019/2020.
Stable wheat price trend
As far as the wheat market is concerned, ABN Amro assumes a stable price trend for 2020. In the current 2018/2019 season, total production will shrink by almost 4%, mainly due to the challenging weather conditions. Consumption remains stable. This means that stocks are decreasing and this means that the wheat price can recover towards the end of 2019.
However, the market picture is changing in the 2019/2020 season. The IGC expects production to grow by almost 5% in the new season. Wheat production in the US is expected to dip. This is due to delays in the harvest due to wet weather and fewer plantings. However, production is increasing sharply in Australia, Ukraine and Russia. The yields are increasing.
Strong growth in demand
Global demand ultimately grows by just over 2%. Demand from the animal feed industry in particular is increasing sharply. This ensures that demand growth since three seasons ago is again above the long-term average. On balance, inventories are rising and reaching a peak level. The available stocks compared to total consumption increases to 36,3%. This puts some pressure on the price. The stronger growth in demand provides cushioning.