Fall back questions

This week's FarmLead looks at crop supplies for 2015-16.

Wednesday, Aug. 12, was a day that many in the grain trade will remember for at least the next six months. Why? The U.S.D.A. came out with their August W.A.S.D.E. report that completely blew most expectations out of the water as to where supply for the 2015/16 year sat. Instead of U.S. corn and soybean yields dropping to 164.5 and 44.7 bu/ac respectively like the market estimated, the U.S.D.A. actually raised them to 168.8 bu/ac and 46.9 bu/ac. Bear in mind (pun intended) that the last time there was a wet summer like this in America (2010), the U.S.D.A. raised their corn yield by 1.5 bu/ac from July to August, then dropped the August number by 9.2 bu/ac in October, and then that October number was felled by another 3 bu/ ac in January! There’s a lot of questions about methodologies, since the numbers are hard to add up. For example, the portion of U.S. soybeans rated good-to excellent the week of the report were seven per cent lower than a year ago, yet the yield predicted a year ago was 45.4 bu/ac, while in this report, it’s literally 1.5 bu/ac higher. Huh?

Digging in, corn production was raised to 13.7 billion bushels and 2015/16 ending stocks to 1.7( billion bushels, partially in thanks to possible record yields in six of the top 12 corn producing states in America (specifically, IA, NE, SD, MN, MI, and WI).

Globally, production fell 1.5 million tonnes thanks to Europe’s heat problems but consumption also declined.

For soybeans, U.S. production was raised to 3.916 Billion bushels, with domestic ending stocks sitting at 475 million bushels. Globally, demand remains relatively strong as world ending stocks is seen falling almost five million tonnes from July’s W.A.S.D.E. to 86.9 million tonnes, partially because China’s imports were raised yet again, this time to 79 million tonnes, up 1.5 million from last month. In wheat, U.S. ending stocks were raised to 850 million bushels (the largest since 2010/11), despite the U.S. crop being lower than expected (albeit record hard red spring wheat yields are being called for in North Dakota). Globally, wheat production is projected at another record of 726.55 million tonnes, thanks to better-than-expected Black Sea harvests.

Compounding the entire situation was the Chinese government devaluing their currency by almost two per cent (the yuan is fixed, meaning that it doesn’t fluctuate like the Canadian or U.S. Dollar when things happen in the markets). The devaluation cheapens the costs of Chinese goods as it now takes less money to buy the same amount off product than yesterday (literally). Simply put, between the quantitative easing programs, lowering of interest rates, and now this currency drop by the government, many analysts are saying the move was one of desperation to get the economy back on track towards their targeted seven per cent G.D.P. growth.Overall, the report came crashing through the front very loudly, broke a few plates, and the market will keep the back door open for it to leave through because U.S. yields and production can only drop from here. The market is pricing in expectations for future supply and demand, which is why prices have dropped and suggesting upside potential is now more prominent for the major row crops (corn, soybeans, wheat, and even canola). You could technically say the opposite about the pulse market as current prices are accounting for below-average yields in Western Canada for lentils and peas, and should better numbers start to be heard and seen, markets will fall back.

To growth, Brennan Turner President, 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).