FARMLEAD
On Tuesday, Feb. 10, the U.S.D.A. came out with its monthly W.A.S.D.E. report and while U.S. ending stocks were dropped, the market reacted as “blah” and ended down for the day. U.S. soybean demand was lifted by exports (up 20 million bushels to 1.79 billion) and domestic crush (up 15 million bushels to 1.795 billion), leading to a net 2014/15 carryout of 385 million bushels. This, however, is a significant increase from the 92 million bushels America ended the 2013/14 marketing year with. On the corn side of things, ending stocks were dropped by 50 million bushels to 1.827 billion, thanks to an increase in corn-for-ethanol use, despite the E.P.A. still not setting a target yet of how much ethanol is to be produced this year. On the wheat side of things, ending stocks were a little higher as exports were downgraded thanks to more global competition as a result of a stronger U.S. Dollar.
Globally, wheat ending stocks are seen growing by 1.85 million tonnes to 197.85 million, thanks to higher carryouts in Australia, Canada, and former Soviet Union states. World corn ending stocks were upgraded by 500,000 tonnes to 189.64 million but soybean ending stocks dropped by 1.5 million tonnes to 89.26 million. Partially to blame for the decrease, the Brazilian crop was downgraded by only one million tonnes by the U.S.D.A. to 94.5 million, well above the 91.9 million forecasted by AgRural, the 94.7M tonnes estimated by CONAB (Brazil’s version of the U.S.D.A.), and German analyst Oil World, who’s at 89 million tonnes. The downgrade was attributed to the drier weather in January but recent rains have led to more estimates getting upgraded for the Brazilian corn crop. Speaking of rains, timely precipitation in November and December helped boost the Australian crop, according to A.B.A.R.E.S. (the Aussie version of the U.S.D.A.)
What does it all mean? Hedge funds continue to cut their net long position in the agricultural market. More analysts are making the call though that the bottom of the wheat market has been seen (we made that call last week), but there are those who think that grain prices are likely to become more volatile thanks to more outside, speculative money entering the market. Whatever this fresh money thinks, fundamentals continue to point to lower soybean prices (another call we’ve been making) – even some analysts are pointing below a $8-per-bushel handle if yields are above trendline in the U.S. (combined with the big South American crop and expected bigger acres in the U.S. this spring). With bean prices headed lower, there becomes a point where net returns to a U.S. farmer are basically the same, regardless if corn cobs or soybean pods grow on their land. Looking from at things from a Canadian perspective, with lower bean prices, this would put some tough pressure on canola prices, which have been generally resilient, thanks to a depreciated Canadian Loonie and decent domestic and export demand.
To growth,
Brennan Turner
President, 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 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 (b.turner@farmlead.com) or phone (1-855-332-7653).