The “high price scenario” in grain markets looks set to stay for some time yet, Rabobank’s head of agriculture research said, cautioning that even a strong US harvest this year would not resolve supply tightness.
Stefan Vogel, head of agri commodity markets research at Rabobank, said that the dynamics which have driven prices of the corn, soybeans and wheat to multi-year highs were more difficult to resolve quickly than those behind the 2007-08 spike which drove futures to record levels.
While prices then “dropped like a rock very quickly again, because the northern hemisphere produced the perfect crop”, supply shortfalls this time looked less easy to resolve, even if US growers to raise sowings, as official data later this month on plantings intentions are expected to show.
“Even assuming normalised yields,” the kind of production prospects implied are “not, in our view, driving us to the point where we suddenly reverse this whole bullish cycle”,” Mr Vogel said.
US sowings prospects
He noted that, in part thanks to weather setbacks, sowings had tended to end up short of USDA expectations in recent years, with US farmers achieving corn plantings of 90.8m acres last year, well short of the 97.0m acres shown in the March sowings report.
For 2019, actual plantings of 89.7m acres were 3.1m acres shy of the March estimate, with actual soybean seeding levels coming in short too.
Furthermore, the slowest soybean harvest in 10 years in Brazil, in delaying sowings of the follow-on safrinha corn crop, had, alongside dryness in Argentina, raised worries over South American output too.
“I think it’s very difficult to just say ‘oh everything is going to be perfect’, similar to what we had in 2008,” Mr Vogel told the Agrimoney webinar Covid, one year on: What’s next for agricommodities?
‘Get much more nasty’
In fact, “I think we’re going to see the tightness in these grains in oilseed market drag on into 2022”, he said.
Although this squeeze would be “probably not at these extreme levels as we are here in the spot market… I kind of doubt that we can easily sneak out of this high price scenario in interest one year’s time.
“It’s going to take us probably two or three seasons,” even assuming major production regions avoid weather setbacks.
“It’s probably in two, three four years that we talk about sizeably lower prices.”
And if output suffers a negative surprise, given that “we don’t have the buffer stock… this market will get much more nasty”, he said.
‘The biggest mistake’
A factor in the tightness equation too was growing demand from China, which had emerged far more quickly than many investors had expected from the African swine fever epidemic in its hog herd, as well as from the Covid-19 pandemic.
“The biggest mistake that that many people in the market made was to underestimate the recovery rate,” Mr Vogel told the webinar.
Rabobank research suggested a hog herd recovering this year “by about a similar number of animals compared to the previous year”, and fuelling growth of 7-8% in feed demand.
“If you take a 300m-tonne plus market in China for feed that grows by 7% or 8%, you’re talking 20m-23m tonnes of extra volume coming in terms of feed demand.”
And with China having had supply deficit of some 50m tonnes a year since 2015, “we feel that the inventories are low, and with that that the imports are real” in terms of reflecting demand, rather than stockpiling.
‘A little bit worried’
The assessment of China holding relatively weak stocks was back on the webinar by Abdolreza Abbassian, senior economist at the United Nations Food and Agriculture Organization, which estimates the country’s corn inventories at about 140m tonnes.
The US Department of Agriculture has the figure at 196.2m tonnes, and the International Grains Council at 181.6m tonnes.
“For a country like China, this [140m tonnes] is not a lot.”
If the number is correct, “I would be a little bit worried about how that demand is going to be met and what is the implications would be for the for the world market”, Mr Abbassian told the webinar.