The Name of the Grain
In its May 2021 World Agricultural Supply and Demand Estimates (WASDE) Report, the United States Department of Agriculture (USDA) released its forecast for the upcoming Marketing Year (MY) which is expected to exceed 2020/2021’s record highs of 598 million tonnes (for major exporters). In this report we take a look at what happened during the 2020/2021 MY that is coming to an end before focusing on what the USDA is predicting for the 2021/2022 MY and what impact it can have on the dry bulk market.
What happened in the 2020/2021 MY?
Between May 2020 (i.e. first predictions for 2020/2021 MY) and April 2021, the USDA upgraded its forecasts for the MY almost every month, increasing it by around 30 million tonnes in total over the period. The largest upgrades were made to the U.S. where predictions were raised by 23.6 million tonnes between May 2020 and April 2021 on stronger-than-expected exports during the period that were boosted by the Phase One Deal agreed with China in January 2020.
The U.S. was able to export record volumes thanks to larger production and the use of stockpiles. Since the beginning of the current MY, U.S. grain stockpiles declined by 34% / 32.3 million tonnes versus 18% / 20.5 million tonnes in total during the previous MY. As seen in the graph below, U.S. soybean stockpiles rose to record highs in 2019 when China had imposed a ban on U.S. soybean imports, and inventories dropped post the Phase One Deal agreement to only 3 million tonnes currently, which is close to historical lows.
In the 2020/2021 MY, grain shipments from the U.S. and Canada reached historical highs at around 180 million tonnes and 34.5 million tonnes respectively, up 44.5 million tonnes and 5 million tonnes compared to the previous MY. On the contrary, shipments from Brazil, Argentina, the EU and the Former Soviet Union countries were lower than during the previous MY by 6–8 million tonnes. Looking at shipments per grain type, the largest increase was for corn (+16.5 million tonnes) and other coarse grains (+9 million tonnes).
On the importers' side, the grain trade was largely dominated by China that imported around 25 million tonnes more during the 2020/2021 MY, with corn imports jumping by 18.4 million tonnes and wheat imports doubling to 10.5 million tonnes as the country looked to diversify its pig feed.
Looking at the grain trade over the past year (April 2020 — March 2021), the most significant change has been the jump in the U.S. to China grain trade (+30.8 million tonnes year-on-year), as well as the Ukraine to China and Brazil to China grain trade that went up by 4.9 million tonnes and 3.1 million tonnes respectively, which all boosted fronthaul freight rates.
What to expect in 2021/2022?
The USDA expects grain shipments to continue growing in the 2021/2022 MY, increasing by around 3% compared to the previous MY.
Predicted shipments per area (in million tonnes):
Predicted shipments per grain type (in million tonnes):
Exports, predictions per area:
↓ U.S.: Shipments are expected to decline year-on-year by 14.4 million tonnes compared to 2020/2021 which is mostly attributable to the fact that stockpiles are very low currently. In more details, corn shipments are expected to decline by 8.3 million tonnes and soybean shipments by 5.6 million tonnes. This means that we should see lower exports (on a year-on-year basis) between Q4 2021 and Q2 2022.
↑ East Coast of South America (ECSA): Grain shipments from Brazil and Argentina are expected to increase by a healthy 10% / 23 million tonnes compared to the current MY which should translate into higher volumes during Q2 and Q3 2022 more particularly.
↑ Former Soviet Union (FSU): Grain exports from Ukraine and Russia are predicted to reach record highs in 2021/2022, increasing by 14% / 12.6 million tonnes compared to the previous MY. This should mean higher volumes during Q4 2021 and Q1 2022 despite the introduction of a tax on exports by Russia.
↑ European Union (EU): Wheat exports from the EU are expected to increase slightly (+10% / +3 million tonnes) compared to 2020/2021 but will still remain below 2019/2020 levels by around 14%. This should mean that we can expect a slightly stronger Q1 in 2022 compared to the first quarter of 2021.
↓ Canada: The USDA predicts lower grain exports from Canada during the upcoming MY (-9% / — 3 million tonnes) after 2020/2021’s record volumes. This should translate into slightly weaker volumes during the August 2021 — July 2022 period.
↓ Australia: Australia’s grain shipments were very strong in the 2020/2021 MY on higher production and they are forecast to come down by around 10% / 3 million tonnes during the upcoming MY that starts in October 2021.
Imports, predictions per area:
↑ China: China’s soybean imports are seen reaching historically high levels amounting to 103 million tonnes, or 3 million tonnes more compared to 2020/2021, whilst wheat and corn imports are predicted to remain stable.
↑ EU: Corn imports into the EU are forecast to rebound by 4 million tonnes in the upcoming MY to 16 million tonnes which are likely to be sourced from Ukraine and Brazil, boosting transatlantic volumes.
→ South East Asia: No major change is expected in South East Asian countries’ grain imports for 2021/2022 with only a marginal increase in wheat imports that could come from Australia or the Black Sea.
Conclusion
U.S. grain shipments to China are expected to remain strong this year as China is still committed to fulfilling the Phase One Deal agreement meaning that it has to continue buying large volumes of grains from the U.S.
Basis these initial USDA predictions for the upcoming MY, higher grain volumes should come out of the East Coast of South America, the Black Sea and the EU whilst grains shipments from North America are expected to be weaker year-on-year.
Overall, the grain trade should continue to grow steadily which will provide good support to the Panamax and Supramax segments in the year to come at least.
Marketing Year per country and per type of grain/oilseed:
