Grain markets pushed through the second week of May with a little more volatility, but not from weather effects, rather new data. The U.S.D.A. gave out their first supply and demand forecast for the 2017/18 crop and it surprised the market in a few areas. A simple conclusive look at the numbers show more less corn globally and in the U.S., less soybeans worldwide but significantly more within American borders, and way less wheat in the U.S. but more of the cereal worldwide. What we do know is that for the first time nearly 30 years, global production of corn, soybeans, and wheat will be declining simultaneously.
Digging into the report, the first estimates of American corn and soybean yields this year were pegged by the U.S.D.A. at 170.7 and 48 bu/ac respectively. This would be a drop of 3.9 bushels and 4.1 bushels from their respective records last year of 174.6 and 52.1 bu/ac (also worth noting is that these first estimates are both above the linear trend yield). Based on historical abandonment averages, the U.S.D.A. expects 82.4 million of the 90 million acres planted to get harvested, meaning production of 357 million tonnes (14.07 Billion bushels). For soybeans, U.S. production will hit 115.8 million tonnes (4.26 Billion bushels) off of 88.6 million acres versus the 89.5 million that should get seeded this spring. The biggest domestic bullish surprise in wheat where production is expected to drop 21% from 2016 to 49.6 million tonnes (or 1.82 Billion bushels), using a 47.2 bu/ac average yield (last year was 52.6) off of 38.5 million acres (compared to the seeded area of 46.1 million). U.S. spring and durum wheat production should decline 10% from last year, thanks to the aforementioned lower yields and lower acreage.
Globally, 2017/18 corn output should hit 1.033 Billion tonnes (slightly lower from 2016/17), which, combined with a little more demand, equates to a carryout of just 195.3 million tonnes (or -31% year-over-year. This is mainly due though to the U.S.D.A.’s expectations of Chinese inventories dropping significantly this year as higher consumption but lower acres means less production to shore up supplies again! More specifically, they’re expecting the People’s Republic to end 2017/18 with 81.3 million tonnes, which would still account for 42% of total world supplies, but it would still be 20 million tonnes lower than the end of 2016/17 and the lowest in the past 5 years! For soybeans, total global production in 2017/18 is expected to be just 3.5 million tonnes smaller than 2016/17 at 344.7 million. However, strong demand – namely China needing 93 million tonnes in 2017/18 according to the U.S.D.A. – will pushes ending stocks down slightly from the 90.14 million tonnes ending 2016/17 is year to 88.8 million by the end of 2017/18. For wheat, global production should drop about 15 million tonnes from 2016/17 to 2017/18 at 737.8 million tonnes, but with demand relatively stagnant due to competition with corn and other feedstuffs, new crop global carryout is pegged 3 milloin tonnes higher than 2016/17 at 258.3 million tonnes (another new bearish record).
As it relates to the cash markets in Western Canada, new crop values are starting to creep up as Plant 2017 in the Prairies continues to be delayed. However, as the PDQ grain pricing website, spot movement has taken a worse turn, mainly because we’ve seen basis starting to widen. For hard red spring wheat, values across Manitoba, Saskatchewan, & Alberta fell by an average of 1% from last week. Canola was a similar story this week, down almost 1% as the bearish crop supply of soybeans continues to keep a lid on any significant rallies above what we saw back in November. With CPS wheat also taking a tough hit this week, yellow peas was the only crop making gains, up 1.6% over the past week. Given the time of year, there’s a lot of different factors moving simultaneously: this week’s W.A.S.D.E., plant 2017, replant 2017, and, more broadly, weather. These factors all compound, but I think we’re due for a bit more weather premium before things taper off, meaning there’s a challenge to sell oilseeds and feed grains before the 2017/18 northern hemisphere crop reaches a likely top within the next month or sos.
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