Seeing Less or More
While calendars in the U.S. and Canada showed an extra 24 hours for the weekend via Memorial and Victoria Days respectively, grain markets (and farmers) for that matter hardly took a vacation. Decent seeding weather has been in short supply this spring and so drills and planters are going full tilt while they can. However, continuous (and frustrating) moisture events are slowing things down and even causing replanting in the eastern half of America’s Midwest. Seed companies are starting to admit that they are getting historically large requests for additional seed to replant crops that have been n moisture-overload. While it’s far from the replanting done in 1993, it does rank up there, according to some players, as the 2nd or 3rd worst in history. It’s been usually recognized that anything after the 2nd week of June will usually only get you 50% of the maximum yield if you’re planting corn that late, which means that you’re likely going to see more soybeans go into the ground in the U.S.
Canadian exports of pulses continue to be strong as peas exports just hit 3.14 million tonnes as of last week, meaning that shipments out of country are tracking about 45% higher than a year ago. Comparably, total Canadian lentils exports are now sitting at 727,700 MT, or about 21% than a year ago. Europe’s agricultural research unit, M.A.R.S., recently cut its EU yield forecasts, blaming inclement winter conditions and dry spring conditions starting to impact vegetative growth. Looking more broadly, INTL FC Stone says that EU wheat prices have limited downside because of a slower start to the Black Sea harvest, combined with the lower but still decent EU yield prospects (just not a bumper crop). This in mind, BlackRock, the world’s largest asset manager says that we may be nearing the bottom of the grains cycle. With things near the bottom, we tend to see a little more merger & acquisition activity (companies and their assets are undervalued), which this go-around has been led by Glencore (parent company of Viterra) looking to make a play with Bunge at the end of May.
The Canadian Ag Ministry recently noted that almost all acreage increases in spring wheat will be taken on by hard red spring wheat, accounting for 80% of total wheat acres, versus 76% in 2016/17. That being said, hard red spring wheat prices have been trending a bit higher lately with some of the U.S. winter wheat crop concerns. That being said, we saw most cash grain prices in Western Canada head higher over the past week, led by hard red spring wheat with some areas close to the U.S. border nearly touching $7 CAD / bushel. Durum and yellow peas also jumped week-over-week on some concerns of forecasted acres actually coming to fruition because of the delays in seeding seen across the Canadian Prairies. While old crop durum prices are trying to get back to those $7.50 / bushel handles and new crop is trying to find a home closer to $7, yellow peas values are trying to touch $9 CAD / bushel on old crop and sticking around those $8 handles for new crop. For canola, a stronger Canadian Loonie has put some pressure on things but spot movement is still finding a delivered home above $11.50 / bushel whereas new crop values are about a $1 lower from new crop almost everywhere in Western Canada.
While seeding acreage is certainly behind, there’s a lot less of durum wheat going into the ground in North America in 2017. In Canada, acreage is forecasted to fall 17% from last year to 5.15M acres but this is only 2.6% below the 5-year average of 5.28M acres. In the U.S., durum acres are seen falling 20% to 2.4M tonnes. With acreage down, the market is looking to the large carryout from 2016/17 to make up gaps in the market, but quality has certainly been a concern, but mainly on the northern side of the 49th parallel as the 2016 American durum crop was one of the best ever in terms of quality. However, the major concern is how much decent protein durum is left in the pipeline. Accordingly, while we know acreage is lower, harvest conditions in August and September will be the main contributing factor as to whether or not values head higher from where we’re at today. More simply put, buyers want more good protein durum wheat to come off this year to preserve current values, but anything less than average volumes grading #1 and #2 are certain to push values higher.
President & CEO | FarmLead.com