New Crop Challenges
Grain markets headed into Easter weekend continuing to arm the battle bearish supply headwinds against bullish headlines of “it’s too wet”. In the last two weeks, heavy rains have hit almost 2.5 million Argentinian acres and while harvest is behind schedule, the Buenos Aires Grain Exchange thinks it’s still early and the corn crop has the potential to average 140 bu/ac and 53.8 bu/ac for soybeans! In North America, rain has stalled planting progress, but is considered generally good for soil moisture conditions and is still perking up the bulls’ attention to help rally things in corn. Some analysts have similar thoughts for Spring Wheat market, as the wetness in Western Canada and parts of North Dakota have them optimistic we’ll see pick-up ahead of drills hitting the fields.
That being said, Western Canadian Hard Red Spring Wheat cash markets actually dropped week-over-week, as basis across the Prairies widened by five to ten cents CAD per bushel, as futures climbed a nickel. Cash canola prices saw a healthy 15-cent per bushel rally since last week for front-month contracts. However, new crop futures values dropped in both forth quarter 2017 and first quarter 2018 delivered prices by five to ten cents per bushel.
A main reason new crop values dropped significantly is the amount of oilseeds hitting the market in 2017/18. The U.S.D.A. raised soybean production in Brazil and Argentina by a combined 3.5 million tonnes from the March report to a record 167 million tonnes. Specifically, 500,000 MT from the March forecast to 56 million tonnes expanded Argentina’s bean crop, while Brazil’s crop was raised three million to a record 111 million tonnes. Thus, surpassing C.O.N.A.B.’s revised estimate of 110.2 million tonnes! On the corn front, the Brazilian crop was raised by two million to 93.5 million tonnes, while Argentina was pushed up by one million to 38.5 million tonnes. While Chinese soybean imports were raised by the U.S.D.A. to 88 million tonnes, Brazilian exports were also bumped up by nearly one million tonnes to 61.9 million, making it the clear number one exporter of the oilseed with America as a close second at 55.1 million tonnes exported in 2016/17.
However, soybean oil values on the Dalian Commodity Exchange in China have fallen 15 percent in the past two and a half months, due to higher vegetable oil imports and consistent state rapeseed oil reserve auctions. Looking deeper, soybean crush margins peaked in December and in the past few weeks, have gone into negative territory. Worth mentioning as well is, palm oil owns more than 70 percent of Chinese edible oil imports, approximately five million tonnes per year. Palm oil prices are falling as production is rebounding from two years of El Nino issues. While demand for soybeans should remain strong due to the exploding livestock industry, there is a shared bearish sentiment across the edible oils industry in China. Thus, means Chinese canola oil demand is likely to find some challenges as well.
Coming back to the April W.A.S.D.E. report, global carryout for the three major row crops expanded their records further as corn inventories were increased at the end of the 2016/17 marketing year at 223 million tonnes, a 5.3 percent increase year-over-year, wheat stocks were raised to 252.3 million tonnes, 4.4 percent increase year-over-year, and the soybeans carryout came in 3.5 million tonnes above expectations at 87.4 million, 13 percent increase year-over-year. In the U.S., 2016/17 carryout was unchanged at 2.32 billion bushels, nearly matching market expectations but 34 percent higher year-over-year, as ethanol use was expanded by fifty million bushels, but feed demand dropped by the same amount, keeping things even. American soybean ending stocks for this year were raised by twenty million from last month to 445 million bushels, which was near trade expectations and is up 126 percent from 2015/16’s year end. On wheat, ending stocks came in higher than last month and above expectations at 1.16 Billion bushels, 19 percent increase year-over-year, mainly because feed use was dropped by 35 million bushels.
Overall, the bulls are trying to keep things interesting, pounding the “wet” sentiment as much as possible, which is helping rally markets. On April 21st, we’ll get the StatsCan seeding intentions estimates and May 10th will bring the first forecasts of the 2017/18 crop year from the U.S.D.A. But until then, it’s going to be all about the weather. There’s always some challenges to getting the next crop out of the ground, it’s just a matter of how much the speculators want to buy into those challenges.