Climbing Basement Stairs
Grain markets pushed through the first week of October with more focus on what the colder and wetter weather could add in terms of premiums. Snow flying across the Canadian Prairies and rain falling in parts of the Midwest are becoming obvious negative signals to the rest of the market. Toward the end of September, we got the United States Department of Agriculture (USDA) quarterly stocks report and things showed relatively decent demand numbers. We do know however, that there are some large yields coming off already in the United States (U.S.) with earliest crops showing 220 bushel per acre (bu/ac) corn and 70 bu/ac soybeans. The current average yield estimates by the USDA of 174.4 bu/ac for corn and 50.6 bu/ac for soybeans are well above trendline values, but most of the market thinks that we could see a lower final average corn yield number in January but a bigger soybean number. Ultimately, being in the usual price depression of harvest time, the market is likely to climb up from the basement it has been dwelling in.
The USDA came out with their updated numbers for the final carryout of the 2015/16 crop and the big question that many market participants have been asking themselves is how much demand have these lower grain prices bought. For corn, things appear to be improving as a record amount of corn was taken off the balance sheet for the fourth quarter, putting U.S. ending stocks at 1.74 billion bushels (627 million bushels, or 36 per cent of which is still held on farm, a jump of 6 per cent year-over-year). For soybeans, the USDA says that 197 million bushels of the oilseed are available in America (+3 per cent year-over-year, below pre-report guesstimates, mainly thanks to a fourth quarter usage that was also a record. Helping push the ending stocks lower though was a revision to the 2015 harvest production number. With expectations that this year’s crop is also going to be large, more market analysts are expecting price pressures on soybeans to remain.
Total U.S. wheat inventories to end the 2015/16 crop year came in at 2.53 billion bushels, 133 million bushels above what the market was expecting, a 21 per cent increase year-over-year, and the largest available supply for America in the past three decades. On the wheat production front, total output for 2016/17 was pegged at 2.31 billion bushels, including 1.67 billion bushels of winter wheat, while also raising its outlook for the durum crop to 104 million bushels. Between the size of the U.S. wheat crop and the amount of corn used in the fourth quarter of the crop year, it is safe to assume that corn is still being sought after by feeders, not wheat. This intuitively puts pressure on the spread between wheat and corn, as wheat seems to be overpriced compared to its coarse grain competitor.
On the cash front, pdqinfo.ca tells us that hard red spring wheat prices jumped more than a dime a bushel in the past week as the aforementioned weather issues will continue to limit the amount of higher quality wheat that will get to market. I have already heard farmers calling for $8/bushel hard red spring wheat and I put the chances of that happening at under 5 per cent today – we have to get back to $7 handles first but it is good to see values back above $6! Durum prices remain a bit sticky on the fact that the U.S. crop had decent quality and so premiums have not been given up just yet so $8/bushel for No.2 or better quality is limited. For canola, cash prices climbed about a nickel week-over-week to sit comfortably above the $10/bushel handle almost everywhere in Western Canada. Pulse crop prices continue to find some strength on fresh overseas bids but the size of the Canadian, Australian, and Indian kharif crops are keeping any significant climbs in check.
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