Market Insider

Finding Patience

On Tuesday, October 11, the United States Department of Agriculture (USDA) came out with their October version of their World Agricultural Supply and Demand Estimates (WASDE), giving the grain markets a bit more clarity on what the United States (U.S.) crop is looking like. While things looks like they are going to be a record south of the 49th parallel, about 20 per cent of the Western Canadian crop has yet to be combined, with progress slowed down by snow and rain. It is estimated that as much as 1.5 million tonnes of canola and seven million tonnes of spring and durum wheat (or feed?) have yet to be taken off in the Prairies, apart from other crops. This in mind, reported higher quality hard red spring wheat and durum wheat continue to tick up slowly, with the latter up by more than 5 per cent since last week. Canola prices also gained on the aforementioned remaining crop in the field (although the USDA pegged the Canadian crop at 18.5 million tonnes), while pulse crop prices have been relatively unchanged as buyers remain patient with their bids because of steady exports from other major produces and decent growing conditions in India.

In the WASDE report, average U.S. soybean yields were pegged at a record 51.4 bushels per acre (bu/ac) (market expected 51.5), for a 4.27 billion bushel crop (or 116.2 million tonnes and +9 per cent year-over-year (YoY). There is more than a few analysts who believe that the final yield number will come in above 52 bu/ac by the January report, but the shots fired in this report really came in the form of harvested acreage also climbing to a record 83 million (+2 per cent from last year). On the flip side of the equation, demand continues to show some healthy numbers, especially exports, which are expected to be a record 2.025 billion bushels in 2016/17, meaning a domestic carryout of 395 million bushels, still under the psychologically-significant 400-million-bushel handle. Total worldwide production is seen at a record 333.2 million tonnes, including a combined 159 million tonnes between Brazil and Argentina. With Chinese imports remaining set at 86 million tonnes, global ending stocks to climb 2.5 per cent year-over-year to 77.4 million tonnes.

For corn, average U.S. yields are projected to come in at 173.4 bu/ac (market expected 173.5) for a record crop of 15.06 billion bushels, and a carryout of 2.32 billion bushels (+33 per cent YoY) with total area harvested set at 86.8 million acres (+8 per cent YoY). Exports for corn were also raised to a nine year high (and fifth largest ever) of 2.23 billion bushels, but the size of the crop is forcing the USDA’s hand in that they have pegged average 2016/17 US corn prices at $2.95 - $3.55 USD per bushel. As for wheat, U.S. inventories by the end of 2016/17 were set at 1.14 billion bushels, up from 1.1 Billion bushels last month (and +17 per cent year-over-year), mainly thanks to tougher competition in the international wheat trade and corn still being preferred in domestic feed markets. Accordingly, average U.S. prices this marketing year have been set by the USDA at $3.50 - $3.90 USD/ bu, a significant drop from last year’s average of $4.89/bu.

Overall, we are beating a dead horse a bit by saying that there is a big global crop out there and that low prices cure low prices but that is the game today. While there is a myriad of disruption in the wheat trade markets, one positive is that Canadian feed wheat is now getting competitive with that of Black Sea origin (in relation, spreads from higher quality product are starting to widen, something we called for back in early September). Ultimately, the depressed state of the market is what it is and complaining and complaining is not healthy. While we remain advocates of contracting feed grains, a combined approach of solid grain marketing risk management plan, consistent conversations with your lenders/accountants, and patience are pretty important.



To growth,

Brennan Turner
President & CEO |