Written by John Buckley
After a fraught year most will be glad to see the back of, market attention is turning to prospects for 2023 grain and feed raw materials supply. The forward futures markets suggest hopes persist that costs may continue to trickle down for some feed commodities – notably maize (perhaps by 12 percent) and soya meal (14 percent) – if the promise is fulfilled of bigger crops in the Americas, North and South. However, bread wheat remains a harder call. Despite – or perhaps because of – its sources being more numerous and widespread geographically, the mixed wheat picture we saw in 2022 could be repeated again in 2023. Partly for that reason, the forward futures picture for this grain is about 5 percent firmer than current values, on the US markets at least. However, it’s early days to rule out a more balanced supply picture and the forward EU futures market is currently flagging a wheat price drop of about 3 percent for latter 2023, widening out to nearer 20 percent by latter 2024.
Calmer markets in recent months also reflect talk of potential slowing down in global demand growth, especially in covid-plagued, top consumer, China. But hopes that the Ukraine conflict would be less disruptive than earlier thought to supply chains have continued to swing both ways, almost daily at times. And while prices of cereals and oil meals have finished 2022 well down on their record spring peaks (some as much as halving from those levels) many remain almost double their long term average.
There has been some support for the view that an upward price adjustment was long overdue to keep pace with rising costs of production. But while technical innovations might have helped contain these, the lid has come off in the past year with rocketing costs of fertiliser and fuel – already starting to influence farmers’ crop choices.
In the US itself, surveys suggest wheat may at least benefit, planted acreage-wise, from the jump in input costs, typically needing less nitrogen than maize. Accordingly, US farmers are expected to raise winter wheat area by about 5 percent. Along with higher spring wheat acres too, some analysts see the crop rebounding from the historical lows of the past two seasons (around 45m tonnes) to as much as 52m with trend-line yields. But there is a significant caveat. Drought remains extensive over the US wheat belt and a big freeze in December may have damaged some crops. With current ratings well below last year’s at this time, yields might let the crop down.
Despite the eye-watering rise in fertiliser costs, some surveys suggest the US will still expand corn acreage by just over 2 percent. With trend yields, that could enable a 370m tonne crop – a lot better than last year’s 349m but well under the bumper 2021 figure of 383m.
US soya area is meanwhile seen rising by about 1.6 percent to around 89m acres, with trend yields suggesting a crop approaching a record 125m tonnes (last year 116.4m).
Turning back to wheat, Russia is believed to have cut planted acreage for 2023 so, while winter-sown crops are said to be in good condition, a repeat of the past year’s record harvest looks highly unlikely. One recent analysis suggested only 80/85m tonnes. Then again, we must count just how much larger than the official figures the 2022 harvest might have been. In its January update, the USDA was still carrying 91m tonnes versus the previous year’s 75.2m. Some local analysts think the 2022 crop was nearer 102m tonnes – maybe even more (which, if correct, could actually put the world wheat crop more than 10m tonnes bigger, rather than roughly level with, the 2021 result!) Could that huge total include some Ukrainian wheat grown on contested land? Perhaps more importantly, it implies Russia may have produced 25-27m tonnes more wheat this year than last – yet is forecast to export only 10-12m more. That would mean it starts 2023/24 season with much larger carryover stocks than the market (including USDA) expects. These could play a large part in Russia’s 2023/24 export role, even if it does have a smaller crop this year. However, the market must remain aware of potential for Russia to play the market, as it has in the past year, through imposition of quotas and duties if world wheat prices (over which it wields huge influence) start to move too low. So far Russia has been an aggressive old-crop seller, undercutting all other major suppliers on price and making up for lost Ukrainian supplies (latter’s exports down perhaps 5m to some 13m tonnes by season’s end?)
The first major harvest of the new season will be from the world’s third largest wheat producer, India (around spring time). With much better weather than last year and greater use of higher yielding varieties, it is expected by some local analysts to produce as much as 122m toinnes – a new record high compared with last year’s official 103m estimate (which some say was far too high) and the range of 100/107m over the previous three years. If the crop lives up to expectations, India could play a more active role in wheat export markets in 2023/24, albeit limited initially by its low starting stocks and the need to tame its recently volatile domestic market.
Early signals for the EU’s next crop meanwhile suggest the main soft wheat component could rise by approaching 2 percent to around 143m tonnes, expected gains in France and Germany outweighing declines in Rumania. EU wheat prices (basis the Paris market) finished 2022 around €310 per tonne, 11 percent higher than they started but some relief for consumers looking at a potential record €440 (60 percent increase) in the first half of last year after the Russian invasion of Ukraine upset world supply assumptions. Also, EU prices appear to be still falling, last recorded at €289/tonne.
Canada may plant another big crop, having last year rebounded from 2021’s drought-ravaged 22m to almost 34m tonnes in 2022. As the new year opened, it held far larger stocks than at this time last year so is expected to remain an export front runner in first half 2023.
Sitting halfway between old and new seasons, the two big southern hemisphere wheat exporters could not have had more contrasting fortunes. Australia has been bringing in its third huge crop in a row, which could finish at 40m, some say even 42m tonnes versus last year’s 36m. The normal best level of recent years has been in the mid-20m tonnes. There have been some questions over quality after rainy harvest weather in some regions but generally, Australia’s influence looks likely to be bearish for wheat prices.
Argentina, on the other hand, has continued to see its 2022/23 crop estimate shrink under drought and heatwaves. Recent forecasts have been under 12m tonnes compared with 20m expected at the start of the growing season. Exports may drop by over 10m to as little as 7m tonnes.
Bigger corn & soya supplies on the way
Maize/corn production should jump in 2023. Second-largest supplier Brazil has a record 125m-tonne-plus crop on the way and is expected to step up export competition with the traditional top source, the USA. Brazil is already helping to erode US market share, after producing a 116m tonne harvest last year, up from just 87m in 2020/21. On the above planted area estimates, the US itself could have 20m tonnes more to dispose of in 2023/24, assuming normal weather this summer.
On the downside, Argentina – earlier expecting 55m tonnes – has been hit by drought and may now be lucky to reach 50m – some analysts are as low as 48.5m. Ukraine is also expected to produce far less this year after its crop fell by almost 36 percent last summer under the Russian invasion.
Corn consumption has been flagging since prices exceeded $8 a bushel in first half 2022. The US (CBOT futures) market fell to the mid-$5’s during the summer months, anticipating a bigger US crop, but rebounded as that fell short along with the smaller Ukrainian and European crops, prices finishing 2022 plus 14 percent, in the $6.80’s. Futures markets suggest US and European corn prices could get cheaper in the coming year, some US pundits, comparing the supply outlook with that of a decade ago.
In the US, feed consumption of maize has dropped by almost 8 percent while ethanol use, despite the high cost of fossil fuels, has eroded by about 1 percent. Chinese consumption has remained fairly strong, rising slightly this season, while EU use is down by about 8 percent. However, EU import needs have increased more sharply after the bloc’s short domestic crop and are currently running far ahead of last year, led by Brazilian and Argentine supplies.
Soya is expected to expand its 2022/23 season production by a hefty 30m tonnes or about 8 percent to reach a new record 388m. The biggest increase is expected in Brazil, where much larger sown area has had mainly favourable weather, boosting the crop forecast by some 23/24m to an all-time record 153/154m tonnes. That not only compensates for last year’s smaller than expected US crop (down 5m, to 116m tonnes) but will eclipse an expected crop decline in third largest supplier Argentina, where drought has cut the harvest forecast from an earlier expected 51m to around 42/45m – a few pessimists leaningh as low as 36/38m tonnes. Better news from Paraguay where the crop is expected to jump from last year’s drought-ridden 4.2m to around 10m tonnes. As mentioned above, the US is also expected to sow a larger crop for 2023.
Still absorbing the Argentine crop setback, which appears to be rapidly diminishing the leading soya meal exporter’s product exports, the CBOT soybean futures market has been fairly firm recently.
One restraining factor on price has been concern that China’s covid-led economic problems might brake its recovery in meal demand (from last year’s swine fever challenges) reducing its soybean import needs. Global soybean crush is already expected to expand more slowly than soybean crops, so carryover stocks are seen rising, currently to a four year high, which could also help keep soya costs under control.
Adequate canola/sun meal supplies too?
Rapeseed, tightest of the major oilseeds in recent years, has enjoyed a marked increase in production this season, from 74m to 85m tonnes. The main factor has been Canada’s crop recovery from a 2021 drought/heatwave, its latest crop estimate (for 2022) at 19m tonnes versus last year’s unusually low 13.75m. Other major producers including the EU and Australia have harvested larger areas and improving yields. The EU jumped from 2021’s 17.2m to 19.5m, Australia from 6.82m to a new record 7.3m tonnes. Europe, which sows mainly in autumn for the following year, has probably already planted more for harvest 2023. Spring-sown Canada could be tempted to raise acreage in coming months to meet rising demand although it will face keen competition for land from currently still-expensive wheat.
Undcer wartime conditions, Ukraine – a key supplier to Western Europe, did well to slightly raise its crop from 3m to 3.3m tonnes while Russian output jumped from 2.8m to 3.9m tonnes. Some local reports suggest the Black Sea region is keen to aim for larger crops in 2023 but under the conflict conditions nothing can be counted on until things settle down.
Even in a year of weak Ukrainian crops, global sun meal production may see a marginal 4 percent (900,000 tonnes) rise in supply as stocks of the oilseed that got bottled up by the conflict in late 2021/22 season, finally get crushed and into the market. Largest producer Russia had a bigger sunseed harvest in 2022 and is filling some of the gaps created by Ukraine’s 2022 crop losses and a lower than expected crop in Europe, another victim of last summer’s droughts and heatwaves.
Early EU crop pointers for 2023
Respected French consultancy Strategie Grains this month raised its EU soft wheat crop forecast for 2023, citing good weather. Strategie now expects 129.7m tonnes – about 1m more than at the end of last year and 3%+ gain on the 2022 result, despite some recent dryness in France & Spain. Total EU soift wheat supplies for 2023/24 could rise more as this season’s exports fail to shift all the available grain, leaving large 2022/3 ending stocks. The current EU export forecast is just over 30.1m tonnes amid fierce competition from Russia & Australia and supplies of wheat and maize still arriving in Europe from Ukraine. Strategie has trimmed its EU maize crop forecast for 2023/4 from 63.8 to 63.4m tonnes, expecting yields to recover from last year’s drought but planted area to stay relatively low. However, the next EU barley crop could increase by around 2 percent at a forecast 52.3m tonnes. Globally, recent USDA analysis suggests, barley supplies will more or less match demand during 2022/23.