There is an old Indian proverb that says “he who rides a tiger dare not get off”! This could equally apply to the recent ‘bull market’ in October. The bull needs to be fed to keep him going and the ‘bull run’ was mostly unchecked with spot cash markets for all commodities remaining firmer than later positions, for which there was little carry or indeed appetite for buying. If you sold some wheat or barley well done! China may have originated the Coronavirus (COVID-19) but while we were busy locking down from its effects this year, the Chinese engaged in a very astute marketing operation. It’s not quite up there with the Russian “sting” of the 1970’s (when they bought half the USA maize crop, before revealing their own crop failure) but it may not have been far short.
From the end of August, when their granaries were about empty, China began a programme of buying US maize and soya when maize was then at the bottom of the market. Since then they have been buying up to 750,000 metric tonnes per week. The U.S. Department of Agriculture (USDA) had forecast that China would need to import only seven million tonnes of maize this year, yet the trade think they have bought nearer 20 million tonnes! Likewise on soya, 15 million tonnes was their import estimate that has already been achieved and we think they are now heading for 30 million tonnes. Everyone kept saying that in the context of a World maize crop of 1.1 billion tonnes this was insignificant, but recently the USDA reduced the estimated US crop by another seven million tonnes and there was a rumour that the three billion bushels they are supposed to have in store had been over estimated and they only have half of it! As maize prices have risen, buyers switched to the cheaper Ukrainian origin but they haven’t had as good a harvest as expected and logistically they are struggling to supply export contracts.
Europe alone needs about 20 million tonnes of maize and within that the UK needs three million. In November the imported price was about £40 per tonne higher than it was in August but with wheat at £180 and barley at £140, maize was still calculating in feed rations. Because of GM issues and maybe a ‘Trump tax’ on exports, we cannot see much coming from America to the EU. China hasn’t only been raiding America for maize. Because it’s fallen out with Australia, France is now supplying most feed and malting barley to China. They have also been buying French wheat which really can’t have been the cheapest origin for them. All this increased internal EU prices and pushed up the imported values for the UK. At the end of September the trade was thinking that currency would dictate what we would have to pay for imported wheat. Yet that’s no longer the biggest factor, it’s what price will any wheat exporter want CIFFO UK when they have a range of other buyers, some of whom are closer to the origin. Despite its big wheat crop (83 million tonnes up from 76 million) even Russia is having second thoughts about supplying all comers with its cheap wheat. Alarm bells started ringing domestically with big price increases prompting flour millers to request up to eight million tonnes of milling wheat be held in reserve and were talking about imposing export quotas. With the final solution being that with the Russian government now controlling the grain trade again, if Mr Putin says ‘nyet’ to any more wheat exports, no one will argue with that!
So that’s all the bullish stuff, but what about the bearish news? At the beginning of November there were just the first hints of weakness starting with the MATIF oilseeds and Chicago soya futures just off recent highs. It’s interesting that China is in the middle of its latest five year strategy review covering food security, strategic reserves and energy. With a move away from reliance on coal and even securing stocks of metals, which is one reason why copper increased in value this year. So perhaps this is all joined up after all?