Grains markets, as they passed the mid-point of July, started to cool off a bit after the last few weeks of bullishness. Let’s recap: between abundant rains in the Midwest, dry weather in Western Canada & Europe, geopolitical risk in the EU with Greece, the Chinese stock market crashing, and the increased chatter around El Nino, there’s been a lot on the go!
Add in to all of this the U.S.D.A.’s W.A.S.D.E. report on Friday, July 10th! However, despite the various weather issues affecting crops around the world, the report was relatively “blah” in regards to game-changing numbers. U.S. average corn and soybean yields were left unchanged at 168.8 bu/ac and 46 bu/ac respectively but production for both row crops fell from the June estimate to 13.53 billion bushels (-100 million bushels from June) and 3.776 billion bushels (-7.4 million bushels) respectively thanks to lower acreage. As for ending stocks, the 2015/16 carryout for corn was set at 1.6 Billion bushels (102 million bushels less than June’s estimate) and 425 billion bushels for soybeans (-50 million bushels). Global corn ending stocks for the 2015/16 marketing year were seen 5.25 million tonnes lower at 190 million tonnes, while soybean numbers were dropped by 1.42 million tonnes to 91.8 million.
For wheat, some big surprises were seen on the bearish side of the trade as U.S. production was pushed higher by 27 million bushels to 2.15 billion bushels (albeit the quality is certainly in question when it comes to the winter wheat crop). As for the 2015/16 carryout, wheat numbers are now pegged at 842 million bushels (+28 million from June) and 219.8 million tonnes on a global perspective (+17.4 million tonnes from June!). On that note, the U.S.D.A. surprisingly increased wheat production expectations for the Black Sea, upping Russian forecasts by two million tonnes to 57 million and the Ukrainian harvest by one million tonnes to 24 million. This contrasts the sentiment from private forecasts that the region will likely have to downgrade their aggregate production expectations due to drier weather in some areas. E.U. production estimates were decreased by almost three million tonnes to 147.9M million (still above private & farmer organizations’ forecasts), Canadian production was dropped by 1.5 million tonnes to 27 million, but Aussie estimates were kept at 26 million tonnes (again, contrasting the thoughts of the private market).
So what now? The USDA has clearly drawn a line in the sand that they’re more interested in seeing how crop conditions play out versus having to go back on their word & upgrade numbers right after they’ve downgraded them. With some macroeconomic risk off the table because of the Greek-E.U. agreement, and weather conditions improving a bit, volatility will start to relax a bit. Further, while we kick our crop development can here in North America down the growing season’s road, the harvest is going full-tilt in Europe and that may put additional pressure on the global complex, further slowing more stories around farmer sales.
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 (email@example.com) or phone (1-855-332-7653).