Grains have trickled lower to trading sideways over the past few weeks as the complex continues to deal with harvest pressures and solid supply numbers not being offset enough by demand. Wheat and corn continues to look like they’re closer to having a bottom priced in (if not already, while soybeans seemingly have a bit more drip left in the faucet with leaves across the U.S. dropping ahead of what appears to be another pretty big harvest.
While managed money remains net short on both soybean and wheat markets, hedge funds did recently move their positions more bearish. Chicago wheat has dropped 17 per cent since the beginning of the year while soybeans are down11.4 per cent since the start of 2015. Specifically for wheat, there’s a lot of supply out there as three consecutive years of decent production numbers equals three consecutive years of the world carryout number trekking higher. While there are some concerns of dry conditions affecting the winter wheat getting planted into in the Black Sea and parts of the U.S.Midwest, with plenty of supply still available, it’s not hard to see prices where they’re at. If El Nino really comes to fruition though, we could see a 5-10 per cent move higher, possibly more if corn rallies a bit.
Speaking of drier seeding conditions, Ukraine is set to plant about 40 per cent less winter rapeseed this fall than originally intended as dry soil moisture profiles have changed the seeded area from 2.033 million down to just 1.22 million acres.This is the second year in a row that rapeseed area in Ukraine will decline as only 1.7 million acres were harvested this past year, compared to 2.14 million acres in 2014. While those numbers aren’t huge when compared to Canada or the E.U. as a whole, what is significant is China eliminating the national floor price for canola, and instead, leaving it up to individual rural provinces to come up with subsidy programs. Why the change all of the sudden? Some speculate that it’s becoming too costly to store China’s huge stockpiles of canola oil, so, basically, this means that, with less incentive to plant canola,acres should be lower, potentially meaning more imports. Keep in mind that if the country is trying to draw down its current stocks, it may do that first before increasing their import numbers.
Statistics Canada came out recently with some new yield and production numbers in a report that mostly went unnoticed by the market. The new numbers, which showed lower yields across the board when compared to last year, were based off of a combination of agro climatic data, coarse resolution satellite data, and StatsCan’s field crop reporting series. Most production numbers skewed towards higher than what the August report showed (which was based on phone call surveys)but one big difference was this model suggesting that Canadian farmers this year will produce 14.4 million tonnes, a significant hike from the previous estimate of 13.3 million tonnes and well above most other estimates. Meanwhile total wheat production was set 25.3 million tonnes, including 4.8 million tonnes of durum versus previous estimates of 24.6million tonnes and 4.47 million tonnes of durum. I, for one though, am not sure how much bigger the crop got afterAugust, plus the drop in temperatures haven’t helped those trying to get Harvest 2015 finished up, especially with every incremental drop of rain adding more pain.
To growth,
Brennan Turner
President/CEO | FarmLead.com
Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and now mobile grain marketplace (app available for iOS and Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).