On May 10 we got the USDA’s May world agricultural supply and demand estimates, which showed corn and soybean production and ending stocks increasing (read: a bearish report).
U.S. producers are expected to harvest more than 14.14 billion bushels of corn (359.2 million tonnes), a vast improvement from the 10.78 billion (273.83 million tonnes) produced in last year’s drought-filled harvest. The U.S. is expected to reclaim its title as top soybean producer (in competition with Brazil) with 2013 output estimated at 92.26 million tonnes. Globally, wheat production is expected to rise almost seven per cent to over 701 million tonnes with higher production coming mainly from the Aussies, us Canucks, and especially those from the former Soviet Union. At the end of the day, there’s no doubt more grain will be available around the world next year as long as weather is consistent with the historical averages. (Is that possible?).
Ending corn stocks in 2013/14 of just over two billion bushels would be the largest carryout in nine years, sharply contrasting the carryout for this year of 759 million bushels, the tightest since 1997. How does this affect the case against substituting wheat for corn at higher corn prices? The USDA is estimating corn feed and ethanol usage will increase by 16 per cent in 2013/14. This obviously does not match the increase in supply, and even with potential higher exports, lower prices are ultimately implied. Despite the increased amount of corn available for feed, U.S. hay stocks totalled only 14.2 million tonnes, down 34 per cent from last year and the lowest May 1 stocks level ever. This is something to watch for when it comes to meat production.
As for the oilseeds, global production is expected to increase 4.7 per cent to 491.34 million tonnes in the 2013/14 marketing year. The majority of this increased production comes out of South America with Brazil leading the way at 85 million tonnes (they are currently estimated for 83.5 million tonnes for the 2012/13 marketing year). While the increase is substantial, China is expected to take the majority of this extra production as the USDA is forecasting the Asian supernation’s soybean imports to be 59 million tonnes in 2012/13 (slightly lower from previous estimates) before jumping to 69 million tonnes next year.
On the cereals side of things, American wheat production will decline year over year slightly as frost damage took away some of the hard red winter wheat crop. Nonetheless, this should be more than made up by those nations out of the Black Sea region where it’s expected that production will increase by 30 million tonnes year-over-year to 108 million tonnes. Keep in mind that the USDA is at the top end of major research entities when it comes to global wheat production though — the UN’s Food and Agriculture Organization is expecting a 695 million tonne crop while the international Grain Council is even more bearish at 680 million tonnes.
Ultimately, with good growing conditions and the weather playing fair ball, the upside potential for grain prices is small and it’s important to manage that price risk (up or down) appropriately.
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).
— Farm Lead Breakfast Brief