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The global environment, in most of the world markets, is being very conditioned by two factors repeatedly commented and known by all.
On the other, the commercial war that the United States has with China, which is in the first phase of an agreement that, if fulfilled, will be done very slowly. China does not have a scenario to be able to buy American raw materials until the recovery of pig production begins.
As I write this text, the price of Wheat in Chicago goes up 25 cents . We would say that it is the tip of a very bad Australian harvest after drought, fires , etc. The USDA reduces it to 15 million tons, the lowest in 12 years.
For fundamental arguments, we think that wheat is overvalued . Since the harvest of cereal of the present campaign, where it made minimum prices in the month of September 2019 (see graph), the price increases have been continuous.
In addition, looking at the record long positions of investment funds, we might think that if they decide to liquidate as of March, also thinking of crop arrivals are two downward factors.
We started talking about estimates for new crops. At the moment the forecast for Central Europe is slightly lower than last year. The absence of autumnal rains was a handicap for planting the entire initially estimated area and should have planted more barley in that part.
As for Eastern Europe, it seems that Russia, Ukraine and Romania are in very good condition.
Additionally, India expects a much better harvest than usual , which can lead to export 5/6 million tonnes, which would partly compensate for the loss of the Australian crop, which was damaged this campaign.
In contrast, the situation for corn is much more stable. It is true that at the moment it is far from the low prices of the beginning of the campaign and the minimum seen two years ago, although we are aware of two factors:
Even so, exports, for example, in the US, are not reaching the minimum expected by the USDA, motivated mainly by China and its lack of interest in that corn.
This high availability leads us to think that the price levels that we could reach in the minimums during the month of August or September in the international market could resemble those of the last campaign , provided that the crops flow in an environment of normality.
Although we will have to assess well the domestic consumption that Brazil will make of corn for ethanol production, as we saw not only last year but next year, it will increase its production considerably , consequently, we will assume that exports will decline.
The most significant thing for barley today is the stocks available even in the interior of the peninsula, which are allowing the lowest price cereal of all to be used in production plants in the interior and coming to compete in areas of consumption very close to ports
This could jeopardize the breadth of possible contingencies that may arise during spring on the peninsula , since we historically know the damage that can be done by a dry spring, or an excess of punctual heat , and even inopportune frosts if the plant is in processes of pomegranate
Everything is about to clear, according to the data in each moment we will have to interpret in a continuous way what is happening.
In Europe, on the other hand, the data of cultivated area (to the detriment of the Wheat) are superior and the world estimates, for the moment, point to a year of greater availability of this cereal.
Much more peace of mind in protein prices.
The South American crops continue with a favorable climate waiting for a couple of weeks of generous rains that will allow the correct development of the final stretch of the crops.
Therefore, and together with the high global stocks, we believe that the offer will remain fluid . Logistic flows may change again if China, after its new agreement with the US, finally more importantly supplies its need for this campaign again with that country instead of with Brazil, as it has had to do during the last two campaigns.
Investment funds , as we see in the graphs, hold shorter positions than previous years in both beans and soybean meal. The situation obviously invites you to it.
The other sources of protein have no choice but to accompany the prices of soybean meal , looking for a decent level of interest demand, since consumption for animal feed of soybeans are being very high.
Corn Solubles , on the other hand, continue at a high price for their relative value , it is true that the volume that is coming from the USA to our destination continues to be important and the offer is fluid.
The quantity of product in ports requires operations with a price discount in the line of € 180/181 / tm for available, being at € 185 / tm for closures until May / June. As of August, offers range from around € 178 / tm, although interest is lower. High global consumption can cause specific increases or tensions in prices during the months of May to July . The rest of the periods we would say are more stable.
Any news regarding the development of the plant due to adverse weather conditions would cause such a strong retention that it would even cause an additional rise.
It will depend on the strength of the wheat, but its price curve will be similar . Possibility of going up during March for coverage from 20 March to 30 April and if the weather respects, it would open a path to decrease the price towards a new campaign in June.
If China does not go out to buy, we think of somewhat better net prices for May-August, based on more negative bases. Few arguments at the moment to think that you can or should raise the price significantly.
Sources of Information: AEFA, US Grain Council, USDA, FC Stone, Reuters, International Grains Council, CRM Agri, CME Group, Global Agritrends, Kevin Van Trump and Eurotrade Agrícola.
PM-ES-20-0019
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