After a big run up in the second week of July on heat concerns and international trade picking up, the grains complex saw a lower start to the third week as weather actually appeared to be getting better. Not-too-hot temperatures and some timely rains will help crops develop (tornado watches, like that given in Saskatchewan recently, obviously doesn’t though). This teeter-totter movement is certainly making more than a few stomachs turn. At the end of the day, this is a period in the summer that is mostly dictated by what the five- to 10-day forecasts are — anything outside of that that makes a headline is usually considered bullish for prices.
A couple examples include the tense political situation in Egypt, yields from the Russian harvest coming in lower than originally estimated and, as previously mentioned, the pickup in international buying, notably by China. Grains analyst Macquarie expects the price of corn to fall to $4/bushel, with prices heading below $4.50/bushel by October or November. That’s the most bearish I’ve found so far but the recent forecasts suggest good weather across the U.S. Midwest is pushing December corn to test the $5 level.
This is significant because it ultimately has follow-through effect on wheat prices as the two are substitutes in the animal feed market. This applies to both the domestic and international market — something that many people discount. As such, the most recent world supply and demand estimates report (aka WASDE) from the USDA showed smaller wheat ending stocks on increased demand/use both in the U.S., and more importantly, abroad.
Case in point, the USDA said in the aforementioned report China will in fact import 8.5 million tonnes of wheat in 2013-14, well above Chinese think tank CNGOIC’s forecast of 5M tonnes. Who wants that action? Everybody will be able to bring something to the table as the supply will be there (per the WASDE): Australia: 25.5 million tonnes; EU: 138.6 million tonnes; Russia: 54 million tonnes; Ukraine: 19.5 million tonnes; Canada: 28 million tonnes; and USA: 57.52 million tonnes.
You’ll notice I didn’t include India in that mix of countries, despite being one the largest wheat-producing countries in the world. This is because India wheat quality is always up in the air as a result of poor storage capabilities. It’s reported that up to 11 million tonnes of wheat is sitting in the open and exposed to the coming monsoon rains. Unless the stocks are used soon for food/feed domestically (unlikely it’ll be internationally), the process of rotting/fungus developing will increase with the increased amount of moisture.
Brennan Turner is originally from Foam Lake, Sask., 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