Rabobank: The ‘knowns’ and ‘unknowns’ of the G&O market

Earlier in the year RaboResearch grain and oilseed analyst Vitor Pistoia said, “we had a handful of ‘knowns’ and another of ‘unknowns’ when it came to fundamentals influencing global grain and oilseed (G&O) markets”. “Moving into the second half of 2024, it’s a good point to review these and adjust price outlooks as we head towards harvest in quarter four,” he said.

In reviewing the year to date, Mr Pistoia said “let`s start with what hasn’t changed”.

“The Houthi rebels continue to create havoc in the Red Sea, with attacks on vessels and ongoing impact on the shipping of freight,” he said. “Recently, they have expanded their reach using drone boats and are hitting vessels further away in the ocean. In June, a Greek coal carrier was sunk using this tactic.”

Mr Pistoia said in the macroeconomic environment, little has also changed and household budgets in many countries remain under pressure from sticky inflation. “The US official cash rate, an international reference for global economic trends, has remained in the 5.25-5.5% p.a. range since July 2023. And here, the RBA has held rates at 4.35% p.a. since last November.”

What has changed, though, is the production outlook for some of the world’s biggest G&O producers, he said.

The Rabobank analyst said the South American crop has turned out to be even bigger than expected. “For soybean – the only oilseed to increase its ending stocks year on year globally – the South American harvest is about 215 million tonnes, an 18 million increase on the previous season. The last corn fields in South America are also being threshed and forecasts indicate 170 million tonnes instead of the 160 million previously anticipated.”

Mr Pistoia said Russian wheat is again set to be a key market baseline for the year ahead. “Even with the cut from 90 million tonnes to 83 tonnes forecast in mid-July – thanks to dryness and late frosts – Russia is expected to export 48 million tonnes of wheat. This represents 22 per cent of the projected 2024/25 global wheat trade.”

Mr Pistoia posed the question, “so where are things potentially heading for the grain and oilseed sector?”

“Continuing trade wars may impact G&O demand in early 2025,” he said. “China launched an anti-dumping probe into EU pork imports in mid-June as a backlash over electric vehicle duties, while Chinese pork imports have been decreasing since 2021 as the country’s own herd recovers from African swine flu impacts. A further reduction in pork imports can translate into better profitability for Chinese producers, boosting demand for feed grain imports. This would be good news for global grain exporters, with roughly eight per cent of all global trade of corn, barley, wheat and rice headed to China.”

And with US elections ahead, Mr Pistoia said, the possibility of further trade war activity is likely.

“Another consideration,” he said, “is how much grain and oilseeds will be stored in the US”. “Spring and early summer conditions across the corn belt have been almost tropical and crops are generally performing well so far. The projected corn harvest has increased from 377 million tonnes to 383 million and the wheat harvest from 51 million tonnes to 54 million. Of these volumes, 53 million and 23 million tonnes respectively are likely to remain as carryover, a combined increase YOY of nearly 10 million tonnes.” 

Mr Pistoia said the sum of all parts indicates grain and oilseed markets might have to go through another downward price correction to accommodate the pressure from improving global stocks and demand uncertainty. “Australia’s advantage remains our geography, which sees us better located to supply Southeast Asia,” he said.

To find out more about other Rabobank research, contact Rabobank’s Moora branch on (08) 9690 8500 or subscribe to RaboResearch Food & Agribusiness Australia & New Zealand on your podcast app.