Looking out Below
Broader grain markets got another boost to its spring rally on Friday, June 10 with the United States Department of Agriculture (USDA) monthly reporting of their world agricultural supply and demand estimates. This coincides with some warmer temperatures in the forecast for the middle of June across many parts of North America’s major growing regions. However, sporadic rains are limiting most negative concerns on crop development. Overall, between the watching of the weather, the switching of some numbers on the demand side of the table, and funds continuing to buy, the market has not looked out down below just yet.
Getting into the report, well-known South American production issues pushed the USDA to give more business to United States (U.S.) corn and soybean tables. Specifically, U.S. corn ending stocks were at a (still) massive two billion bushels by the end of the 2016/17 marketing year, while U.S. soybeans carryout was decreased by 45 million bushels to 260 million. For the current crop year, almost 100 million bushels were trimmed from corn for a 1.8 billion carryout by the end of 2015/160, and 30 million bushels in demand were added to soybeans for a new carryout number of 370 million bushels.
Wheat was the row crop that got pumped and dumped in the report though as larger-than-expected inventories came out. The 2016/17 ending stocks in the U.S. were increased to 1.05 billion bushels, thanks to production being bumped by almost 80 million bushels to a massive 2.08 billion bushel crop this growing season. On the world balance sheet, this upgrade to the U.S. crop, Russia, and Europe accounted for most of a bigger supply of wheat. Specifically, Russia’s wheat crop upgraded by one million tonnes to 64 million tonnes, which meant their exports were increased by 500,000 to a massive 25 million tonnes in 2016/17 (second consecutive year as the world’s number one exporter?). The other surprise was the European Union’s (EU) crop size getting upgraded by one million tonnes to a 157.5 million tonne crop.
This bigger European number contrasts some of the negative headlines on France’s rainfall over the past couple of weeks. That being said, the PDQ cash prices website, pdqinfo.ca tells us that durum wheat prices were the only crop to really buck a lower trend for western Canadian grain prices (France grows a fair amount of durum, so the rains could affect quality). Other wheat prices across the Canadian Prairies dropped significantly, mainly due to futures values dropping hard on the bearish World Agricultural Supply and Demand Estimates (WASDE) report, but also signals that Canadian non-durum wheat exports are slowing down, meaning a larger domestic carryout than originally expected. Specifically, new crop hard red spring wheat cash prices were felled by about a quarter to an average of $6.45 per bushel, while new crop Canada Prairie Spring (CPS) wheat prices got chopped by 35-40 cents a bushel to $5.45. Cash canola prices supported by the bullish numbers from the USDA, but good growing conditions across Western Canada pushed the oilseed down by about a nickel week-over-week to $11.25 a bushel for new crop.
All the focus now seems to be on weather for the next few weeks, and then the June 30 U.S. Acreage report from the USDA. With the $3/bushel rally on the Chicago board over the past 10 weeks, private estimates are suggesting at least 1.5 million acres of soybeans have been bought, putting total acreage near that 84 million mark. The better question though is how many corn acres were lost, either to beans, or less-than-optimal planting conditions that forced a switch. We think that we will still see 90 million acres of corn in the U.S., meaning a 14 billion bushel crop (that’s big eh!).
For wheat, new crop supplies are coming online thanks to some big winter wheat harvests in Kansas, Oklahoma, and Texas, and that will continue to pressure prices. Overall, between the aforementioned weather premiums and demand switching to North America, the general bullish sentiment feels right. However, there are definitely still many unknowns at this point in the growing season, but, given the good start to the crop, and if conditions were to remain average, there is a lot of dark space below from a price perspective when funds realize what they have got themselves into.
President & CEO | FarmLead.com