Narrowing north-south divide enhances focus on Argentine, Australian crops

The growing parity between northern and southern hemispheres in grains output is only enhancing focus on South American and Australian dryness, the AHDB said, saying it was positive on corn and wheat price prospects.

“Twenty or thirty years ago, there was a 60:40 split” between output of corn and wheat between the northern and southern hemispheres, David Eudall, head of arable market specialists at the AHDB said.

However, the gap has consistently narrowed since the 1990s to stand “closer to 50:50”, and is expected at 52:48 in 2019-20.

One impact of the change is to “help to decrease volatility.

“It means that there is a large amount of extra supply coming online half way through the northern hemisphere season,” as growers in the likes of Australia and Brazil harvest crops, Mr Eudall told the AHDB Grain Market Outlook Conference in London.

‘Little bit of uncertainty’

Furthermore, the trend has “probably only increased the importance” of southern hemisphere crop prospects in investor thinking, he said, highlighting currently the setbacks to Argentine and Australian crops from dryness.

“There is still a little bit of uncertainty about Australia,” and its forthcoming wheat harvest.

There was “a little bit of uncertainty” too about prospects for Argentina, where winter grains harvesting has begun, with wheat production prospects likely having further to decline, and where corn sowings too are beginning.

Mr Eudall highlighted “dryness in the Pampas”, which is “adding to the general support to prices”, although he felt that support to values from Argentine dryness may have played out “over the next two or three weeks”.

‘Act to cap gains’

Such concerns were coming at a time of a “sharp increase” in global demand for wheat, seen at 752m tonnes in 2019-20, up 19m tonnes year on year.

With increased world wheat production supporting stocks nonetheless, “we feel that will act to cap market gains in the long term… cap the movement in grain prices”.

For corn in particular, while seeing an “undertone of support” to prices from US weather setbacks, Mr Eudall highlighted a setbacks to values from softness in demand from ethanol plants, in the face of relatively weak values of sugar, which had “reduced the incentive” for corn ethanol manufacture.

He was “more bearish” on prospects for barley prices, “because of an increase in stocks, even with an increase in demand, with world output pegged up 14m tonnes at 154m tonnes in 2019-20.