While most of Western Canada is experiencing a cold and delayed Harvest 2014 this September, the agricultural markets across the world continue to look at the big overall crop expected to come off. On Thursday, September 11th we got the U.S.D.A.’s installment of the world agricultural supply and demand estimates, which showed a big crop is getting bigger all over the world (surprise, surprise). In the U.S. alone, the U.S.D.A. is projected record corn and soybean yields at 171.1 and 46.6 bushels per acre. This translates to 14.395 billion bushels of corn crop and 3.913 billion bushels of soybeans, ultimately leading to corn ending stocks of 2.02 billion bushels and 475 million bushels of soybeans. As for wheat, global production estimates were raised again to 720 million tonnes (also a record). While lower prices have certainly created new demand in feed, export, and domestic categories, the supply side is just too strong for major crops to suggest prices will rebound in the near-term.
However, if you have the quality this year, you should be able to secure a bit of a premium for you grain (knowing what you have in the bin helps!), especially in the pulse crops. Despite rains improving in India over August and September, and the threat of El Nino diminishing, it looks like a smaller pulse crop will be taken off there this year there (it’s been suggested up to 15 per cent lower but I believe that is on the high end). On the flipside of the trade equation, demand is expected to stay strong, intuitively suggesting higher imports. Between this poor crop outlook and variable quality coming off in the Canadian Prairies, the crops mostly likely to benefit from this decreased-output, sustained-demand would be yellow peas and red lentils. A price move of more than 15-20 per cent above early September levels should definitely be considered if you’re looking to sell something, as “hoping” for more is not a solid strategy (hope is not a risk management process).
It’s been suggested recently by U.S. ag lenders that if another big crop comes off in 2015, it would purge the ag industry. A third straight bumper crop would create the scenario of low grain prices being the new normal, and essentially forcing out those farmers who will say “enough is enough” and those who haven’t built in enough equity (young or old) to stay in the game. With record ending stocks already projected this year, another big year of production would certainly hurt the balance sheet. Ultimately, there’s no better time like the present to re-evaluate your marketing strategy. This means adding in new costs and having 3-, 6-, and 12-month cash flow projections (so that you know when you should be making grain sales and not being forced to do so. As always, we’re here to chat and discuss various opportunities with you, whether it’s on the FarmLead Marketplace or elsewhere.
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 and 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).