As we head into the last few weeks of the year when volume historically declines, Egypt, the world’s biggest wheat buyer, announced that it has enough wheat now to last them through the last week of March (they consume about 750,000 tonnes per month). Nonetheless, with prices far from October highs when the G.A.S.C. (Egypt’s state grain-buying agency) got back into the game by grabbing 120,000 tonnes from Russia, 60,000 tonnes from Romania, 120,000 tonnes from France, and 120,000 tonnes of U.S. red spring wheat. This is the first time Egypt has ventured outside the European area for any of its supplies and it’s a trend I expect to escalate. The Egyptian Ag Minister said that they need to expand their storage capacity by one million tonnes (AKA build more bins!) if they want to store what they buy, especially with China & India transitioning into bigger players in the international trade game.
Brazil recently bought another 60,000 tonnes of U.S. hard red winter wheat, making that more than 3.1 million tonnes they’ve bought since June. This is the highest since the mid-80s as frost damage domestically and next door in Argentina has limited available supplies coming online in South America (Brazil usually buys from Argentina). Any extra production in corn or soybean south of the equator may go somewhere because the Chinese government recently said it will relax its one-child-per-family policy, meaning more mouths to feed in the future (AKA the commodity super-cycle is not over).
Dr. Cordonnier of Corn & Soybean Advisors sees Brazil producing a record 90 million tonnes of soybeans while next door in Argentina, 55 million tonnes will come off according to the doc. These estimates are notably higher than the USDA’s forecast of 88 million and 53.5 million tonnes respectively. As there is a big crop coming off in both Americas, Goldman Sachs sees soybean prices falling dramatically over the course of 2014 to $9.50 per bushel by the end of the calendar year.
Finally, with the U.S. soybean harvest practically in the books, everyone’s eyes start to look to export demand. As the South American crop is currently going into the ground, weather and growing conditions will be watched closely but will be contrasted by U.S, soybean sales and actual shipments. Currently, U.S. soybean export sales are about 29 per cent ahead of last year’s pace with 1.252 Billion bushels bought so far, but actual shipments are only 0.6 per cent ahead of what was done by this time last year. As such, there’s increasing speculation that if the South American soybean crop comes off without a hitch, you can expect some of these orders to get switched south of the equator. Ultimately, this possible transition could weigh heavy on the canola complex due to its often-correlated trade soybeans.
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 riskfree, 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 (b.turner@farmlead.com) or phone (1-855-332-7653).
— FarmLead Breakfast Brief