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July 30, 2020 | FBN Insights | Kevin McNew

Markets Steady to Lower With Export Sales Mostly As Expected

Australia Wheat Prospects Higher 

  • ABARES, the country’s chief commodity forecaster, increased its wheat production forecasts for 2020/21 to 26.7 million tonnes. 
  • If the projection is met, production would be more than 75% above last year and the highest since the record 35.13 million tonnes in 2016/17.
  • Australia’s 10-year average wheat crop is just over 24 million tonnes.
  • Production risks remain, especially in Western Australia that does not currently have the high soil moisture levels of NSW in the east.
  • This year’s production could rise to as high as 30 million tonnes if Western Australia receives adequate rain in the next two months.
  • ABARES forecasts wheat exports to nearly double this season from last year.
  • FBN’s Take On What It Means For The Farmer: Australia’s wheat crop is projected to rebound strongly after three years of drought conditions. Western Australia is still in greater need of precipitation before harvest starts in October. Conditions are important as it will likely take a serious production problem in either Australia or Argentina to significantly reduce stocks and boost prices. 

China Buying Surge Needed  

  • In January, China pledged to purchase $36.5 billion of agricultural products, 25% more than the record high of $29 billion reached in 2013.
  • As of May 31, China’s imports were running behind 2017 levels - rather than 50% ahead as needed to meet obligations in the Phase 1 trade deal.
  • Record imports of corn and meat provide some optimism, as China fulfilled its WTO commitments.
  • Soybean purchases have picked up in the past two months, to a total $2.5 billion. 
  • It’s estimated China would need to buy $2.8 billion every month from July to December to reach half of the total target.
  • FBN’s Take On What It Means For The Farmer: China faces several obstacles in the steep climb to meet its trade deal commitments. The economic slowdown brought on by the coronavirus epidemic may be the largest stumbling block and qualify as “a natural disaster or other unforeseeable event” needed to modify the agreement. It’s likely China would need to commit to a significant increase in government grain stocks to meet its target. Increased political tensions between the two countries have thrown further uncertainty into the equation. China’s soybean purchases will likely increase into the end of the year as exportable South American supplies have been depleted, but it remains to be seen whether that pace or the buying of other products can be raised further. 

 

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