Grain prices took a turn to the downside following a few recent reports, creating the need for you to sharpen your pencil, as knowing your break-even cost of production is more important than ever before. Between the StatsCan production estimates on December 4th and the December 10th W.A.S.D.E. from the U.S.D.A., the main takeaway is wheat and canola prices are re-positioning significantly lower. Soybean prices aren’t falling with canola prices simply because the canola crop is in the bin while the crop in South America is a few months away from being taken off. Undoubtedly, the bigger crop that’ll likely get harvested in South America, more rapeseed and soybeans getting planted next year in Europe, & soybean acres increasing in the U.S. in 2014, it’s very likely that canola prices will remain depressed for likely another 12-18 months, if not head even lower.
The aforementioned U.S.D.A. report showed lower U.S. ending stocks for corn & soybeans (1.792 million bushels for corn and 150 million bushels for the latter) due to increased demand, but wheat remained the same at 575 million bushels. In fact, the U.S.D.A. increased U.S. wheat imports by 10 million bushels, suggesting that Canadian wheat is heading south versus east or west with the logistics issues we’re currently seeing in the Prairies. Total corn demand was raised by 100 million bushels, half going to ethanol and the other half going to exports, with the new export number of 1.45 billion bushels now equal over 10 per cent of total production this year. As for soybeans, exports were raised by 25 million bushels to 1.475 billion bushels, which is interesting following Oil World’s recent increase in Chinese soybean imports to 70 million tonnes (U.S.D.A. is at 69 million tonnes.
I find it hard to disagree that soybean demand is increasing in China as long as the likes of Tyson Foods is in the game. The massive American poultry producer has set a goal of building 90 chicken farms by 2015, housing 330,000 animals at each facility (or 29.7 million animals total). With the middle class blowing up in China, Tyson C.E.O. Donnie Smith says “We just can’t build the (chicken) houses fast enough.” Enter the Black Sea & South America agricultural industries. Brazil is working on improving its agronomic practices and logistical infrastructure, including a new A.D.M. port terminal in the Amazon that can provide another option for producers in the major agricultural regions of Para and Mato Grosso. The facility can accommodate Panamax 60,000-tonne cargoes, has two shiploaders (with a third in the works) and have put estimates at moving one million tonnes of grain in 2014. In the Black Sea, it’s been estimated that Russia has almost 62 million acres of uncultivated farmland while in the Ukraine, new phytosanitary protocols are being implemented and paving the way for increased exports to China in 2014, including corn, soybeans, wheat, & rapeseed. Who would’ve thought this was in the cards even a couple years ago?
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 & 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).
— FarmLead Breakfast Brief