Refinitiv foresees mixed agricultural commodity supply trends

From tight soybean supplies in 2021-22 to the impact of the Suez Canal blockage, lead analyst Libin Zhou outlines the key market trends.

The covid-19 pandemic and lockdown measures have caused unprecedented economic impacts in most countries. But agricultural supply chains and trading seem to be minimally impacted, as evidenced by busy shipments of agricultural commodities across the world.

As one of the top importers, China’s massive purchases, together with tightening global supplies and food security concerns, have bolstered commodity prices to multiple-year highs.

With that in mind, here are the top agricultural commodity supply trends Refinitiv Agriculture Research is seeing.

Tight soybean supplies may continue in 2021-22

As one of the top two soybean exporters, the US has so far shipped 54.4 million tons of soybeans since September (as of 1 April 2021). Rapid exports have lowered US soybean stocks to seven-year lows. The other top soybean exporter, Brazil, shipped 78.9 million tons of soybeans in 2019-20, according to Refinitiv’s trade flows, up 14 percent from the prior season, almost emptying Brazil’s soybean stocks.

As the top soybean importer, China’s appetite for animal feed continues to grow amid an economic recovery and rebuilding the world’s largest hog stocks. China imported 100.3 million tons of soybeans in 2020, up 13 percent from a year ago.

In the first quarter of 2021, Refinitiv’s trade flows tracked 19.1 million tons of China soybean imports, compared with 16.2 million tons for the same period last year. Soybean imports in April will likely reach 6.7 million tons, up 25 percent from a year ago. Barring a widespread outbreak of African swine fever, China soybean imports will likely continue to grow in 2021.

Despite some major weather concerns earlier this season, supplies out of South America are still expected to be strong. As Refinitiv analysts Dong Soon Choi and José Clavijo’s work suggests, while Argentina soybean production is currently slated to drop slightly from last season to 46.9 million tons, upsides in Brazil (132 million tons) and Paraguay (10.0 million tons) will push production out of the continent slightly above last season.

However, the US Spring Outlook from Isaac Hankes of Refinitiv’s Weather Research team points to the likelihood of a warm/dry planting season. This bodes well for the planting campaign, but also elevates the risk of summertime drought as key portions of the Corn Belt already show soil moisture near five-year lows. Furthermore, early indications for the summer support the continuation of heat/dryness risks, which would put considerable downward pressure on soybean production if trends hold.

Forecast temperature (left) and precipitation (right) anomaly pattern for March-May 2021. For temperature, “-” is 1-3 °F below normal, “=” is +/- 1 °F of normal, “+” is 1-3 °F above normal and “++” more than 3 °F above normal. Precipitation: “-” is 25-75 mm below normal, “=” is within 25 mm of normal and “+” is 25-75 mm above normal.

Given 120 million tons of US soybean production (projected by Refinitiv) and seven-year low beginning stocks, 2021-22 US soybean supply may be shorter than last year. Together with increasing demand, global soybean supplies will remain tight through 2021-22, barring unexpected high plantings and/or favourable summer weather boosting US soybean production. In fact, in its initial outlook, the USDA set expected planted acreage at 87.6 million acres, well below market estimates but in line with Refinitiv’s initial estimates published in February.

Unprecedented China imports change global corn market

As the depletion of corn inventory from its state reserves continues, China largely increased its corn imports in 2020. While China imported 3.5 and 4.8 million tons of corn in 2018 and 2019, respectively, the US has alone shipped 8.8 million tons of corn since September 2020 (as of 1 April 2021). Considering outstanding sales reported by USDA, US corn exports to China in 2020-21 could be as high as 23.2 million tons, which could leave US ending stocks at six-year lows. Ukraine, which used to be the dominant origin of China corn imports, also shipped 5.2 million tons of corn to China during October-March, compared to 2.8 million tons for the same period of the prior year.

Economic growth and increased income have raised meat consumption in China. Given limited arable lands and increasing feed demand, China will unlikely constrain forward corn imports at the low levels prior to 2020. In addition, economic recovery and increasing oil prices will likely raise corn fuel ethanol use in 2021-22.

Wheat supplies may ease

Some governments have imposed measures to constrain wheat exports and boost imports for food security concerns. Russia imposed export taxes on wheat, corn and barley in March 2021. As a result, Russia’s March wheat exports dropped by over 70 percent from February.

According to Refinitiv’s trade flows reviewed by analyst Worship Mugido, wheat imports into Egypt, the largest wheat importer globally, are almost the same as the prior season. Turkey’s wheat imports have declined 16 percent this season so far while Nigeria’s imports have increased 7 percent.

In 2021-22, however, increased plantings in the US, back-to-normal production in Europe and high inventories in Russia indicate tight wheat supplies may largely ease, barring extreme weather resulting significant production losses.

The Suez Canal blockage may exacerbate grain and oilseed supply chains

The Suez Canal is one of the busiest routes that provides the shortest distance between Europe, Middle East, Africa and Asia. The canal blockage during late March led to a build-up of more than hundreds of ships that may lead to a lag in arrivals and may take weeks to resolve backlogs at ports.

Refinitiv’s trade flows indicate that the Suez Canal blockage has delayed a few shipments with more than 40 thousand tons of vegetable oil, which included crude palm oil, palm fatty acid distillates, etc. These ships departed during 5-10 March, travelling from the origins of Malaysia and Indonesia, to Europe.

Figure 2: Vessels that carry vegetable oil at anchor and waiting for their turn to cross the Suez Canal (source: Refinitiv’s Interactive Map, 2 April 2021, 0200 GMT)

Despite these vessels had been cleared within a week after the giant vessel was freed on 29 March, their original estimated time of arrival was pushed back 1-3 weeks, according to review by Refinitiv senior analyst Kian Pang Tan.