North America hits top in harvest margins

The U.S.D.A. came out with its quarterly grain stocks report on Monday, September 30th and showed the market that there is apparently more

The U.S.D.A. came out with its quarterly grain stocks report on Monday, September 30th and showed the market that there is apparently more corn and soybeans out there than everyone was expecting but slightly less wheat that pre-report trade estimates. Specifically, the U.S.D.A. reported that corn inventories were 823.6 million bushels, well above pre-report estimates of 688 million bushels but still down 17 per cent from inventories a year ago. Soybean stocks were also down 17 per cent from a year ago, as the numbers came in at 141 million bushels, again, well above trade expectations of 125 million bushels.

As for wheat, total U.S. wheat stocks were seen down 12 per cent year over year to 1.855 billion bushels. Moreover, the U.S.D.A. cut spring wheat acres by 5.1 per cent. Of most relevance to Western Canadian producers is that fact that the large majority of this decline has come in the northern American states of Montana, North Dakota, South Dakota, and Minnesota. Collectively, these states hold 70 million bushels of wheat less than they did at this time last year, with South Dakota seeing the biggest decline at 27.6 per cent to 70.97 million bushels. As for durum, total U.S. durum inventories are down 2.4 per cent year-over-year to 66.78 million bushels.

Getting the crop off continues to be priority number one but the recent precipitation hitting the Prairies sporadically has been untimely. While temperatures are continuing to creep towards zero, the consensus remains that there’s a big wheat and canola crop coming off, but with the rainfall, the quality of that crop intuitively comes into question. This could also affect further winter cereals seeding, a problem that is currently being seen in Ukraine where the president of the Ukraine Farmers Association said that grain exports from the Black Sea country may have to be restricted due to the large amount of land likely to go unseeded this fall. Particularly, over seven million acres of land could go unplanted, including close to five million acres of winter wheat!

Other factors helping the upside support argument for wheat are Chinese demand the average lower protein seen here in Canada. Down Unda, the Aussie wheat harvest is underway as producers in the northern regions are hitting the fields. With harvest going in so many places at once, the slightest noise (i.e. frosts in Argentina) could bump the market higher for a short while but doesn’t change the longterm fundamentals too much (big global crop). This being said, it’s been widely circulated that we may have hit the top in terms of agricultural prosperity here in North America.

Other global crop crises have allowed Canadian producers to reap the benefits of it via better margins. However, as we’ve seen this year, grain prices over revert to the mean and as stocks are replenished (or at least inch higher) globally, the re-balance of supply and demand at lower prices is inevitable. One has to be honest with themselves to know the good times can’t last forever. The best one can do is, as my grandfather used to say, expect the unexpected and prepare for the day times get a little tougher.

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 grain marketplace. 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

 

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