Market Insider

Bearish Shocks

On Tuesday, November 10, 2015, we got the United States Department of Agriculture’s (USDA) monthly installment of the world agricultural supply and demand estimates and things came out a lot more bearish than the market was expecting. Going into the report, average market analysis pegged both corn and soybean yields and production higher than the previous October report.

That being said, USDA surprised even the bears by taking average corn yields up by 1.3 to 169.3 bushels per acre (bu/ac), and barley below last year’s record of 171 bu/ac. As such, total United States (U.S.) corn production was pegged at 13.65 billion bushels, almost 100 million bushels bigger than the trade was expecting. Accordingly, the 2015/16 domestic carryout was increased to 1.76 billion bushels, but that pales in comparison to global corn inventories rising by almost 13 per cent year-over-year to a record 212 million tonnes (mostly thanks to lower feed use in China). In corn, the question is how much product is the market cruising through and at what pace will this help drive prices higher, should we see a mild winter and drier seeding conditions for plant 2016 (which is being forecasted right now).

For soybeans, average U.S. soybean yields ticked up by 1.1 bu/ac from October to a record 48.3 bu/ac, meaning total production will touch a record 3.98 billion bushels (or more than 108 million tonnes). Thus, it’s no surprise that domestic U.S. soybean end-of-year inventories will grow to 465 million bushels, well above the 436 million bushels the market was anticipating. With CONAB (basically Brazil’s USDA), raising production estimates to almost 103 million tonnes, it’s not hard to figure out the math that there’s a lot soybeans out there. Moving forward, the main variables to watch are China - are they slowing down their imports or just continuing to source from South America, and El Nino - will it drive up veggie oil prices for a few months or just briefly?

On wheat, everyone already knows there’s a large supply out there but with U.S. exports sagging to the lowest levels since the 1971/72 marketing year, it’s no surprise that U.S. ending stocks were pushed up to 911 million bushels, the largest in six years. Globally, world ending stocks declined slightly with the Australian crop being cut by 1 million tonnes to 26 million, but that was basically made up by the E.U. crop increasing by two million tonnes to over 157 million tonnes. With the bearish shock, future values were driven lower again but, per the PDQ pricing website (, we saw basis levels in Western Canada improve again. As such, net cash prices are flat-to-slightly better on the wheat side of things, while canola is trending sideways-to-lower.

All in, with supply more than available across the board, sideways-to-bearish pressure remains on the majority of grains complex with only a surprising demand headline or a weather shock bringing about the potential for a rally before the New Year. As such, should these materialize, look to, as I like to say, "sell on the rumour, profit on the fact."

To growth,

Brennan Turner President & CEO |