MARKET WATCH• WEATHER: ABNORMALLY

HIGH TEMPERATURES IN UKRAINE

• CEREALS: GERMANY’S WINTER WHEAT ACREAGE IS DOWN BY 7.1% FOR 2020

• OILSEED COMPLEX: RAPESEED OIL IS VERY CHEAP WHEN COMPARED TO PALM OIL

• PENDING FURTHER DETAILS ABOUT THE USA-CHINA TRADE AGREEMENT

• RAIN RETURNS TO ARGENTINA

NEWS

WEEKLY TRENDSWheat  Maize Rapeseed Sunflower Barley Meals

= = = = = =

ANALYSIS & COMMENTARYGRAINS ANALYSIS : Stronger currencies in Ukraine and Russia, combined with new taxes in Argentina, are offering new opportunities for European crops. Exports are still buoyant, allowing prices to remain firm. The winter period will be closely monitored, even though the weather is exceptionally mild in the Black Sea basin at the moment. It is a different story for barley as the level of supply is forcing prices to fall because of low international demand. With regard to maize, the increase in US exports could bring some stability for global prices.

OILSEEDS ANALYSIS : Vegetable oils, particularly soybean and palm, have outperformed, and underpinned rapeseed prices on Euronext. With regard to soybean, the potential agreement between China and the USA, and a rally on US exports are allowing prices to pick up in Chicago. In Kuala Lumpur, the price of palm oil is still being underpinned by lower production in the main producing countries, as shown by the breach of the 2,900 ringgits/t (701 USD/t) resistance level.New supporting factors, however, will be required to send rape-seed prices on Euronext through the €410/t resistance level. Short-term traders are worried about corrections, whilst the Eu-ronext market is currently subject to major speculation as shown in particular by the record level of open interest positions on Eu-ronext’s February 2020 contract.

ECONOMIC CLIMATE2019: SLOWER GROWTH BUT EUPHORIA ON THE EQUITY MARKETS!It has taken the USA and China nearly two years to reach a partial trade agreement. It has taken the UK three and half years finally to leave the EU, which it will do at the end of January. These major announcements which were made a few days ago, will provide a positive end to a year largely disrupted by the negative effects these two issues have had on growth. Despite this gloomy backdrop, the equity markets made spectacular gains in 2019. US indexes have broken record after record, and Europe’s markets have also risen sharply. The accommodative action of the central banks has played no small part in this and low interest rates are encouraging investors to favour investment in listed companies. Another feature of 2019 was the growth in global debt which could become a major cause for concern if rates rise or the economy stagnates.

CAN CHINA BUY THIS MUCH US AGRICULTURAL PRODUCE?Large, amazing, fantastic – this is how President Trump, in characteristic style, described the partial trade agreement con-cluded with China ten days ago. Among China’s commitments is a massive increase in the amount of US agricultural commod-ities it will purchase in 2020 and 2021. The USA is quoting a figure of $40-50 billion a year, although the Chinese authorities have yet to confirm this. The graph below shows the scale of growth when compared to the purchases made in recent years (including the years before the trade war) that was used to cal-culate this figure. China certainly has the potential to increase its imports from the USA to a significant degree, but it is highly unlikely that it will increase its soybean imports by 35% on

2016’s record amounts, or its maize imports by nearly 60% on 2012’s exceptional amounts without creating some major dis-tortions in global flow. Only pork imports have the potential for such growth given the outbreak of African swine fever which has decimated China’s pig population.

FERTILISERSUREA STABILISESUrea prices are stabilising on the international scene. There has been a rally in the USA and Persian Gulf. Buyers are slowly starting to take out cover again in Brazil and Europe, which is underpinning prices. Traders are still waiting for the results of India’s call to tender on the global market. Trade on the phosphate market is still limited. India and Pakistan were expected to return to this market but no contracts have been signed. Prices are still declining in Europe given that stocks are still high. Buyers are still few and far between on the potash market. Prices are still declining in Europe and Brazil. Brazilian buyers are expected to return in March, as is their custom, which could then drive prices up.

THIS EXCLUSIVE AND CONFIDENTIAL REPORT IS PUBLISHED BY EURALIS SEMENCES.This report is reserved for the subscriber. The reproduction of this document in any form is prohibited under penalty of law. For more information visit: www.agritel.com Source

GRAINS AND OILSEEDS

MARKET INSIGHTS & TRENDS

N°49 26 / DECEMBER 2019

IF CHINA IS TO MEET ITS PURCHASING TARGETS FOR US AGRICULTURAL PRODUCTS AS DESCRIBED BY THE US ADMINISTRATION, A SHARP INCREASE

IN IMPORTS WILL BE REQUIRED

MT

EXPORT TAXES RISE ON AGRICULTURAL COMMODITIES IN ARGENTINAPrices generally include a certain weather risk premium in winter. The weather is still mild in the Black Sea basin this year, with temperatures that are particularly high. Traders, however, will have to maintain a certain level of vigilance, particularly towards the end of winter when late frosts are not uncommon. It is a different scenario in western Europe where heavy rain has led to significant delays with sowings. One week after the French ministry of agriculture announced a 4.8% drop in the wheat acreage, it is now Germany’s turn to shed light on its figures: among the notable changes is a 7.1% drop in the winter wheat acreage to 2.84Mh. Even though these factors are important, they have been put on a back-burner as political decisions have gained the upper hand in recent days. Following Donald Trump’s declaration of his optimism about trade with China, it is now Argentina’s turn to step into the limelight. The coun-try’s new president has confirmed the expected and has increased export taxes on Argentine agricultural commod-ities. For cereals, these taxes have risen from 6.7% to 12% which is likely to undermine local producers: with fewer financial resources they may cut their investment which would lead to a fall in the country’s medium-term produc-tivity. Furthermore, Argentina’s loss of competitiveness is noticeable at a time when competition on the internation-al scene is stiff. Wheat from Black Sea countries is still being penalised by their significantly stronger currencies.

From the Russian rouble to the Ukrainian hryvnia, no cur-rency has escaped this renewed stability which is opening the door to a number of destinations for European crops, as shown by the good rate of exports in recent weeks. With regard to maize, it is the USA which is calling the tune with its increasing exports: export sales reached 1.7Mt last week, which is well above the 780,000t per week needed to meet the USDA’s target. Yet there is still a significant delay, with 37% of the export target met

against the usual 49% at this time last year. Even though the trend is bullish, it could be held back by this delay.Lastly, the balance sheet for feed barley is still com-fortable, as shown by this year’s global production level of 157Mt. This is also putting prices under pressure as demand may ease off slightly. Traders will therefore be keeping a close eye on changes in China and Saudi Ara-bia’s import targets which will be updated in the USDA’s next report on 10 January.

FOCUS ON… WINTER ACREAGES ARE SOME OF THE LOWEST ON RECORDFrance’s winter straw cereals acreage for the 2020/21 campaign is down by 295,000ha on the previous campaign. The winter barley acreage of 1,248,000ha is close to the acreage seen in the 2014/15 campaign and is down by 56,000ha. A soft wheat acreage of 4,729,000ha is expected, which is down by 239,000ha on the previous campaign. These falls in acreage confirm the sowing difficulties registered since mid-October, particularly in the western half of the country. It is against this backdrop that Brittany had sown only 48% of its soft wheat acreage at 2 December, according to FranceAgriMer. With ongoing wet weather and fields that are frequently impassable, there are fewer and fewer possibilities for winter sowings. A large proportion of the non-sown acreage will now therefore be sown with spring crops.

Expiry Closes 23/12/2019 2-Week Variation

Euronext Wheat €/T March-20 187,00 4,00May-20 187,25 3,50

Euronext Maize €/T January-20 161,50 -3,50March-20 168,00 0,25

Chicago Wheat c$/bu March-20 539,50 15,75May-20 543,75 17,00

CHANGE IN THE WINTER STRAW CEREAL ACREAGE IN FRANCE (X 1,000HA)

2

MAIZE GRAINGRAINS

SOYBEAN AND PALM ARE UNDERPINNING THE COMPLEXTwo supporting factors have been observed on the oilseed complex – the soybean and palm markets.Firstly, in the USA, discussions with China about a preliminary agreement for the purchase of $40 billion worth of US agricultural products has caused the Chicago markets to rally. Good US soybean exports in recent weeks have also helped underpin the market. Exports are making up their delays with contracts signed for 28Mt – the USDA’s 48Mt campaign target therefore seems achievable. Another important factor is that Argentina’s new government has increased export taxes on soybean and its derivatives from 30% to 33%. The repercussions of this will only become visible a year from now as producers have already decided on their current sowings.Secondly, the palm market is still underpinning the oilseed complex. Forecasts of a fall in production despite buoyant demand is keeping prices high in Kuala Lumpur. In Rotterdam, palm oil was trading at $820/t on 20 December – a spread of just $10/t with sunflower oil ($830/t). Palm’s strong resurgence is underpinning the attractiveness of other vegetable oils with certain buyers possibly moving away from palm to other vegetable oils. On the Kuala Lumpur market the bullish trend is still buoyant.

Lastly, in Europe, the production forecasts for 2020 campaign rapeseed are still complicated when the sown acreage is taken into consideration. France’s acreage is expected to be around the 1.05Mha mark, down by nearly 5%. The situation is likely to worsen in France and England

as the mild temperatures are favourable for insects while the extreme moisture is unfavourable for roots.There are two further supporting factors: crude oil has risen above the psychological threshold of $60/bbl in New York; and the euro is still trading at around $1.11.

Expiry Closes 23/12/2019 2-Week Variation

Euronext Rapeseed €/T February-20 409,00 11,25May-20 404,25 12,25

Winnipeg Rapeseed C$/T January-20 467,50 8,70March-20 476,80 8,80

Chicago Soya c$/bu January-20 934,00 32,75March-20 942,25 26,75

FOCUS ON… A VERY SMALL RAPESEED ACREAGE IN FRANCEFrance’s ministry of agriculture has published its first acreage estimate for 2020 crop rapeseed. 1.049Mha have been sown which is down by 4.9% on last year, itself a poor year. If confirmed, this acreage will be the lowest of the last 20 years and 28% below the average of the last five campaigns. We may see a repeat of this year’s tight market situation (which has resulted in positive premiums) for the 2020 crop. Elsewhere in Europe, the acreage is expected to be one of the lowest on record in Germany, Romania and the UK. The EU’s import requirements will therefore be high again, whilst the campaign will begin with very low stocks in Europe.

CHANGE IN THE WINTER STRAW CEREAL ACREAGE IN FRANCE (X 1,000HA)

3

SUNFLOWEROILSEEDS

TECHNICAL POINT

GEOPOLITICS IS INFLUENCING THE AGRICULTURAL COMMODITY MARKETS

EARLY SIGNS OF AN INITIAL TRADE AGREEMENT BETWEEN CHINA AND THE UNITED STATESOn Friday 13 December, even though US exports were back on track, another factor was supporting the agricultural commodity markets: US and Chinese trade representatives have agreed on the first part of a trade deal.

This deal includes China’s purchase of an estimated $40 billion worth of US agricultural products (cereals, oilseeds, dairy products, meat, etc), and a cut in the import duties on Chinese products. The deal has not yet been signed, however, but both parties have stated that it may well be sometime in January. This announcement has reassured the agricultural commodity markets even though the Chinese commitments do not seem realistic -

note that there was only $24 billion of trade between the two countries in 2017, before the trade war started. If the two countries sign phase 1 of this deal, it could be beneficial for the US president next year, election year, although the current impeachment proceedings may damage his popularity ratings.

ARGENTINA’S GOVERNMENT AND EXPORT TAXES: A STORY OF TO-ING AND FRO-INGSince Alberto Fernández was elected president on 27 October, traders have been talking about the possibility of a new increase in export taxes. The new president chose Cristina Kirchner as his running mate during his election campaign. She was president between 2007

and 2015 and introduced export taxes on agricultural products which were reduced when Mauricio Macri (centre-right party) came to power, his aim being to transform Argentina from the world’s grain store into the world’s supermarket. The country’s rate of inflation, however, led voters to seek a change of policy, and thus the Peronists came to power.

On 14 December, the rumours were confirmed: only four days after his inauguration, Alberto Fernández increased these taxes to 12% for maize and wheat (against 6.7% previously). Soybean exports are now taxed at 33% (24.7% previously). Argentine farmers will thus be the most affected and the country’s rotation plans are therefore likely to reflect this increase in export taxes: Argentina’s wheat and maize acreage may be revised down, whereas the acreage sown to soybean (which is more profitable for the country’s farmers) may increase.

On the way to signing the first phase of the USA-China agreement(photo above, Donald Trump and Xi Jinping at the G20 summit in Osaka, Japan)

Alberto Fernández, president of Argentina

EURALIS SEMENCES / AVENUE GASTON PHOEBUS 64231 LESCAR CEDEX - FRANCETEL. + 33 (0)5 59 92 38 38 / FAX. + 33 (0)5 59 92 54 51 - www.euralis-seeds.com

INFORMATION CONFIDENTIELLE. CET EXEMPLAIRE VOUS EST RÉSERVÉ.Reproduction interdite sous quelques formes que ce soit sous peine de poursuites. Pour tout renseignement : www.agritel.com