Factbox: Grain price boom to continue on raging Chinese demand, weak supply outlooks

New Delhi — Global grain prices have rallied since early 2020, driven by the impact of weather on South American and US production outlooks at a time when China aggressively returned to the market to feed its growing pig population. China's pig population, around 50% of which was destroyed in 2018-2019 due to the African swine fever, is set to fully recover by mid-2021.

Soybean, corn and wheat export prices in key markets have risen 31%-77% year on year in January, S&P Global Platts data shows.

Add to that recent trade curbs imposed by Black Sea suppliers, and it is no surprise that analysts are expecting prices to keep rising in the coming months.

Platts Analytics sees China's demand as the "only story" that will influence the global grain supply-demand dynamics over the next few months.

PRICES

Wheat

**The most active wheat contract on the Chicago Board of Trade, a global benchmark, jumped 42% to $6.93/bushel Jan. 27 after hitting its lowest point of 2020 on June 26, setting a 7-year high record amid weak trade prospects in the Black Sea due to Russian export curbs from February.

**Russian 12.5% protein wheat FOB Black Sea prices crossed the $300/mt mark Jan. 18 for the first time since Platts started assessing the commodity in 2014, making Russian wheat offers uncompetitive in global markets.

Soybeans

**The CBOT soybean March contract rallied to a high of $14.36/bu in January -- a level not seen since May 2014 -- on weaker production prospects in South America, fresh cuts announced to US output and growing Chinese demand.

**US soybean prices FOB New Orleans for March loading hit $534.53/mt in January, rallying 55.8% on the year, Platts data showed. Similarly, Brazilian bean prices FOB Santos surged 54% to $524.63/mt over the same period.

Corn

**CBOT corn futures contract prices surged to a 7-year high of over $5/bu early January, after dropping dangerously close to a 9-year low of $3/bu in early 2020.

**Ukrainian corn prices rose to multi-year highs of around $264/mt in January, up 62% from 2020's low of $163/mt in August, Platts data showed.

**Argentinian corn FOB Up River for March loading was at $247.74/mt on Jan. 27, 76.4% above its lowest point last year on May 21, 2020, at $140.45/mt.

**Brazilian corn FOB Santos was at $224.20/mt in January, up 49.7% from the lowest point last year in April 2020.

INFRASTRUCTURE

Wheat

**USDA in January cut its global 2020-2021 wheat-ending-stocks forecast sharply below trade expectations to 316.5 million mt, on increasing demand from buyers like China and higher-than-expected demand in South Asia.

**Australia's agriculture ministry expects the country to produce 31.2 million mt in 2020-2021, up 105.6% year on year as it bounces back from prolonged drought.

**Argentina's 2020-2021 wheat production is expected to decline on dry weather concerns, slipping 9.6% year on year to 17 million mt, according to Buenos Aires Grain Exchange.

Soybeans

**USDA estimates for 2020-2021 soybean production in the US and Argentina were lowered by 1% and 4%, respectively, from 2019-2020 levels.

**Brazil's soybean production is expected to hit an all-time high of 131.7 million mt in 2020-2021, but harvest delays due to dry weather are expected to keep supporting prices in the next few months.

Corn

**USDA cut US corn production estimates for 2020-2021 (September-August) by 1.8 billion bushels (46.4 million mt) to 14.18 billion bushels in January, while year-end stock estimates were more than halved to a 7-year low of 1.5 billion bushels.

**Global corn production estimates for 2020-2021 also dropped by 4.6% from initial estimates to 1.133 billion mt in January, while global stocks are down almost 27% at 283.83 million mt, according to the USDA.

**Corn production in Brazil and Argentina -- the other two top two producers --is also set to fall in 2020-2021 due to unfavorable weather conditions. Combined Brazil and Argentina corn production is expected to be reduced by 2.5 million mt from the USDA's initial forecast.

**Ukraine and the EU's corn production estimates are expected to decline in 2020-2021, with the steepest fall in Ukraine where corn output is expected to be cut by almost 10 million mt from a previous estimate to 29.5 million mt, according to the USDA.

**Analysts said that successful COVID-19 vaccines may improve prospects of higher corn prices later in the year, as a successful vaccine ignites hopes of speedy demand recovery for corn-based ethanol.

Trade

Wheat

**Despite Australia's bumper wheat forecast, the market is expecting a tight demand-supply balance in 2020-2021, led by Black Sea supply issues, lower wheat export estimates from Argentina and renewed interest from China.

**Export measures in Russia, the world's largest wheat exporter, is expected to shave off 1 million mt from the country's 2020-2021 wheat export estimates to 39 million mt, according to the USDA.

**The USDA expects China to import 9 million mt of wheat in 2020-2021 (October-September), up 58.5% year on year, as the country looks to maintain a balance of feed usage amid high domestic corn prices.

**Wheat supply-demand balance in 2020-2021 is also expected to remain tight on the heels of buyers securing more supplies for reserves despite an expensive grain price environment, according to analysts.

Soybeans

**Platts Analytics expects soybean supply-demand dynamics to remain tight, led by China's soybean demand in 2020-2021, which is all set to overshoot the 100 million mt mark as the country swiftly looks to rebuild its pig population.

Corn

**Platts Analytics estimates China to have a 30 million mt "structural deficit" for corn in 2020-2021 (October-September), as domestic production remains consistent but consumption rises.

**Ukraine decided to limit corn exports in the 2020-2021 marketing year to 24 million mt, after calls emerged for curbing supplies to meet domestic requirements.

**Argentina in January removed a ban on corn exports and replaced it with a daily export cap of 30,000 mt/day, but this move has been priced in and outweighed by China's buying spree.