Getting Back on Track
Grain markets pushed into the month of April still digesting some of the United States Department of Agriculture’s (USDA) stocks and acreage report, monitoring harvest progress in South America and preparing for Plant 2017 in North America. Some suggest that it is all about the weather now that the USDA has set the planting expectations in place. Recent and forecasted rains in Argentina are likely to keep stalling harvest progress there in both bean and corn fields but it is hard to expect prices to see the rally they did this time a year ago through mid-June as there is plenty of supplies in the global pipeline still. In terms of cash values in Western Canada, pdqinfo.ca says that in the past two weeks basis on most crops has improved (especially in Manitoba, likely due to flooding issues there), while futures prices have fallen, keeping things relatively unchanged for the most part. More specifically, Hard Red Spring and Canada Prairie Spring wheat prices have dealt with futures values dropping by about a dime per bushel but slightly better basis has limited losses. For canola, futures continue to see declines with thoughts of big U.S. soybean and Canadian canola crops, dropping over 30 cents CAD/bushel in the past two weeks, while basis has only improved by about 20 cents. Overall, as we get into Plant 2017 a bit more stable trading weeks are in order before full speculation over seeding starts up.
The big surprise last Friday came in the form of U.S. soybeans acres getting pegged at 89.5 million, 1.3 million higher than what the average pre-report guesstimate was and a whopping 6.1 million acres bigger than last year (or a 7.3 per cent jump year-over-year). Accordingly, as the market priced in more acres, soybean prices have dropped nearly nine per cent in the past month, but we started getting bearish on the oilseeds markets all the way back in January, cognizant that there could be some good pops to take advantage of, but knowing in the long-term things were poised to head lower because of large expected oilseed acreage in both America and in Canada. This has only been compounded by the fact that the Brazilian soybean harvest has been coming in bigger than expected and crop development in Argentina has started to improve (albeit we are aware of the rain, as previously mentioned).
Not to drag It out more but the USDA’s stocks report on Friday shows that there is also 1.735 Billion bushels of soybeans still in the U.S., a 13.3 per cent jump from March 1, 2016. This number came in a little bit above pre-market expectations, but given the record U.S. crop that came off in 2016 and despite relative decent domestic and export disappearance we already knew there was a lot of beans still available. For corn, the existing inventories are a bit more puzzling as with 8.616 Billion of still unused bushels, that is 10 per cent higher from last March, but the pace of feed use, export volumes, and ethanol crush suggests this number should be in fact lower and we expect to be revised lower in the next few months. U.S. wheat stocks jumped 20 per cent year-over-year to 1.655 Billion bushels thanks to a massive winter wheat crop and because of the corresponding drop in wheat prices over the past year down about 20 per cent (crop type dependent), and acres are down significantly as well.
More specifically, U.S. winter wheat acres are forecasted to drop 3.5 million or nearly 10 per cent to 32.7 million, while spring wheat acres is expected to fall 5 per cent or 600,000 to 11.3 million for Plant 2017. The biggest impact though on wheat was seen in the durum side of things as acreage is forecasted by the USDA to decline 17 per cent from last year to an even two million acres. Combine this with Canadian durum acreage likely coming in closer to five million acres this spring versus the 6.2 million last year, we could start to see prices stabilize, albeit the European crop is looking pretty good right now. For corn, 2017 U.S. acreage came in a little bit below pre-report guesstimates at 90 million acres, which is a four million or a 4.3 per cent drop from 2016. As both stocks and acreage numbers for corn are looking bullish, futures and cash values have been holding their own.
This is likely also to do with the fact that there will clearly be less acres going into feed grains in 2017 in the U.S. While corn and wheat acreage are both down from last year, U.S. sorghum acreage is forecasted to fall 14 per cent year-over-year to 5.76 million while American oats and barley will drop by 119,000 and 504,000, respectively. This does not mean feed prices are going to climb up because we still have a large supply available, but yields will be something to watch for during Harvest 2017. Finally, with the spread between November soybeans and December corn futures now at 2.45, is it possible that we see a slight bump in corn acreage when all is said and done? Yes, but there is still going to be a lot of oilseeds planted (and available) in 2017/18 and so I leave you with the question of what is your marketing plan if there is no Plant 2017 rally? Remember that if there is any rally, the highs are usually found somewhere between mid-June and early July. Before the drills roll, get your grain marketing on track and pencil out a plan with your team/family today.
President & CEO | FarmLead.com