Market Insider

Grain's Dancing Bears

On Tuesday, February 9th we got the United States Department of Agriculture (USDA) February installment of their world agricultural supply and demand estimates (WASDE) and while the market’s pre-report estimates were not wildly far away from actual levels, many (including yours truly) were a bit surprised by ending stocks for pretty much every crop increasing from January’s numbers. The narrative that we have been enduring for the past few months remains the same: the bears are having a dance party and it looks like their music is on repeat for at least another year or two, assuming a La Nina market doesn’t come to fruition in 2017.

Global wheat ending stocks were hiked by 6.8 million tonnes to a record 238.9 million tonnes (wowzers), thanks to larger stocks in China (+6.3 million tonnes from January to 93.6 million tonnes) and United States (U.S.) exports down another 680,000 metric tonnes to its lowest levels since 1971-72 of just 21.1 million tonnes. On that note, with the weaker Canadian dollar the USDA upped Canada’s export target for 2015/16 to 22 million tonnes, making it the second largest wheat exporter in the world after Russia’s 23.5 million tonnes (the rankings does not count the European Union, who the USDA says will collectively export 32.5 million tonnes of wheat this marketing season).

Global corn carryout was pegged at 208.8 million tonnes, slightly lower than January’s forecast but production in Brazil was raised 3.5 million tonnes and 1.4 million in Argentina 84 million and 27 million tonnes, respectively. With more of the coarse grain coming out of South America, U.S. corn exports dropped 1.3 million tonnes from January’s estimate to 41.9 million tonnes, pushing U.S. corn ending stocks up 890,000 tonnes to 46.7 million tonnes (1.84 billion bushels). Rounding out the three major row crops, South American soybean production estimates stayed at 100 million tonnes in Brazil but were increased to 58.5 million tonnes in Argentina. This translates to 320.5 million tonnes of world production in 2015/16 and a global carryout of 80.4 million tonnes, 12.23 million (449.4 million bushels) of which will be in the U.S. to end the marketing year.

With the bearishness of the report, it is another reality check for every farmer and grain buyer alike that there is a massive amount of grain available still. World wheat stocks, compared to their demand levels (stocks-to-use ratio) are currently sitting at a level not seen since 2002, and the last time we were there, it took two years to get down to more average levels.

From a cash perspective in Western Canada (and as per the grain pricing website), hard red spring wheat prices were actually mostly unchanged this week with slight improvements in Manitoba and Saskatchewan contrasting slightly lower values in Alberta. Bigger losses were seen in Canada Prairie Spring (CPS) wheat, down about 1.75 per cent week-over week below to average cash price of $5/bushel (worse towards the east), while spot durum prices rebounded a bit from last week to $8.48/bushel.

Ultimately, the randebound-ness continues as no trend is emerging, albeit basis continues to sit fairly low, with the Canadian dollar back above 72 cents. That being said, the real catalysts I can see on the wheat side of things are Black Sea production (has the market priced in 20-30 per cent decline in Ukrainian production), reduction in Chinese and Australian production and ending stocks, and, obviously seeding concerns in North America in a few months. Should any of the aforementioned take place, hopefully some of the bears owning the dancefloor (AKA market) will get out of the way.

To growth,

Brennan Turner
President & CEO |