World Still Facing A Global Food Crisis

Here is a batch of entries on the world's agricultural situation from Nogger's Blog.

(emphasis mine) [my comment]

Monday, 11 May 2009
Argentina To Plant Smallest Wheat Crop In A Century

Argentine farmers will plant the country's smallest wheat crop in a hundred years this season, according to the Buenos Aires Grain Exchange.

How the mighty have fallen,
the world's fifth largest wheat exporter just a couple of years ago, may be forced not only to import wheat but also corn and beef this year the country's largest farmer Gustavo Grobocopatel said in an interview recently.

Farmers there are caught in a "perfect storm" of falling incomes, exceptionally dry weather and political and economic disincentives to plant wheat.

Last season's wheat crop was decimated by drought falling to 8.3 MMT from 16 MMT in 2007. That production came off a seeded area of 4.5 million hectares. This season the exchange predicts farmers will plant just 3.7 million hectares with wheat in 2009. Some analysts are saying that even that is optimistic and that 3.5 million acres or less could get seeded.

"I'm pretty certain I won't be sowing anything (this year)," said one farmer in the major producing area of Buenos Aires province. Adding that "I've never seen so many farmers decide not to sow, or to reduce planting so sharply."

Farmers have seen their incomes reduce sharply from not just a failing wheat crop, but also sharply reduced output of soybeans and corn this season. The corn harvest is expected down 42% this year, and the soybean crop 26% lower, according to the exchange. With a general lack of credit many farmers simply don't have the cash to plant, even if they wanted too.

It's a major concern also that those that do go ahead with seeding intentions will be forced to cut back on fertiliser and pesticide inputs.

"We are slowly going back to the era of the caveman," said the general manager of Granar SA, a Buenos Aires brokerage business in an interview with Bloomberg. "The greatest danger here is that we are going back to the times when farmers cut costs instead of thinking about productivity."

The Kirchner's administration's tinkering with limits on beef and wheat exports is also providing a reason for farmers not to plant. It's a kind of
"why grow it when we know we won't be allowed to export it, or taxed heavily if we are" mentality.

It certainly seems likely that
Argentina may well become a net importer of wheat by 2010 as at the beginning of the current 2008/09 season there were carryover stocks of around 2.5 MMT from 2007's bumper production. Ending stocks this time round look like being close to zero.

Tuesday, 12 May 2009
Could The US Run Out Of Soybeans? [yes]

China continues to import soybeans at an astonishing rate with latest estimates showing that they imported almost 14 MMT in the first four month of 2009, 36% higher than a year ago, according to official customs data.

April imports alone were 55.2% higher than a year ago at 3.71 MMT, as the government continued to buy beans aggressively on the domestic market hoping to stimulate the economy and maintain growth. This keeps forcing Chinese crushers to look to import.

How long can they keep this up for remains the big question.

A little while longer yet seems to be the answer, as May imports could reach an all-time record 4.2-4.6 MMT according to one local analyst.

Buying at this kind of pace, particularly if much of the business keeps going America's way, looks like continuing to support the nearby market even if US plantings end up increasing by another 2-3 million acres.

They're not physical beans. If spot beans is what you want then you'll have to pay up.
With US ending stocks already tight, we will know by how much later today, we could be in for a very interesting summer.

Could the US run out of soybeans? It's not that unthinkable, they very nearly did last year. As I put on the blog yesterday limitless and expiring September 2008 soybeans posted an astonishing gain of 274c on the last day of trading as delivery wasn't an option for short sellers getting squeezed by a lack of physical beans.

And China wasn't taking beans at anything like the curre nt rate then, plus Argentina hadn't just had a crop disaster. Incidentally I read somewhere last night that Argy farmers have already got 50% of their crop sold according to the Rosario Grain Exchange. That would make sense as they probably desperately need the cash and are wary of any further government tinkerings after the June mid-term elections.

Tuesday, 12 May 2009
Nogger's World Wheat Outlook 2009/10

There is a table down towards the bottom right of this blog detailing world wheat production for the current marketing year and the next one. This table was produced about three months or so ago and needs updating a bit I thought.

So I've been doing a bit of research into what production for the coming season is looking like now, especially amongst the major exporters. Unfortunately the USDA's website seems to be down this morning (maybe this afternoon's figures are being uploaded?), so I can't get the exact details from there of which order this lot line up in currently, so here are today's runners & riders in no particular order:

USA. Produced 69 MMT of wheat in 2008/09. Potential output of HRW for 2009/10 has been affected by lower plantings when prices fell sharply out of bed, plus less than ideal growing conditions across the winter. Drought & a hard freeze at the beginning of April has likely cut yields, in some cases very sharply, on the southern Plains. Spring wheat struggling to get planted in top producing state of North Dakota (35% done, compared with 78% normally as reported by the USDA last night). The IGC say 58.7 MMT against my 57 MMT, I think that the most recent information suggests that even 57 MMT might be a tad high. Even so we are looking at a crop down 10-12 MMT.
[Down 19%]

Russia. Chipped in with an impressive 63.7 MMT of wheat last season, the highest in post-Soviet history. Planted a similar, if not slightly higher winter wheat area for the coming season, but Mother Nature has not been overly kind. Growing conditions have been drier than last year, especially in the Volgograd district, which boosted production last season with abundant rainfall. Spring wheat production accounts for around 40% or so of the crop here. The IGC recently pegged all wheat production at 52 MMT for 2009/10, 3 MMT less than my earlier estimate, that's another crop reduced by 10-12 MMT.
[Down 18%]

Ukraine. Huge crop of 25.9 MMT last year, but plantings significantly down for 2009/10 due to the credit crisis. Also had similar weather problems to Russia's Black Sea region with dry conditions and hard frosts potentially harming yields there. Credit problems may also lead to reduced inputs, further lowering yields. A crop of 18.9 MMT is what we can expect according to the IGC, fractionally under my estimate. A fall of 7 MMT for the Ukraine.
[Down 27%]

EU-27. Produced a bumper 151.7 MMT last year, sharply lower plantings in the UK and several of the Eastern European countries make a repeat performance impossible. Reduced inputs and dryness in some parts could also be a factor, making last season's yields also unlikely as much of the region then had more or less ideal growing conditions. The IGC say 140.7 MMT, against my 139.6 MMT. Either way a drop of 11-12 MMT.
[Down 8%]

Canada. Another bumper producer in 2008 with 28.6 MMT. Planting less this season in the wake of sharply lower prices and credit problems. Unlike most other places the weather hasn't been too much of a concern here. Spring plantings on track at 20% done. Flooding has affected parts of south-central Manitoba and northern Saskatchewan. The IGC raised their production estimate by 1 MMT to 25 MMT this month, lets go with that as their info is more recent than mine. A drop of 3.6 MMT.
[Down 13%]

Australia. Produced 21.5 MMT last time round and only just beginning to plant. Very dry conditions in Western Australia (easily the largest producing and exporting state) don't augur too well for a crop prone to drought. It's very early days here with some forecasts saying they might get 22 MMT if Mother Nature plays ball. I wouldn't like to bet much on that thought. I'll calling it unchanged at the best for the time being.

Argentina. As we all know, decimated by drought in 2008 to produce 8.3 MMT. Huge cloud of uncertainty here. Expected to plant around 20% LESS in 2009, and the drought still remains. Credit and political issues also cast a big question mark over what was the world's fifth largest exporter of wheat just two years back. Again, unchanged at best, and they need a 20% improvement in yields to hit that!
[Down 20%]

So there we have it ladies & gentlemen, a quick re-appraisal of how wheat production seems to be pegging out for the coming season amongst the top exporting nations. Overall a reduction of around 42-46 MMT
[very optimistic], without any weather problems in Australia and Argentina.

Tuesday, 12 May 2009
USDA: US Wheat Production

Here's the bones of today's USDA report in relation to US wheat production for the coming season:

Total production is projected at 2,026 million bushels,
down 19 percent from last year on reduced area and lower expected yields. The survey-based forecast of winter wheat production is down 20 percent with sharply lower yields expected in the Southern Plains on extended drynes s and early April freeze damage. Spring wheat production is also expected lower with less intended acreage as reported in the Prospective Plantings and significant planting delays, especially in North Dakota and Minnesota where yields are expected below trend levels. Durum and other spring wheat production is projected at 524 million bushels, down 17 percent from 2008/09, based on 10-year harvested-to-planted ratios and trend yields adjusted for late seeding in the Northern Plains.

Wednesday, 13 May 2009
Could China Really Save The World?

Could This Be The Start Of Something Big?
[Yes, hyperinflation and a dollar collapse] Or just another false dawn? It's an interesting one to call, but could China really save the world? They certainly appear to be giving it their best shot.

Their government's 4 trillion yuan ($586 billion) stimulus package is sparking signs of the green (bamboo) shoots of recovery in the world's third largest economy. China's retail sales rose a surprise 14.8 percent in April from a year earlier, data out today reveals.

As well as re-building the country's entire infrastructure including bridges, roads, railways, oil pipelines, irrigation networks etc,
they also plan to build up domestic soybean and corn reserves reserves.

By buying 7.5 MMT of soybeans (which incidentally is almost half of their entire national production) off local farmers, they are pumping cash into the rural economy. That leaves a lot less soybeans to go round for the domestic crushers who are busy importing beans like there is no tomorrow.

China will import 37.5 MMT of soybeans in 2008/09 (up from the 36 MMT estimated in April), rising to 38.1 MMT in 2009/10 the USDA said yesterday. In April alone they imported 3.71 MMT, and May in imports could reach an all-time record 4.2-4.6 MMT according to one local analyst.

And much of that volume is coming from the US,
sales since Sept 1st to China are up 41% the USDA said yesterday.

global production is falling, down to 212.8 MMT say the USDA, from the 218.8 MMT forecast a month ago [estimates keep being downgraded] and the 221.1 MMT harvested last year, largely due to reduced output from Brazil and Argentina.

Argentine will produce just 34 MMT this year according to the USDA, and even that estimate may prove optimistic when all of the crop is finally harvested with some private estimates in the region of 31-33 MMT. A far cry from early season hopes of a 50 MMT record crop.

And in addition of course there are political problems aplenty in Argentina, with farmer strikes and blockades an ever present threat. That leaves Brazil and the US as very much preferred suppliers.

the USDA yesterday dropped their US old crop ending stocks estimate to 130m bushels from 165m last month, the tightest ending stocks since 2003. More importantly than that stocks to usage is 4.3%, that is the tightest since 1968.

My reaction: The world is still facing a global food crisis.

1) Argentine farmers will plant the country's smallest wheat crop in a hundred years this season.

2) Argentina may well become a net importer of wheat by 2010, with its ending stocks will be close to zero.

3) China continues to import soybeans at an astonishing rate with latest estimates showing that they imported almost 14 MMT in the first four month of 2009, with sales since Sept 1st 41% higher than a year ago.

4) With US soybean ending stocks already tight, we could be in for a very interesting summer.

5) World wheat output will fall by a minimum of around 42-46 MMT this year.

Conclusion: Everything is continuing as expected. Estimates for agricultural production are being continuously downgraded every month. China's stimulus efforts are sucking up the world's soybean production. Argentina is still an ecological disaster. And the world is still facing food shortages in 2009.

(Update on investing in Russian agriculture in next entry.)

This entry was posted in Food_Crisis, News_Developments. Bookmark the permalink.

3 Responses to World Still Facing A Global Food Crisis

  1. Marks says:

    here is another good blog on agriculture...

  2. Eric,

    for your interest Argentina will not export this year any wheat if conditions prevail. This makes more interesting Russi and Ukraine which are now inside the Top 5 wheat exporters.


  3. Pak says:

    Being bullish on grains is good, but don't get overexcited just yet. Agricultural markets have a habit of fooling most people, most of the time. Prices are determined on the margins, and these margins (perceptions of margins, to be accurate) shift faster in agri-food than in energy, for example.

    You will also find that USDA ( is currently projecting a noticeably less bullish scenario for grains than the IGC ( USDA are always conservative in their S/D estimates, and they are generally slow to report changes, but in my experience, you should rather rely on USDA for your BASELINE trading scenario. Commodity specs and trade would normally rely on USDA to take positions in the futures markets, too.

    It's great to be smarter than the market, but no one is bigger than the market. Let me quote Keynes that markets can stay irrational longer than any of us can stay solvent.

    You also have to remember that the inflow of hedge fund money into agricultural markets has made these markets much more volatile and 'emotional' as hedge funds trade on technicals and news 'de jour' more than on fundamentals.

    Always mind your risk tolerance when you go into commodities!

    Now going back to grains themselves. The most important fundamental indicator for agricultural commodities is the projected ending stocks-to-use ratio. Now with wheat, because of large carry-in stocks from 08/09, USDA data gives you 09/10 stocks-to-use 28%, IGC gives you 26.5%. This is up from 26% in 08/09 and 19.5% in 07/08. However, considering that anything <30% is low, and wheat production is down anyway (small crops get smaller) - you have a moderately bullish scenario for wheat, but how bullish it will get is unclear yet.

    Argentine crop is an important factor in the world S/D equation, but there's no way it can make or break the world wheat market.

    For soybeans, demand is good, but production is expected to come in in big numbers this year, too. There's weather uncertainty, of course, but soybeans can also gain from acreage shift, mostly from cotton, and mostly in the US and China. So, in real (not nominal) US$, soybeans are bullish short-term, and should be neutral to moderately bullish for the year.

    Corn stocks, on the other hand, can get quite tight towards the end of the year, and US planting delays are becoming a concern; however, demand, especialy ethanol demand, is a very big '?' at the moment.

    Always take crop news in the media with a grain of sault. Quite a few times in a year you get news that make you feel like the sky is falling - and in the end nothing really happens. On the other hand, very often people would tell you they expect a real bumber crop - and you only get an average one. But that's what agriculture is like..

    But! Nothing above means you shouldn't go long on agri-food!

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