Grain demand story dominates market discussion

At the mid-point of the crop year, Canadian grain exports are up 35 percent over the same point last year.

It’s part of a global demand picture lifting crop values to their highest levels since the price spikes of 2008 and 2012-13.

Through this autumn and winter, buyers around the world, and especially in China, have imported crops to build stocks partly as a buffer against potential disruptions caused by the COVID-19 pandemic and as a hedge against further price increases as crop size estimates declined and weather threatened production now in the field.

Recently, about 14 ships carrying a total of a million tonnes of crops each week sailed out of the British Columbia ports of Vancouver and Prince Rupert. All this demand helped tighten available supply.

Canola stocks at the end of 2020 were at an eight-year low, down 23.7 percent compared to a year earlier, according to the Statistics Canada Dec. 31 stocks report released Feb. 5.

Stocks of wheat other than durum were down 5.1 percent. Barley stocks were down 4.6 percent, while durum was up 2.2 percent.

Lentil stocks were down 23.3 percent and peas down 3.6 percent.

Even as stocks tightened and prices rose, strong demand continued.

Who is buying?

Not surprisingly, China looms large as an importer, and is the biggest buyer in wheat, canola and especially barley and peas, according to the December monthly export report from the Canadian Grain Commission.

In the five months from August to December, China imported 1.48 million tonnes of barley or 93 percent of the total for that grain.

China also bought 1.28 million tonnes of peas or 85 percent of the total.

In canola, it took 1.18 million tonnes or 23 percent and in wheat it took 1.24 million tonnes or 15 percent.

Other notable customers for canola were countries in western Europe, which took a total of 1.27 million tonnes.

The Canadian domestic market is also a strong canola buyer, with domestic disappearance at 5.39 million tonnes, up two percent over last year.

The demand and strong export trade story is playing out around the world.

In a recent column, I noted grain futures traders were shifting daily, one moment selling on news of improved rainfall in South America but the next buying on signs of continued strong global demand.

But the overwhelming emphasis in the futures market in the first week of February was demand, as traders digested news that United States corn weekly export sales to Jan. 28 hit a record-smashing 7.52 million tonnes, of which 78 percent was destined to China. That was more than double the previous one-week record set in April 2012.

Reuters columnist Karen Braun noted U.S. exporters have now sold 87 percent of forecasted 2020-21 corn exports and 97 percent of expected soybean exports. Corn sales usually stand at about 50 percent at this point in the campaign.

But she also noted the difference between what’s sold and what’s shipped. Only 36 percent of the corn sold has been shipped.

That means American corn exports must ramp up to a record pace in the spring and summer. The transportation and port infrastructure can handle that, though, because at that point in the crop year, U.S. soybean movement normally slows as domestic supply tightens and importers turn to the freshly harvested South American crop.

And speaking of that region, the January rain that saved the crop in Brazil is continuing this month, raising concerns that it could delay harvest, which is already later than normal because drought in October and November slowed planting. The slow harvest will also push back the start of Brazil’s soybean shipping season.

The rain is also delaying seeding of the second, or safrinha, corn crop, planted once the soybeans are harvested. The second crop, harvested in June-August, accounts for the bulk of its corn exports.

Argentina also got rain but dry weather earlier in the season took a toll and soybean and corn production forecasts have been reduced.

The rising price of corn, soybeans and other farm products in Argentina is raising domestic food prices and the government is concerned. It floated the idea of a corn export tax last month but dropped the idea after fierce opposition from the agricultural sector. However, it hasn’t ruled out taxing food exports in the future.

A similar concern about rising food costs has prompted Russia to implement a wheat export tax starting Feb. 15. Initially, it is a flat tax but in June will become formula-based and exporters complain it will make it difficult to price grain for future export.

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