CONCERNS about the long-term impact of a weather-challenged autumn sowing campaign in the former Soviet ‘Black Sea’ countries have dominated market sentiment since our last review, keeping wheat prices off the rock-bottom levels that might have been demanded by this season’s huge surplus crop.

1. 68 | December 2015 - Milling and Grain
by John Buckley
‘Black Sea’ crop outlook underpins forward market
CONCERNS about the long-term impact of a weather-challenged autumn sowing campaign in
the former Soviet ‘Black Sea’ countries have dominated market sentiment since our last review,
keeping wheat prices off the rock-bottom levels that might have been demanded by this season’s
huge surplus crop.
All three of the region’s wheat exporters – Russia, Ukraine and Kazakhstan – have had
problems with lack of rain, delaying and/or downsizing planting intentions. Although some
moisture has been seen in the last few weeks it has not yet been enough to rescue crops from
their shaky start. For those even yet being planted, well beyond optimum dates, there is the added
threat of cold snaps that may prevent, or make for uneven, germination. Many of the fields that
have sprouted and got underway are not in the best shape to resist ‘winterkill’ if the weather, as
it often does in this region, gets bitterly cold. All in all, it doesn’t look promising for next year’s
CIS yields.
At this early stage, forecasts circulating in the market obviously tend to be fairly tentative but,
based on likely lower sown areas alone, many traders and analysts within the region are looking
for a significantly smaller crop. Ukraine’s could be down by as much as one third from this
year’s 27m tonnes, Russia’s by perhaps 3m to 5m, maybe more (from 60.5m), Kazakhstan’s by
maybe 2m or 3m, again possibly more (from 14m). Overall, the three main exporters could see a
drop of up to 10m tonnes – maybe considerably more from this year’s combined 101.5m tonnes.
The decline might also be less than this but only if all three get adequate winter moisture and are
lucky with spring and summer weather next year. Doubtless some unplanted or lost fields will
be sown with spring wheat but that yields significantly less than winter wheat. There is also the
possibility that maize, sunflowers and other spring sown crops may compete more effectively for
this land.
Funds and other speculators
who have reacted to this sort
of scenario in the past with
heavy buying, don’t, so far,
seem to be rushing to invest
in a ‘Black Sea’ based boom
in wheat prices, as they’ve
done with resounding results
at least three times in the
last decade. This is partly
because it is still early days
to be writing these crops off
and partly because the sort of losses mentioned above can probably be accommodated without
too much trauma by a wheat market currently that is sitting on its largest ever crop and carryover
stocks (the latter equivalent to almost four months’ supply).
Also, the funds have had a disappointing year with their commodity investments all round,
thanks partly to China’s economic wobbles undermining confidence in world raw material
consumption and, in the crop markets, due to several successive years of larger than normal (and
larger than expected) supplies.
Nonetheless under the worst case scenario, the CIS outcome could have a significant impact
on forward prices. Russia is now the world’s second largest wheat exporter, moving narrowly
ahead of the former leader, the USA, if some way yet off the EU’s total. Ukraine is now the sixth
and Kazakhstan seventh largest exporter. In total, they are expected to account for 45m tonnes of
shipments – 28% of world export supply versus the EU’s 33.5m and the USA’s 22m.
The former Soviet countries have not been the only region suffering weather challenges.
In Australia too, crop estimates appear to be sliding after dry weather linked to the El Nino
"MAIZE prices
proved surprisingly
resilient to the
USDA issuing a far
more bearish than
expected set of US
and global supply/
demand data in
November. As many in
the trade anticipated,
it raised its estimate
for US yields but
by more than most
analysts expected, to
a new peak of 169.3
bu/acre."
MARKETS OUTLOOK

2. phenomenon curbed yield potential in some states. In the east of
the country, excessive rains have now arrived at the wrong time
on harvest-ready crops, currently threatened with quality loss.
Argentina, where sowing of wheat has declined to its lowest
level in many years, has also had some erratic weather lately
including rain on the harvest there too. Like Australia, Argentina
is technically on the 2015/16 world crop balance sheets although
harvesting about halfway through the season, so marketing into
the next one too. At least, as far as this supplier is concerned,
markets have had time to adjust. Although once one of the ‘Big
5’ wheat exporters, Argentina’s role has been shrinking for years
due to government interference in export policy and better returns
coming from other crops, like soyabeans.
The USA has also had some weather problems slowing its
autumn planting campaign and may well see some downsizing of
its 2016 wheat crop, probably mainly the soft red winter wheat.
The effect on this market has been muted, however, partly by
some recent rains improving the crop outlook and partly by the
unusually large stockpile being carried forward from season to
season. At the last count, this was expected to approach 25m
tonnes by next July, compared with just 16m only two years
earlier – and more than the US expects to export for the first time
in many years..
Poor exports are to blame. Unable to compete with the CIS
countries and Europe in the most active and most contested import
markets of the Middle East and North Africa, US shippers have
seen their sales slide relentlessly in recent years. The USDA’s
current forecast, down by a quarter from two years ago, would be
the worst performance in 44 years.
The bottom line is that the US has plenty of wheat to sell if the
world needs it – this season or next. The question is, how far do
world prices have to rise (or US prices fall) to get it back in the
competition for foreign sales?
The EU is in a similar, if currently less acute position, of having
more wheat than it needs to offer domestic or overseas users. At
Milling and Grain - December 2015 | 69

3. the last count, this year’s crop had jumped yet again to a new peak
of 157.3m tonnes, even bigger than last year’s record 156.5m
and it might even exceed that when all the recounts are done.
EU domestic wheat use is estimated to edge up by about 3.3m
to almost 127m tonnes this season. Even if the Union exported
the 33.5m tonnes USDA have projected (down 5% on the year),
it will add 3m tonnes to already ample carry-out stocks next
summer (currently seen around 16m tonnes). The trouble is,
exports are nowhere near the required pace, currently running
31% down on the year as the Russians and Ukrainians continue
to undercut most of their rivals (apart from the EU’s own ‘Black
Sea’ supplier Rumania).
This would be weighing on EU wheat prices more, if not for the
weakness of the euro. This has an immediate firming impact on
the mostly euro-zone producers’ wheat values through the Paris
futures markets and, further forward, at least raises European
hopes of becoming more competitive on export markets.
However, that effect may be muted until the CIS suppliers have
got through their usual ‘front-loading’ of their exports – which at
present seems to be still going on.
Another factor that might help EU wheat exports rally is the
above threat to the Black sea exporters’ 2016 crops. If these
do seem to be getting into serious trouble, Russia would likely
re-impose the export duties it used early this year (when its 2015
crop seemed to be at risk – although less so than now) to control
trade. There were even rumours in early November that Ukraine
was already looking at ways to put an ‘informal’ cap on exports
but, at time of going to press, that was so far unconfirmed.
Overall, the various weather issues overhanging 2016 crop
prospects will at least demand some caution from those who
might have sold the wheat market down, regardless of whether
prices fall below the cost of production.
But plenty of maize
MAIZE prices proved surprisingly resilient to the USDA issuing
a far more bearish than expected set of US and global supply/
demand data in November. As many in the trade anticipated, it
raised its estimate for US yields but by more than most analysts
expected, to a new peak of 169.3 bu/acre. That boosted the US
production estimate by 2.5m to 346.8m tonnes - 14.3m less than
last year’s record crop but still more than enough to meet foreseen
domestic and export demand which the Department reduced by
a combined 2.3m tonnes. It means US carryover stocks will rise
rather than fall this season, going out at a hefty 44.7m tonnes -
their highest for some years and a good cushion if anything goes
wrong with the 2016 crop.
The key factor weighing on US – and global maize prices
– remains export competition amid yet another year of big
production in South America. Although Ukrainian and EU crops
are well down this year, so is global consumption and import
demand (by over 4m tonnes).
Ukrainian production and export supply is still large in
comparison with earlier years while Russia’s crop is a post-Soviet
era record 12.75m tonnes (up 2m on last year’s).
The next Latin American crops, which arrive halfway through
the world 2015/16 season, are expected by the USDA to dip as
farmers shift some land to soyabeans and Brazil’s delayed soya
sowing results in a smaller Safrinha or second crop of maize when
the soya crop is likely harvested late too. Some local analysts
disagree with that scenario, however, looking for a similar
Brazilian maize crop to this year’s and even a bigger Argentine
one as farmers respond to their new president’s expected
loosening of the taxes and quotas that have held back production
and sales over recent seasons.
Even if Brazil’s next crop does drop by 3.5m tonnes, as USDA
suggests, it still expects the world’s second largest maize source
to export a record 33m tonnes in 2015/16 – 11m more than last
season as it clears some of the large stocks it has built up three
huge crops in a row.
The USDA also made another interesting adjustment in
November, when it cut its estimate of maize consumption in
China (second only to that of the US) by a combined total of 24m
tonnes for the three seasons from 2013/14 to 2015/16, blaming
substitution by imported sorghum and other corn substitutes in its
ever expanding feed industry. That amount has been dumped onto
Main changes this month to the world wheat balance (USDA) mn tonnes:
CROPS
2014/15 2015/16 Change on month
Australia 23.67 26 -1.0
Europe 156.47 157.27 +2.0
Russia 59.08 60.5 -0.5
World 725.1 733 +0.2
CONSUMPTION
China 118.5 118 +1.5
EU 123.5 126.8 +0.9
Brazil 10.7 10.6 -0.6
India 93.1 93.9 -0.6
Russia 35.5 36.5 -0.5
World 707.1 717.4 +1.0
CARRYOVER STOCKS
China 74.1 87.1 -2.5
USA 20.5 24.8 +1.4
EU 13.3 16.3 +0.9
World 211.7 227.3 -1.2
Main changes this month to the world maize balance (USDA) mn tonnes:
CROPS
2014/15 2015/16 Change on month
USA 361.1 346.8 +2.5
Brazil 85 81.5 +1.5
Ukraine 28.5 23 -2.0
Argentina 26.5 25.6 +1.6
S Africa 10.8 12.8 -0.8
WORLD 1,008.8 974.9 +2.2
CONSUMPTION
China 202.0 214.0 -5.0
EU 78.0 75.5 -1.0
USA 301.9 301.1 -1.3
WORLD 975.5 971.2 -9.6
CARRY-OVER STOCKS
China 100.5 114.4 +23.8
USA 44 44.7 +5.0
Brazil 11.6 9.7 -5.5
EU 9.2 6.5 +1.4
WORLD 208.2 211.9 +24.1
70 | December 2015 - Milling and Grain

4. this season’s global ending stocks estimate and along with the
higher US stocks, it paints a far more bearish picture for maize
prices than expected a month ago.
True, there is still the question of an 18m tonne slump in this
year’s European maize crop, expected to double its import
needs to around 16m tonnes. But with less being imported by
China and others – and world total import demand seen down,
that factor sheds much of its bullish clout. European demand
for maize is also being held in check to some extent by the
huge wheat crop, more of which will supplant maize in EU
feeds.
Maize markets still have to find out what weather lies in store
for the recently-planted Latin American crops but so far these
appear to be proceeding normally. After that, the next talking
point will be how much maize US farmers might sow next
spring and weather there in the planting and growing season.
In the meantime, barring a lat-Am weather upset, there seems
little justification for sustained maize price rallies.
KEY FACTORS AHEAD - WHEAT
• The CIS countries have a bigger 2015/16 crop to dispose
of than markets expected earlier in this challenging
growing season – faced with expensive inputs and often
uncooperative weather. So far, Russia and Ukraine have
been aggressive sellers , winning the bulk of contested
orders from the US, Europe and other rivals and setting a
low world price for wheat. But will that role change once
the FSU’s front-loaded campaign uses up the larger share
of their surpluses and the focus turns back to the problems
faced by their winter-sown crops for harvest 2016? A return
to export control can’t be ruled out. The EU, US and others
have plenty to of wheat to step into any CIS gaps – and
Milling and Grain - December 2015 | 71

5. more. World stocks are also huge and able to meet a large
chunk of new crop demand from next July onward. But less
CIS competition could be a key factor later in 2016, allowing
wheat prices to rise off their current low levels in the second
half of the 2016/17 season and maybe earlier than that.
• Wheat area is seen slightly lower in 2016/17 by the IGC. Yields
might also be affected if farmers try to cut costs at these low
prices by reducing use of inputs. Controlling a price-depressing
global wheat surplus may not be such a bad thing if it helps
farmers pay their bills and secures future output at the needed
level. (After all, world consumption of wheat does grow each
year and has put on over 100m tonnes in the past ten years alone.
KEY FACTORS AHEAD - COARSE GRAINS
• The USDA’s revisions to its estimate of Chinese maize usage
and stocks are primarily responsible for it adding a whopping
24m tonnes to its forecast global stockpile for 2015/16. If
correct, that grain was always there, so markets perhaps
shouldn’t over-react. Nonetheless, the US will also have 5m
tonnes more than it thought to end the season thanks to a larger
crop and lower consumption in ethanol. That is more bearish
for maize prices going forward.
• Markets have adjusted to lower than expected European and
CIS maize crops, heavily offset by larger than expected South
American and US production for a larger world crop total than
expected last month. The Lat-Am crops (arriving first quarter
2016 onward) may yet be under-rated while the CIS countries
may well sow more maize next spring on land vacated by
failed winter wheat crops. Depending on what the US and
Europe decides to sow too, next season could be well supplied
again.
• Maize has met increasing competition in feed outlets (in
China from sorghum, barley and other substitutes), in the EU
( from a large domestic wheat crop) and in the US ethanol
outlet (mainly sorghum again). That seems likely to continue
in the months ahead, demanding some restraint from maize
prices.
And yet more soya meal
THE latest USDA outlook has raised world soyabean crush to a
new record high of over 273m tonnes with increases for China,
the US, Brazil, Argentina and Europe.
This still nowhere near uses up all the excess soyabean
stocks carried in from last year and expected to be boosted
dramatically again in the new 2015/16 season that started on
October 1.
However, it does translate to yet more soyabean meal. In
world total terms, production of the leading oilmeal rises to
215m tonnes from last year’s 206.5m, the previous season’s
under 90m and the average 1890m of the two years before
that.
An estimated 11m tonnes rise in global soya meal
consumption basically accounts for all the increase in
world total use of oilmeals in a year when virtually all the
other major items - sunflowerseed, rapeseed, groundnut
and cottonseed meals and cottonseed – fail to show any
worthwhile growth – or contract.
The only other major exception is palm kernel meal, output
of which rises from 8.6m to 9.1m tonnes. Soya thus goes on to
expand it share of the oilmeal market to over 70%. While it’s
good to have some variety in the supply chain, this increasing
dominance by soya should be welcomed by most consumers,
especially compounders in the developed world relying on its
high protein and usually consistent quality.
ASll the bnsigns are that soya will remain in heavy supply for
the foreseeable future.
The US almost finished bringing in what is now thought to
be its largest ever crop at 108.4m tonnes – up 1.5m from last
year’s record level and compared with a range of 84m to 91m
tonnes in recent seasons.
Latin America, which also harvested a record crop last
spring, is probably on the way to another one in the months
72 | December 2015 - Milling and Grain

6. ahead as a potential 4m to 5m tonne increase in Brazil
outweighs a possible 3m to 4m drop in Argentina (which some
analysts think may be too pessimistic). Weather for these two
major exporters of beans and products started out a bit dry in
some areas and too wet in others but seems to be levelling out
nicely now.
These crops are being sold now at quite a fast pace. Both
countries also have large stocks built up over the past two
years, as farmers held onto them as a hedge against their
depreciating national currencies and rocketing inflation.
Brazil also had some port logistical problems and both
countries some labour disputes that contributed to the bottling
up of therse huge crops.
That seems to be changing now, however as Brazil exports
for strong US dollars and Argentina looks to a new more
‘business-friendly’ president Macri to lift the barriers that
have long hampered trade under the previous administration
– export quotas, exchange controls etc. That’s also expected
to feed back to larger crops in the future – of greains and
oilseeds. All the Lat-Am suppliers need now is good weather to
continue into harvest in the spring of 2016 to realise their crop
potential.
The US is meanwhile expected to bump up its own soyabean
acreage again next spring as rthe crop offers beter potential
than maize, its main competitor.
Elsewhere, the oilseed crop outlook is less certain. Rapeseed
supplies are still going backwards after several years of
rising production, thanks to smaller crops in Canada and
Europe. Canada’s crop was recently uprated by 1.3m tonnes
but remains 900,000 smaller than last year’s while the EU’s
harvest fell by a hefty 2.9m tonnes.
Although carryover stocks are being drawn down to
supplement crush, rape meal output will still decline by about
1m tonnes. Next year’s crop outlook remains uncertain with
some estimates pointing to slightly lower, others to higher
plantings for the EU’s mainly winter-sown crop.
OILMEALS/PROTEINS
• While trimmed a bit from last month, massive soyabean crop
surpluses across the Americas continue to offer the promise of
cheaper global oilmeal costs going well into 2016 - despite the
downturn in alternative oilmeal supplies from rape, sunflowers,
cottonseed etc.
• A new and highly influential factor may be a new ‘business-
friendly’ president in Argentina – the world’s largest soya meal
exporter – where soyabean stocks have been held back and built
up by red tape in the past
• Lower costs and big supplies might encourage more demand
for these feed ingredients – indeed the USDA has recently
uprated its forecasts for soya meal consumption – although
the strong US diollar in which commodities are mainly traded
offsets some of this price advantage, particularly in countries
with weak currencies.
• Amid these huge soya stocks, there is clearly plenty of room to
meet bigger feed demand without tightening supplies or raising
prices.
• Soya meal will continue raise its already dominant share of the
protein market, demanding price restraint across the oilmeal
sector.
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Milling and Grain - December 2015 | 73