Are the Highs In?
Grains pulled back from some of their highs the week prior as market participants looked to close up some trades and lock in some profits for the month of November. While the highs of the month were posted for most grains right after the E.P.A.’s announcement last week, the oilseeds market did end the month with a positive gain on the futures board in Chicago & Winnipeg, whereas corn, wheat and oats did not. From a cash grain perspective, Western Canadian prices are all higher compared to a month ago as we pulled up from harvest lows, although oilseeds did pull back from last week’s highs. More specifically, canola pulled back about 10 – 20 cents CAD / bushel across the Prairies from last week but still are about 3-4% above where they were a month ago. Hard red spring wheat prices aren’t offering much incentive to take deferred delivery options as $6.55-$6.75 CAD / bushel is bid from now until June 2017, but that’s still 2-4% higher than options available at the beginning of November. Oats and yellow peas are both up month-over-month and we see the former staying elevated above $3 / bushel for a while in most places, but expectations are for pea prices to pull back from the $8 handles were seeing with decent rabi winter Indian crop conditions. Finally, durum wheat prices are stalling out and it’s very possible that the highs of the marketing year are now in with U.S. and export demand remaining subdued.
In the Land Down Undaa, the International Grains Council is calling for a 28.3 million-tonne wheat crop, a 5-year high whereas grain trading company Nidera is the most bearish, calling for at least a 31 million-tonne crop (a new record). The western Australian harvest has been downgraded a few times though and quality is up in the air, but wheat coming off in the Eastern states is surprising growers and trader with above-expected yields AND protein. While currency effects have allowed for Black Sea wheat to fill Asian market needs in the past, freight advantages are now making Aussie-origin wheat more competitive. Also participating in that Asian-wheat import game is Argentina, as the I.G.C. is calling for a 14.2 million-tonne wheat crop (local forecasts are for under 13 million tonnes). Overall, the spread between lower and higher-quality wheats continue to widen, but Southern Hemisphere harvests could put a damper on those with good stuff in the bins looking for more.
Strategie Grains continues to reiterate its call that European Union wheat acres are unlikely to decline in 2017/18 and with the weather unknown at this point, they’re projecting a bigger crop than this year’s rain-riddled downturn. With a soft wheat production forecast of 152.9 million tonnes, this would represent at 5.5% increase from this year’s 145 million-tonne crop (which was technically a 9% drop from 2015’s record 159.4 million tonnes…key word here being record). This in mind, Strategie is expecting that next year, with the rebound in production, the E.U. will recover the exports it lost to the Black Sea this year (albeit, it should be noted that on-farm storage in the Black Sea are increasing, disrupting usual harvest pressures). Conversely, Strategie is expecting durum wheat acres to drop as a result of lower margins but rapeseed margins will continue to be good but not good enough to offset the production risk without seed treatment capabilities.
Finally, the U.S.D.A. released their 10-year baseline numbers this week (used for government budget reasons) and it raised a few eyebrows. Throwing their first forecast into the ring, the U.S.D.A. is expecting 90M acres of corn and 85.5M acres of soybeans (a record) to get planted across America in 2017 (-4.8% and +2.1% year-over-year, respectively). From a production standpoint, the U.S.D.A.’s first estimate of next year’s crop suggests more trendline yields of 170.8 bu/ac corn and 47.9 bu/ac soybeans (-2.6% and -8.8% from this year’s records). Finally, wheat acreage is expected to be down 4.4% from 2016 to 48.5M acres with yields down more than 10% to 47.1 bu/ac. Compared to the U.S.D.A.’s estimates, most private forecasts are calling for way less wheat acres, a few more million bean acres, and similar corn numbers, which would suggest that it keeps the title of most acres, and prices potentially getting back to $4/bushel on the Chicago board. What we know for certain is that the market tends to also overweight the value of these “first” estimates and that the fever pitch highs seen now turn out to be a bit overrated.
President & CEO | FarmLead.com