Market Insider

New Perspectives

The second week of November was one for the history books as agricultural markets had to deal not only with the monthly World Agricultural Supply and Demand Estimates (WASDE) report from the United States Department of Agriculture (USDA), but also the United States (U.S.) Election! Markets violently sold off on Tuesday night on the news that Donald Trump will be the next American President as the real estate tycoon’s campaign often flip-flopped on policies and promises. However, everything rebounded after Trump pledged in his victory speech “to be a President for all Americans” and "now it's time to bind the wounds of division.”  One key thing to consider is the protectionist trade rhetoric that he campaigned on, which means North American Free Trade Agreement (NAFTA) is likely back on the table and while Canada would likely be open to re-negotiating a few things, it is really Mexico that Trump has put a lot of negative focus on (keep in mind that Canada and Mexico are America’s second and third largest markets for farm/ag exports). Overall, the new Donald Trump Presidency has more questions than answers at this point, and the markets are expected to stay a bit volatile until they can understand his perspective on a variety of issues.

Following the surprising win by President-Elect Trump, we got the USDA’s WASDE report on Wednesday. In it, American corn yields were pegged at 175.3 bushels per acre (bu/ac) by the USDA this month, down 0.1 from last month but 0.1 bu/ac higher than the average pre-report guesstimate. This translates to a 15.226 billion-bushel crop, 185 million bushels more than what the market was expecting. The interesting thing on the demand front was that nothing was changed, despite exports soaring above where they were last year, paving the way for some analysts to start suggesting that we have seen the top of demand. One could argue though that the 2.225 billion bushels that the USDA already has earmarked for exports is already a 17 per cent jump year-over-year. All this equates to a 2016/17 carryout of 2.4 billion bushels, 83 million bushels higher than October’s number and a 38 per cent climb from 2015/16’s ending stocks. Globally, worldwide production is seen at 1.03 billion tonnes (+7.3 per cent year-over-year (YOY)) thanks to a bigger U.S. crop, Ukraine’s crop raised by 1.5 million tonnes to 45.6 million, and Brazilian and Argentinian crops making improvements over last year to 83.5 million and 36.5 million tonnes respectively (or 25 per cent higher in Brazil versus 2015/16 and 26 per cent better in Argentina).

For U.S. soybeans, national average yields were bumped up from October by 1.1 bu/ac to a whopping 52.5 bu/ac, a new record and a 9.4 per cent increase from last year’s 48 bu/ac crop. This means total output was raised by 92 million bushels to 4.36 billion bushels (+11 per cent year-over-year) but because the USDA also kept soybean demand unchanged (including exports at a record 2.05 billion bushels), 2016/17 ending stocks are seen at 480 million bushels, an 85 million bushel increase from October’s number and 283 million bushels more than where we ended 2015/16 (or a 144 per cent jump year-over-year). In South America, we think the USDA’s numbers are a bit optimistic with a 102 million-tonne crop in Brazil (+5.4 per cent versus last year) and 57 million tonnes in Argentina (basically unchanged from last year), especially considering the acreage numbers being less than expected. China is still seen importing 86 million tonnes of soybeans though, and overall, the global 2016/17 carryout is expected to come in at 81.5 million tonnes (+5.8 per cent over 2015/16).

For wheat, not much was changed to the supply and demand tables, including Canadian and Australian production remaining at 31.5 million and 28.3 million tonnes respectively, despite the obvious harvest challenges. Conversely, canola futures are trying to rebound from its lows earlier this month on a lower Canadian dollar and palm oil production in Malaysia in October only coming in at 1.6 million tonnes, a 17.6 per cent decline year-over-year. From a cash price perspective, tells us that cash canola prices are a bit higher month-over-month but down slightly from last week’s highs, with movement before end of 2016 now below $11 CAD per bushel. Average Western Canadian cash hard red spring wheat prices were also down week-over-week with the spread from spot movement to spring delivery only about 20 cents a bushel, with the latter available for those $6.50 handles. Durum wheat continues to trend higher and we are seeing some good selling opportunities as the highs of the gongshow that was 2014 durum market was seen in late November/early December. However, one thing to put into perspective was the difference in carryout in 2014 and the size of new supplies that came off this year, not just in Western Canada, but around the world.

To growth, 

Brennan Turner
President & CEO |