What are we looking for?
Grains continue to trade sideways, flexing their muscles on weather and demand headlines and then seeing that puffed image deflate just as quickly. As per the PDQ website (pdqinfo.ca), spot demand has been relatively flat to lower, with both basis and cash prices lower week-over-week (not really an incentive to sell!) With that in mind, a few major grain companies have reported their quarterly earnings recently. Executives at multiple firms are admitting that farmer selling around the world has been slow except for in South America and the Black Sea regions. Accordingly, there are strong expectations that farmers will start to blink sometime in 1Q2016 as cashflow needs for the spring 2016 seeding season will be a priority. While the market is looking at this as a likely scenario, any surprise in next week’s World Agricultural Supply and Demand Estimates report from the United States Department of Agriculture could push things either way. That being said, over the past number of years, we’ve seen soybean yields increased in the November report, whereas average United States (U.S.) yields have been downgraded.
In the Land Down Unda, eastern Australia is getting some rains, while Western Australia is getting served up some frost and, a bit of hail previous to that. As a result, Australia’s biggest grain handler, CBH Group, downgraded the grains harvest in the region by 500,000 tonnes to 13 million tonnes, although that would still be above the 10-year average production number. The real question that needs to be answered is how much difference in the dry weather in Western Australia make up for the forecasted wetter conditions in Eastern Australia?
Over in Russia, the Ag Ministry there reports that at least 25 per cent of their fall-seeded crops are in poor condition thanks to a lack of rain this fall, yet 92 per cent of the planned acreage was in the ground at the end of October. As I’ve previously mentioned, a harsh winter would result in re-seeding in the spring with something other than wheat (i.e. corn). Comparably, next door in Ukraine, only 55 per cent of the fall seeded crops (or about 8.7 million acres) has emerged, and only 69 per cent of fields were in good or satisfactory condition. Ukrainian rapeseed crops are in the worst condition in the last seven years with more than one third of the crop considered weak and thinned, almost double than of last year.
Further, according to UkrAgroConsult, a little more than 14 million acres of wheat will go into the ground in Ukraine, a similar acreage number to 2004 and 2006 when just 16.5 million and 13.8 million tonnes of wheat was taken off, respectively. However, the data analysis company thinks that the 2016/17 Ukrainian wheat crop could yield closer to 19 million tonnes, but keep in mind that the Black Sea state took 27 million tonnes of wheat this past year. With only 27.2 per cent of the wheat crop in good condition and 32 per cent in the worst condition, it looks like Ukraine will surely see a decline in production year-over-year. Overall, lower wheat production out of the Black Sea might be just the news that the wheat market is looking for, especially considering the International Grains Council is only seeing planted acres in 2016/17 down a measly three million acres year-over-year to 546 million.
Brennan Turner President & CEO | FarmLead.com