In recent columns I’ve covered the agricultural impacts of a summer of wild weather around the world, as well as stress caused by gyrating oil and gas markets and currency volatility.
In this column I’ll update recent developments in these areas.
Last week I noted that the Organization of Petroleum Exporting Countries was considering a reduction in oil production with a target of maintaining US$90 a barrel in the Brent crude price. It expects oil demand will weaken with the global economy slowing because of rising interest rates designed to control inflation.
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OPEC shocked the market recently with a two million barrel-per-day cut starting in November, a much deeper cut than the 500,000 to one million barrel-per-day cut that was expected.
The United States had been releasing a million barrels per day from its strategic oil reserve but that was to end Oct. 31. With OPEC’s steep cut, Washington will continue strategic releases, but on a smaller scale, at 10 million barrels in total in November.
Brent crude, which had dipped below $83 a barrel as recently as Sept. 26, surged up to $95 on Oct. 6, so oil and fuel prices in general will remain an inflationary item for agriculture and the rest of the economy.
Back in August, I wrote about how a scorching drought in southern China was stressing rice production. If there was a failure, would it need to make up shortfalls with imported rice or other grain, I wondered.
I expected farmers, with government support, would do everything they could to maintain production. And if there was a shortfall, China maintains large, government-owned stocks to dip into to make up the gap.
Last week, the U.S. agricultural attaché in China issued a report forecasting rice production from its three crops at 147 million tonnes, down by only two million from an earlier forecast. That was also down about the same amount from last year.
The attaché expects no big increase in rice imports. Once all the supply and demand figures are calculated, the attaché forecasts China’s year-end rice stocks at a still healthy 102.7 million tonnes, but tighter than last year’s 113 million.
The attaché notes, however, that the hot, dry weather continues. Temperature records were set in the first week of October in the southern drought zone with some spots hitting highs of 40 C, about 20 C warmer than normal highs for that part of the year.
There’s been almost no rain for months, causing lakes to dry up and rivers to run far below normal. With high demand from air conditioners and low production of hydro power, factories and municipalities are forced to scale back use and turn off lights.
Wheat and corn are grown farther north, in central and northeastern regions of China.
The attaché estimates the already harvested wheat crop at 138 million tonnes, a little higher than last year’s 137 million. He expects wheat imports at 9.5 million tonnes, about the same as last year.
He estimates the corn crop at 270 million tonnes, a little less than the official U.S. Department of Agriculture forecast of 274 million. Last year’s crop was 272.5 million.
He sees imports at 18 million tonnes, down from 23 million last year.
He pegs ending stocks at about 207 million, compared to his own estimate of 216 million last year, and the official USDA estimate of 210 million.
So, by these measures, it appears that even with the southern drought, China’s grain import demand will not be a major market mover this year. However, if the drought continues it could start to hurt fall-seeded crops. The heart of the Chinese rapeseed region is in the drought zone.
While talking about drought, dry weather in parts of the United States have Mississippi River levels the lowest in years, forcing barges carrying grain and fertilizer to reduce tonnages to avoid grounding. Barge rates are soaring.
With little rain in the forecast the situation could rival the lowest water levels seen during the mega drought of 1988.
Drought in Argentina has slowed corn seeding and has lowered the early production forecast to 50 million tonnes from 52 million last year. The drought has already trimmed the expected wheat harvest to 17.5 million tonnes from 22.4 million last year.
Conditions for seeding soybeans and corn in Brazil, however, look good.
Turning to interest rates and inflation, comments from various central bank officials around the world last week showed they think the fight against inflation is far from over, meaning more rate hikes in coming months.
This likely means further strength for the U.S. dollar, meaning it will be more expensive for those with weak currencies to buy American grain. That could push demand to other origins such as South America, slow U.S. exports and act as a weight on grain prices on American futures exchanges.
