The last week of January was mainly characterized by weather concerns in North America, Australia, and South America, as well as export sales, with China continues to dominate the purchasing scene. According to Australia’s Bureau of Meteorology, their models are indicating that the Pacific Ocean is warming and that an El Nino weather pattern might be in the works for 2014 and more significantly in 2015. Such a weather phenomenon would dry out Australia (already parched from the lack of rain and hot weather) and parts of Asia (including China), sprinkle South America with a fair amount of rain, and bring higher temperatures to North America.
Brazilian shipbroker SA Commodities is saying that about 2.5 million tonnes of soybeans are lined up to ship out of the country in February, well above the February 2013 total of just 959,000 tonnes. That being said though, the lineups at Brazil’s two major ports, Paranagua and Santos are currently listed as 51 days and 18 days respectively. Are these wait times short enough to get China to start cancelling US orders and switch over to Brazil? Quite likely in my opinion as the weather down in South America continues to be bearish: Argentina is finally receiving a consistent amount of rain (will it be enough is the question though?) and things are drying out in Brazil, aiding farmers as harvest progresses. For the 2nd year in a row, it’s very likely that Brazil will produce more soybeans than the U.S.
This is potentially good for China as the People’s Republic could lose up to 8.15 million acres (two per cent of their total arable farmland) in the next couple years to pollution contaminating water resources. The estimate, which comes from China’s Ministry of Agriculture, is a result of the overuse of fertilizers and pesticides while heavy metal contamination from other industries is common. Further, the environmental protection agency estimates that 12 million tonnes of grain are polluted by heavy metals every year As such, there’s speculation that these areas may cease to farmed at all for a few years to reclaim the soil.
Agriculture and Agri-Food Canada is expecting a significant pullback in wheat production in 2014 from Canadian producers, putting out their estimate at 29.7 million tonnes, a drop of more than 20 per cent from this year’s output of 37.53 million tonnes. The Canadian farm ministry is expecting Canadian wheat ending stocks to close 2013/14 at 11.5 million tonnes, a 31-year high. This factor and an expected decrease in area planted of 1.32 million acres will lower production but despite this, marketing issues, transportation, and storage of grains will continue to be significant risk factors moving forward. The A.A.F.C. is also expecting corn and barley acres to fall but oats planting to increase, along with the canola area increasing 1.73 million acres to 21.6 million acres “because of higher prices relative to other Western Canadian field crops.” As for canola, the farm ministry expects output, like wheat, to fall – specifically 11 per cent to 16 million tonnes as yields are expected to regress back to the mean (more average). Clearly, the large crops coming off everywhere in 2013/14 is going to create a massive carryover, with ending stocks being quite high.
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).
— FarmLead Breakfast Brief