Grains passed the halfway point of September with not much more grain harvested compared to the start of the month, some concerns over planting in Brazil, and a fresh set of W.A.S.D.E. numbers from the U.S.D.A. on Monday, Sept. 12th. In said report, the numbers were mostly bearish as the government agency confirmed again what we already know, it’s a big crop (the question is now is just how big?). We continue to question how many acres of what corn or soybeans will get planted in Brazil and Argentina while also being cognizant of currency values. Finally, Hanjin, the seventh-largest shipping company in the world declared bankruptcy recently, which has pushed up the prices of containers significantly as remaining solvent carriers try to extract as much value from the market as possible with one of their competitors now out of the picture.
Coming back to the W.A.S.D.E. report, the U.S.D.A. is calling for a record U.S. soybeans crop with average U.S. yields at 50.6 bu/ac (+1.7 from August and +1.4 above the pre-report guesstimate), meaning total output would be 4.2 Billion bushels. Given the tick up in both domestic and export demand towards the end of the 2015/16 crop year, U.S. ending stocks for 2015/16 were dropped to 195 million bushels but with the large crop and demand only slightly higher (a record 2 Billion bushels in exports though.), 2016/17 will end with 365 million bushels still available. For Canadian canola, the U.S.D.A. is calling for an 18 million tonne crop, but with some significantly revised ending stocks from years past, exports at 9.6 million tonnes, and domestic consumption at 8.55 million tonnes, 2016/17 carryout is still sitting close to 2 million tonnes.
For the U.S. corn crop, average yields were pegged at 174.4 bu/ac (-0.7 from last month, +1 from the pre-report guesstimates), meaning a record crop of 15.09 Billion bushels (albeit the forecast is down from last month because of the reduction in the yield forecast). Globally, corn carryout was generally unchanged at around 220 million tonnes, but the noticeable difference was in Brazilian and Argentinian production, pegged at 82.5 million and 36.5 million tonnes respectively (or +23% and 30% year-over-year.). As for wheat, production upgrades in Canada (now forecasted at 30.5 million tonnes), Australia (27.5 million), and Kazakhstan (16.5 million tonnes) lifted the total 2016/17 global output but stronger demand as it competes with corn in domestic and feed markets will push the 2016/17 carryout below 250 million tonnes.
We’ve seen cash prices across Western Canada rebound a bit with harvest slowing down because of intermittent rains but things are also leveling out because crop size and quality are becoming more known. As the crop size is bigger than last year, the absolute amount of #1 or #2 quality seems to be comparable to last year, meaning grain buyers are going to have to look harder to put batches of good quality together, but it will get done (this is especially true for wheat, malt barley, and lentils markets). This intuitively means though that with a larger portion of the crop going to #3 or worse grading, feed grain prices are expected to remain low, with not much upside through the end of 2016 in our opinion. That being said, we continue to reiterate that the best way to extract value for your grain this year is to know its quality.
To growth,
Brennan Turner
President & CEO | FarmLead.com
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, Mr Turner spent time playing pro hockey and working in finance before starting FarmLead.com. FarmLead is North America’s grain marketplace - a risk-free, transparent and mobile grain marketplace (available online and as an app) that has moved almost 350,000 MT in grain the last 2.5 years. 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).