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Q&A with Christopher Gadd, Macquarie

Christopher Gadd, Head of Agriculture Desk Analytics, Macquarie, gives answers to the most pertinent questions of the South American grains and oilseeds market

Christopher Gadd

Christopher Gadd is Macquarie's Head of Agriculture Desk Analytics. Prior to working for Macquarie Chris worked as a physical grains trader for the US agribusiness Archer Daniels Midland. Prior to this Chris worked on his family's farm in Lincolnshire, UK. Chris holds a master degree in Mathematical Trading and Finance from CASS business school and a BSc in Economics.

Q&A with Christopher Gadd, Head of Agriculture Desk Analytics, Macquarie

1. What do you see as the 2 most important issues globally currently and why? How will this impact the market?

Apart from weather risk, which is always the major determinant of price in the agricultural markets, there are a couple of exogenous variables that may impact agricultural prices.  Firstly, China's policy stance on corn price support and freedom of feed grain imports could have wide implications also the outcome of the election in Argentina may help shape the outlook for price. 

After the best part of 30mT of feed grains have descended on China this year, up from 5-10mT recently, there looks to be policy change on the horizon to help curb the implied stock piling of corn.  If the Chinese government follow through and limit the imports of sorghum, barley and DDGS, this loss of feed grain demand will back up into the world and provide greater competition for corn.  The follow on impact will likely be for soymeal in China, as if the government allows the corn price to fall, the soymeal price will likely move to a larger premium to corn.  The knock on consequence will be to see a reduction in soymeal usage in China, as it is reduced as a fraction of the feed mix. 

 The upcoming election in Argentina could have some significant impacts for the grains and oilseed market, as a new government could bring change to their export controls.  In the near term though, the expectation of a further devaluation of the Peso following the election is likely to discourage the Argentine farmer from selling their current crops.  
2. What can we expect from South America going forward and how will it affect the global grain industry?

Whilst the weakness in $R has helped offset a lot of the loss on world prices for the Brazilian farmer, costs have increased in $R terms.  A lot of the farmers costs in Brazil have increased in line with the weakness of the $R, such as their fertiliser, chemicals and seeds costs, this has limited the gain the farmer has seen.  Also, the lack of credit appetite in Brazil will likely cause a liquidity squeeze for the farmer.

In the short term as many farmers in Brazil are well capitalised after several years of high prices, production is unlikely to fall.  At current levels Brazil is not incentivised to develop new arable land though, so production is not likely to expand. 
As consumption growth rises with the expansion of the global population, Brazil will we required to be incentivised to expand arable land once again. 

3. How have movements in the dollar continued to affect the grain markets?

Movements in the dollar have had a far larger impact for the worlds producer rather than the worlds importer. 
Whilst the movement in the dollar has offset some of the move lower in AGRI commodity prices, the world's importer is still seeing lower prices.  Their import cost has also further been reduced by a fall in the  world ocean shipment rates.  To note as well, most consumption around the world for AGRI commodities is quite price inelastic, so shifts in the dollar have limited impact.

For the world's producer, some have benefited from the movement in USD.  The major benefit has been seen for countries that's price is set by the world market, but their input costs are set locally.  So for example, the Western EU farmer has benefited as their inputs are largely set in local currency whereas price is set globally.

4. What are going to be the keys risks for marketing grain in the 2015/2016 season?

The 2015/16 season is likely to quite challenging from a marketing perspective, as we are testing cost of production for many farmers around the world and we still have production uncertainty.  When we layer this with the current volatile macroeconomic environment, it is clear to see the challenge in predicting price action.  US corn production is likely to remain uncertain until we get the Jan stocks report next year, as it will be challenging for the USDA to forecast the impact of standing water and total production loss in the US until we see the stocks report.  Another factor will be the farmers reluctance to sell their commodities below the cost of production, so whilst on paper it may be possible to project a surplus and bearish balance sheet there will likely be times when a lack of farmer selling is able to squeeze prices higher. 

5. What are the highlights from your recent tours through the US corn belt?

The US corn crops looked as expected on our tour through the Midwest.  In the Western Corn Belt, in particular South Dakota and Minnesota, the crops looked in excellent condition.  The Eastern Corn Belt looked far more mixed, with plenty of signs where water had stood in the field.  It was also clear from aerial shots of the fields in the ECB that the crop was maturating too quickly as the crop was running out of nitrogen.  Soybeans looked in a better condition than expected, we could certainly see the signs of standing water in the fields and a late planting.  Where the crop had passed through the issues of an extremely wet late spring in the ECB, the plants were looking far better than we had anticipated.

This content is provided by Global Grain Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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