Posted on August, 6, 2024 at 10:06 am
THE GLOBAL grain market is underplaying the impact of big wheat crops in nations outside the circle of major exporters, and overemphasising the stocks situation in Europe and the United States, according to Irish consultant and Black Silo managing director Rory Deverell.
Speaking at the Australian Grains Industry Conference in Melbourne last week, Dr Deverell, who producers and distributes the acclaimed Fryers Report, was critical of global market commentary which has dwelt upon low global stocks figures as significant to world pricing.
And while the USDA provides a raft of data valued the world over, he said some of its numbers were not reflecting the weight global markets were feeling from stocks.
Dr Deverell said the US was “way overstated in terms of importance” to global commentary, with the weight given to Chicago soft wheat futures a case in point.
“There’s more wheat produced in Poland than there is soft wheat in all of the US; nobody ever talks about Poland, but we all seem to be fixated on how the crops are doing in the Mid West.”
Commentary from others based on USDA’s US stocks figures is supporting price ideas in plenty of minds other than Dr Deverell’s.
“We’re comparing normal stocks today to grossly oversupplied situations in the US as one of those members of the major exporters.
“I don’t agree with the numbers that the USDA are using.”
Dr Deverell said comparisons were being made to US stocks-to-use ratios from 2015 to 2018 of 50-55pc.
“No rational person, a farmer even, would like to carry half their crop from one year to the next for multiple years in a row”.
Dr Deverell said a stocks-to-use ratio of less than 20pc was closer to normal for major exporters, so current US levels are no cause for alarm, and stocks to use is at a six-year high, not a 17-year low.
“This narrative that major exporters’ ending stocks are at 17-year lows is in the bin for me.”
Likewise, Dr Deverell said commentary was overplaying the impact of the poor crop in France.
“I don’t believe that the USDA’s portrayal of EU stocks is accurate and I don’t think it’s fair,” Dr Deverell said.
“I think they give a false truth of what the situation is in Europe when it comes to wheat stocks; I think they’re much higher.”
Nonetheless, he described the wheat crop in France, the EU’s biggest wheat producer, as “a catastrophe”.
“Test weights are terrible, yields are horrific, quality is substandard, and it’s really bad.”
He said what was offsetting the poor French crop was that of countries including Bulgaria, which is looking at record production, and Romania, which will be close to a record.
“The big one is Spain”.
Its wheat and barley production have recovered from its unusually small crop last year, when it had to buy in big tonnages to make up the domestic shortfall.
“They are a big loss of demand.”
Prior to starting Black Silo, so named because his office is located in a converted dark green silo, Dr Deverell worked primarily as a broker at StoneX.
He said he is more focused these days on cash markets and spreads, and said last harvest’s cliff-face for European wheat indicated stocks were not as tight as the USDA has been saying.
“That doesn’t resonate with tight stocks; it resonates with abundant heavy stocks, which I believe is the case.”
Amid the world’s changing climate, Dr Deverell said Russia was getting milder winters which enabled it to plant more wheat.
“When you look at winners and losers, one of the absolute winners has been Russia.”
“There is no evidence today that climate change is hurting grain production globally.”
The climate in this past season has also brought unusually high production to countries including Brazil, Egypt, Ethiopia, Kazakhstan, India, Iran, Iraq, Pakistan, and Ukraine, with Egypt and Turkiye among the world’s largest importers.
“Where’s that been in the conversation space?”
Turkiye usually imports 8-9 million tonnes of wheat a year, but currently has an import ban in place.
“They like to import Russian wheat because it’s cheap, because it’s next door to them and it’s good quality; they’re the flour miller to the Middle East.”
Dr Deverell said Turkiye’s situation has fed into Russia’s July exports at 3Mt being down from 4Mt in July 2023, and reflecting the fact that Turkiye is normally the market for 25-30pc of Russia’s wheat exports.
He said the loss of demand because of Turkiye’s situation was “catastrophic” for the market, and exacerbated by a drop in demand from Pakistan, plus weak economic outlooks in the EU and China.
Ukraine’s ability to grow and export grain while the Russian invasion continues within its borders has been another bearish factor for the market, with the resilience of the Ukrainian farmer and the ability of the supply chain to export its grain the two key learnings.
On the demand front, Dr Deverell does not see India popping up as a major market after not buying in volume in the past two seasons now that government stocks have increased.
He said the Indian Government was more likely to keep prices high enough to incentive next season’s wheat planting, but not high enough to drive up inflation.
“This idea that India is going to come and save the day, I don’t think so.”
Dr Deverell also threw cold water on the idea of a world population growing towards 8 billion as constantly driving up demand.
“Birth rates are plateauing in a lot of countries and starting to go down.
“You look at the age profile in China; those hungry 20, 30, 40-year-olds are becoming the less hungry 40, 50, 60-somethings.
Source: Grain Central