Commodities ingrained in global supply/demand tussle

Commodities ingrained in global supply/demand tussle

An analytical look at the markets

Sunday, January 24, 2021

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The world has grown tired of the unprecedented 'new normal' imposed on the globe as a result of the novel coronavirus pandemic and, coupled with the typical challenges of life, it continues to be a raging fire at the heels of entire industries and economies. The grain commodities market is a classic example, with drastic thrusts being predicted by market analysts.

Shocks to global economies, including regional and national shutdowns, slowdowns in production and overall uncertainty, have affected both demand and supply for food, generally, across the globe. With specific regard to grain, weather impact and other natural occurrences have also contributed to the push and pull for these commodities.

According to data sourced through the United States Department of Agriculture (USDA), grain prices (specifically soybean meal and corn) peaked at (per bushel) prices of US$17.58 for soy and US$8.24 for corn in 2012 as grain stocks plunged. With prices steadily increasing since August 2020 moving from a low of US$8.66 and US$3.08 for soy and corn, respectively, to highs of US$14.17 and US$5.32 in January 2021, analysts are suggesting that we could be heading towards 2012 figures if current market trends continue.

Significant dry weather in South America towards the end of 2020 raised concerns for a decrease in soybean production in the wake of an anticipated spike in demand. Paired with the difficulties of a 20-day strike across Argentina's agro-industrial ports, Argentina, one of the globe's top-three (3) soybean producers, saw production drop by nearly 1 million tons.

Though some experts deem current soybean production trends to be “relatively unremarkable”, a dramatic shift has been experienced in global demand that has arisen since the impact of the pandemic.

The USDA reports that China, for example, has exceeded 30 million tons in US export commitments for soybean as compared to less than 10 million tons in 2019. According to United Soybean Board vice-president of market intelligence, Mac Marshall, the US has also seen a significant uptick in domestic use over recent months.

Corn yield has followed a similar trend with production diminishing steadily since August 2020 (according to the USDA), while US corn exports are up 72 per cent as compared to corresponding periods the year before.

The rise in exports to China alone accounts for approximately 80 per cent of that increase.

The Ukraine has, in most recent years, been the primary exporter of corn to China, however, with persistent dry weather conditions bringing the year's harvest to 28.5 million tonnes, down 20 per cent from last year's 35.8 million tonnes, the country has limited exports, forcing China to source the shortfall elsewhere. China's increased demand for grain commodities is being attributed to the rebound of the nation's pig herd as it recovers from the African swine fever outbreaks that began in 2018.

As entire regions vie for the world's current stocks, expectations are high for price ripples across the food industry worldwide.

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