European agricultural productions through America`s eyes

The latest USDA report on May 12th did not bring significant surprises on expected production this year, but most likely raised some eyebrows among analysts when it comes to estimated consumption. Ignoring the potential effects of the economic crisis we have already entered, the US Department of Agriculture uses more than optimistic figures in terms of feed consumption, both domestic and global.

Moreover, during a political scandal, the US estimates not only that the agreement with China will be completed in the terms initially negotiated but that it will be able to sell even more grain to the government of the world's second largest economy. Many grain market participants are now wondering if this move in the USDA ratio is not one to stop the free fall in grain prices, providing a balance of global demand and supply.

Returning to productions, let's review the Americans' predictions regarding the situation in Europe:

1. Total grain production 274 million tons, down 10 million compared to 2019 but still in the top 5 of the last 15 years. Unfortunately, much of this decline comes from SE Europe, amid the drastic drought of the last half year.
2. Total wheat production 143 million tons, decreasing by about 12 million tons compared to 2019 and well below the average of the last 5 years. Consumption has been reduced accordingly, mostly on the fodder side (minus 5 million tons) where it is estimated that the processing industries will use more corn, barley or other cereals, to the detriment of wheat. At the same time, exports from the EU were cut by 3 million tons versus 2019, an estimate more than justified.
3. Maize production in Europe has been increased by at least 1 million tons to 68 million, to which are added more imports compared to 2019, all in an attempt to stimulate feed consumption with a cheaper product. Take into account the basic fact that the European Union is an importer of corn every year, compared to the situation of wheat, where we are the world's largest exporter, in direct competition with Russia.
4. Barley production is stable compared to 2019 - 63 million tons, increasing by 1 million tons domestic consumption and decreasing exports, again for the same reason explained in points 2-3.

Other figures that give more peace to grain processors / consumers are the following:

The USA will sow a record area of corn this spring - 39.27 million hectares.

Although in Europe the wheat production is lower than in 2019, the total production of the main wheat exporters is higher:

• EU 143 million
• Russia 77 million
• US 51 million
• Argentina 21 million
• Australia 24 million

In any case, things are not decided yet, the above figures represent the best scenario of European production, one in which everything will go perfectly until the time of harvest. In order not to be biased, looking at it from a consumption perspective, the figures are optimistic, as I said above. We look forward to the next USDA report.

Source: FC Stone

Author: Leonardo Lambrea – Head of Trade – Ubm Agri Trade

Article date: 19.05.2020