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Column: To exclude or not? Grain analyses evolve as China ups imports

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Column: To exclude or not? Grain analyses evolve as China ups imports
© Reuters. Mature spring wheat awaits harvest on a farm near Beausejour, Manitoba, Canada August 20, 2020. REUTERS/Shannon VanRaes/File Photo

By Karen Braun

FORT COLLINS, Colo. (Reuters) – The practice of excluding China from global wheat and corn analyses has been increasingly prevalent in recent years because of the country’s swelling stockpiles. However, China last year became the top corn importer as domestic prices soared, so is the exclusion still valid?

Since the premise of separating China is related to its previously minimal participation in global trade, both calculations should probably be made, but there is still compelling evidence to keep the separation.

China has long maintained large grain stockpiles for food security, though it officially scrapped the practice for corn a few years ago. But its burden on world supplies has risen, and that has sometimes masked fluctuations in exportable products.

China’s import patterns have differed over the decades, but activity had recently been quiet. Just five years ago the country was outside the top 10 corn and wheat importers, but it jumped into the top spot for corn last year, and that is expected to continue at least this year.

Its wheat imports were the world’s second-largest in 2020-21 and similarly strong purchases in 2021-22 should be enough for No. 4, according to U.S. government estimates.

However, China is unique in that its imports account for an unusually small portion of annual demand because no other importers produce such a massive crop. China is No. 2 in corn output and No. 1 in wheat.

China’s corn imports this year are expected to cover 9% of needs. The same figures for other top importers are 38% for Mexico and nearly 100% for Japan and South Korea. For wheat, the percentage comparisons with others are similar to those of corn as those buyers depend heavily on foreign grain.

Another possible hiccup with accounting for Chinese and world corn supplies together is that Chinese stocks have become more of a mystery in recent years, but the price surge does not suggest a situation as comfortable as USDA numbers might suggest, for example.

However, logistical barriers are notorious in China. Since grain and livestock production areas largely do not overlap, sometimes it is more expensive to move product within the country than to import from overseas. That could offer some validity to a high-stock, high-import argument.

China has been more vocal over inventories of wheat, which is still intentionally stockpiled and price-supported in the country. Beijing said earlier this month that it has 1.5 years’ worth of wheat in reserves, though that is more generous than U.S. estimates by half a year.

USDA figures suggest China will hold a record 51% of the world’s wheat by mid-2022. Its corn share is seen at 69%, down slightly from last year, though industry ideas probably vary.

There is no masking by China of the exportable wheat shortage this year as evidenced by the boosting of global prices to multiyear highs, and the same can be said for corn. Excluding China, global wheat ending stocks are set for eight-year lows in 2021-22, something that corn achieved in the previous marketing year.

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Commodities

U.S. increased forecasts for crude oil and natural gas production in the country in 2022

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crude oil and natural gas

Crude oil and natural gas production will be raised. The U.S. Energy Department raised its 2022 domestic crude oil production (excluding other liquid hydrocarbons) forecast from 11.83 million to 11.87 million barrels per day, the Energy Information Administration (EIA) said in its monthly forecast. The forecast is 0.62 million bpd higher than the 2021 result.

The agency also slightly increased its 2023 production forecast by 30,000 bpd, to 12.34 million bpd. It is close to the annual average. This figure is close to the average annual record for oil production in the United States, set in 2019, – 12.3 million bpd.

Also, the Department of Energy slightly raised its 2022 and 2023 U.S. gas production forecasts. Gas production will be 98.13 Bcf/d in 2022 and 100.38 Bcf/d in 2023 (nearly 1.2 trillion cubic feet of gas per year).

The previous forecast had assumed production of 98.07 and 99.69 Bcf/d, respectively. In 2021, the country produced 94.6 Bcf/d of gas.

While the EIA still expects gas production in the Permian Basin to be constrained in early 2023, it anticipates that these constraints will be removed sooner than previously projected, although risks remain.

The Department of Energy expects natural gas prices to rise from their November level of $5.5 per MMBtu to over $6 per MMBtu in Q1 2023 because of both higher winter demand for natural gas and increased LNG exports. This will impact crude oil and gas prices.

U.S. LNG exports are expected to be 10.6 Bcf/d in 2022, up from 10.85 Bcf/d a month ago, and rising to 12.25 Bcf/d in 2023 (nearly 145 Bcf/d); the previous forecast of 12.33 Bcf/d.

Earlier we reported that the Expert revealed the reason for the sharp fall in oil prices.

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The expert revealed the reason for the crude oil price chart dump

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crude oil price chart

World oil prices have fallen to the level of early January, as expectations of a sharp decline in oil supplies from Russia after the start of the embargo and more aggressive actions by OPEC+ to maintain prices have not materialized. This is the reason for the crude oil price chart dump.

Live crude oil price in dollars – what’s going on?

On Wednesday, Brent crude oil prices fell below $78 a barrel for the first time since January 3. February futures are trading at $79.6 a barrel.

Prices were probably driven by expectations of a sharp drop in oil supplies from Russia due to the embargo, and more aggressive action by OPEC+ to maintain prices; i.e., production cuts. Neither of these things happened; OPEC+ decided on Sunday not to change its production quota and, judging by media reports, Russian companies prepared for the embargo, including tanker fleet acquisitions.

Meanwhile, the Financial Times newspaper reported on Monday, citing oil traders, intermediaries and vessel-tracking services, that a traffic jam of oil tankers has formed off the Turkish coast since the start of restrictions on oil prices from Russia due to Ankara’s requirements to provide insurance data. According to the expert, a delay in the passage of ships could have led to an increase in oil prices on expectations of a shortage, but this has not happened yet.

According to marinetraffic, a ship-tracking portal, there are about 30 tankers, mostly Turkish, off the Turkish coast near the strait. Five tankers out of this number are Russian. Russia is concerned about the situation off the coast of Turkey, where Russian oil tankers have piled up; this problem is now being discussed through transport and insurance companies. but it may also be taken up at a political level.

Western oil sanctions came into effect on December 5: The European Union stopped accepting Russian oil transported by, and so also the “Big Seven” countries. Australia and the EU, imposed a price cap on such oil at $60 per barrel. Deputy Prime Minister Alexander Novak said Sunday that Russia is considering possible mechanisms to ban the application of the price ceiling for Russian oil supplies.

Earlier, we reported that oil prices fell before the release of statistics on inventories in the U.S.

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Crude oil prices today declined before the release of U.S. inventory statistics

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crude oil prices today

World oil prices on Wednesday afternoon moved to some decrease, according to trading data. Markets are waiting for weekly statistics on commercial oil reserves in the U.S.

Brent crude oil prices were down 0.67% to $78.82 per barrel, while WTI January futures decreased 0.67% to $73.75. Oil prices were weak in the morning.

Later Wednesday, the U.S. Department of Energy will report data on the country’s commercial oil inventories for the week through December 2. Analysts believe the figure fell by 3.3 million barrels. On Wednesday night, the American Petroleum Institute (API) said it estimates a 6.4 million-barrel decline in inventories.

Crude oil prices today continue to be affected by uncertainty regarding the prospects of oil supplies. From December 5, the oil sanctions of the West came into effect: the European Union stopped accepting Russian oil transported by sea; also the G7 countries. Australia and the EU imposed a price cap on such oil at $60 per barrel.

The Russian authorities are developing three possible responses. The first one is a complete ban on sales to the countries that supported the restriction, including through intermediary countries or even their chain; the second one is a ban on exports under contracts that include a price ceiling condition; and the third one introduces an indicative price – the maximum discount of Russian Urals oil to the benchmark Brent grade, and a ban on selling at a higher discount.

Earlier we reported on the Big Tanker Jam in the Bosphorus due to the price cap on Russian oil.

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