The outlook for grain and oilseeds from current multi-year price highs
Grains and Oilseeds experienced a remarkable 2020, shrugging off a global pandemic and emerging from multi-year low prices to reach multi-year highs. Double-digit annual price increases were recorded in milling wheat, feed grains (corn and barley) and oilseeds (soy, rape and palm) products. The current agricultural bull market has enjoyed broad support from low supplies and resilient demand. Rabobank expects price trajectories to remain elevated as supplies struggle mightily, perhaps for years, to keep pace.
The drivers of 7-year high prices in grain & oilseed (G&O)
Weather issues in many key producing regions combined with the emergence of an unprecedented Chinese shopping spree for soybeans and feed grains. The bullish move was amplified by speculators as well as exceptional measures by notable exporters in response to domestic supply concerns, e.g. Russia’s temporary taxes on wheat exports or Argentina’s suspension of corn exports.
Supply shortfalls: Last Spring, Northern Hemisphere farmers representing the lion’s share of world G&O exports reacted to demand uncertainty and depressed prices by planting fewer crops. The smaller area combined with adverse weather growing conditions lowered global supplies just as China was emerging with unprecedented import demand.
Resilient demand despite Pandemics: The strain on global grain and oilseed stockpiles may seem unusual in a pandemic-filled year with vast swathes of the economy – from travel to restaurants –largely shut down. Some supply tightness can be attributed to consumer concerns of food shortages, inflation and supply chain disruptions. These fears drove stock-piling of food grain but it fails to justify the scope of support in agricultural markets during COVID-19 which has largely shrugged off negative lockdown impacts e.g. on malting barley or biofuel demand.
China’s rapid recovery from two epidemics - COVID-19 and African Swine Fever – resulted in scaled imports. The outlook for China’s purchases in 2020/21 is truly staggering, calling for an at least doubling of grain imports to 35m tonnes and a record of 100m m tonnes of soybeans, 21% above 2018/19 levels.
The Outlook for 2021
Depleted G&O stocks will be a major challenge this year. The general deficit across exporting nations in feed grains (cumulative -13% year-on-year) and oilseeds (-10% year-on-year) supplies requires demand rationing via high prices and is generating intense crop competition for limited farmland in 2021. Presently, the La Niña weather phenomenon is causing dryness and negatively impacts yields in South America. In the Black Sea and the US, incipient dryness threatens winter wheat. Given tight global supplies, an extension of existing weather issue could drive prices higher. All eyes will remain on China and other key consumers in the world for signs of demand rationing, but a significant slowdown in purchases is unlikely. Prices might only cool if the world, after multiple years of weather reduced crops in key producers like the US, Black Sea, EU and South America, would finally be able to produce unprecedented crop yields.
In 2021, corn and soy plantings in the United States are expected to rise 3-4% to a record; yet those crops will not be harvested before September and past years caution us to assume that bin busting yields are a given. In Europe and the Black Sea, winter wheat area has expanded though oilseeds and feed grains may see supply deficits to continue. We do not yet predict another year of subdued yields and still, it might be difficult for 2021 production to satisfy all demand. It is possible supply risks will extend into 2022 and with it prices to remain elevated.