A decline in production and a drawdown in wheat stocks for the first time in six years: the grain market is shifting.
The world’s grain market is one that embraces a multitude of actors. While a small number of countries dominate exports, there is high regional diversity when it comes to imports. In a recent research note from Clarkson’s Shipping Intelligence Network on grain, research analyst David Whittaker says that since the beginning of the millennium, there has been a rise in imports of grain into all major regions, with “the extent and drivers of this” increase differing according to region.
A varied and uncertain industry
Using the examples of Europe and the Americas, he explains: “Europe’s grain imports, representing 10% of global imports in 2016/17, have seen only limited growth as domestic output has largely kept up with rising demand, with European imports accounting for just 5% of global grain trade growth since 2000/01. Meanwhile, despite the Americas accounting for 70% of global grain exports in 2016/17, the region is still a significant importer, with a 16% share in 2016/17.”
However, other regions play key roles in the world grain trade. Mr Whittaker identifies Asia as being the biggest contributor to growth in the field in recent years, with 58% of market growth since 2000/01 deriving from the continent. Last year, its contribution to total imports was 47%, with growth in multiple nations supporting this. Asian countries aside from China imported 117m tonnes of grain in 2016/17, up 51% from 2000/01 and constituting 17% of world growth since then. Yet, China is growing in importance with regards to global trade in grains, making up 22% of world grain imports in 2016/17 and responsible for 41% of world grain trade growth since 2000/01. In the Middle East and Africa, imports of grain into these regions have risen by 86% since 2000/01 to reach 135m tonnes in 2016/17, constituting 28% of world grain imports. The two regions have been responsible for 28% of the growth in the world’s trade in grain since 2000/01.
The analysis comes at a time when ostensibly, the global grain trade situation appears positive. According to the International Grains Council’s Grain Market Report from February, total grain production for 2016/17 is estimated to have been 2,140m tonnes, against 2016m tonnes in 2015/16. Meanwhile, total trade in grains in 2016/17 is anticipated to have been 352m tonnes, an increase from 346m tonnes in 2015/16. Trade in wheat, maize, soyabeans and rice all went up between these two timeframes. However, though the report’s most recent forecast indicates growth in total grain trade for 2017/18, it anticipates that production will fall to 2094m tonnes in this period. Trade is predicted to increase slightly for maize and soybeans according to this forecast, though wheat trade will fall slightly and trade in rice will remain the same. However, with the exception of wheat, production of these commodities is expected to fall for 2017/18 in comparison to the anticipated figures for 2016/17.
Early projections from the International Grains Council show a decline in global wheat output in the 2018/19 season
So what are the factors currently influencing the grain business? In a video from March discussing grain prices, Helen Plant, senior analyst for Market Intelligence at the UK’s Agriculture and Horticulture Development Board, tells of how new and, to a lesser extent, old crop global grain prices increased during February, discussing the price boosts in new crop, November 2018, UK feed wheat futures (in comparison to previous times).
Chances and caveats
“The main driver of these increases [are] less-than-ideal weather conditions for some of the world’s major producers and exports of wheat and maize,” she explains. “This includes maize crops in Argentina and Brazil, which together account for over 40% of global maize exports. … There have also been concerns about the impact of cold and continuing dry weather on US winter wheat crops. Additionally, in northern Europe, low temperatures at the end of February and start of March are also of concern, giving the reduced level of winter-hardening or winter-readiness seen in winter wheat crops there.
“With these concerns, early projections from the International Grains Council show a decline in global wheat output in the 2018/19 season,” Ms Plant adds. “If global demand continues to grow, as has been the trend in recent seasons, then we can see the first drawdown in global wheat stocks in six years, albeit from record high levels.”
Aside from weather conditions, other factors can affect the global grain trade, including politics. Recently, a number of trade deals have been made, with those involved in transporting grain potentially reaping the harvest of these agreements. Australia’s participation in the Trans-Pacific Partnership, signed in March, could be advantageous for grain exporters in the country. Big hitters in the Pacific have signed the pact, which will reduce both tariff and non-tariff trade barriers. Additionally, Iran has made a deal with Russia and Kazakhstan committing to buy wheat from the two countries over five years, with the Tehran Chamber of Commerce saying that total shipments might hit as many as 1m tonnes a year over the next half a decade.
However, factors that impact world grain trade don’t always bring positive consequences. Take the case of infrastructure. It has been reported that despite the fact that Ukraine’s grain sector is doing well, state-run rail operator Ukrzaliznytsya has found it tough in recent years to transport bumper harvests, with the majority of freight locomotives and rail cars dating back to the 1980s. Wagon shortages have restricted movements, but Ukrzaliznytsya will not be getting new grain cars until next year. Local exporters claim that the lack of trains has meant that merchants’ grain shipments have sometimes been held back. Meanwhile, in Canada, shippers and producers of grain have expressed concerns about a backlog of rail shipments. The Ag Transport Coalition, which represents several grain associations, said in late February that car order fulfilments from Canada’s two major railways stood at 38% during one of the weeks of that month.
With big hitters in the grain world being affected by different factors this year, as noted above, there will be winners and losers among those who transport grain. However, with total grain production for 2017/18 anticipated to decline, there may be more in the latter losers’ camp.