While some were thinking of turkey and pumpkin pie ahead of the Canadian Thanksgiving long weekend, the grain market got a hold of the U.S.D.A.’s October W.A.S.D.E. report. The report pushed some volatility in trading and wheat and canola closed in the red for the week, despite their hot start and trend to the upside just days earlier. While pre-report expectations were some higher yield and production numbers for corn and soybeans, ending stocks for all the major crops came in under those forecasts. New average yield expectations from the USDA for corn came in at 174.2 bushels per acre (171.7 previously, 174.7 average trade guess) while it’s seen at 47.1 bpa for American soybean fields (46.6, 47.6). Offsetting the higher revised yields, harvested acres dropped to 83.1 million for corn and 83.4 million acres for soybeans. Overall, this translates to 14.475 billion bushels and 2014/15 ending stocks of 2.08 billion bushels for corn and soybean output of 3.93 billion bushels but record consumption has ending stocks dropping 25 million bushels from last month to 450 million bushels. As for wheat, increased feed, exports, and residual demand dropped 2014/15 ending stocks by 44 million bushels to 654 million. Globally, corn and soybean 2014/15 ending stocks barely moved higher but wheat stocks dropped by almost five million tonnes to 192.6 million as a result of lower production than previously expected here in Canada, as well as Australia, South America, and the Former Soviet Union areas.
That being said, according to Russia’s Economic Development Ministry, Russia’s grain exports this marketing year could reach a record high of 32 million tonnes! The Ministry forecasts that production from their comrades could grow to as high as 108 million tonnes with average exports running 31-33 million tonnes a year, well above the previous record set in 2011/12 of 27 million tonnes. With production topping 100 million tonnes this year, there’s clearly ample supply coming out of Eastern Europe but with current western economic sanctions in mind, Russia may be more inclined to keep more of their output for themselves. That being said, turmoil in Eastern Europe and devaluation of not only the Russian rouble, but also the Ukrainian hrvynia is making things financially difficult for both individual and corporate farms.
One positive thing potentially farmers everywhere is that oil prices are at four-year lows as production has remained relatively high despite demand softening. With the U.S. producing as much oil as it did 30 years ago (remember 1986 when oil prices dropped 70 per cent?), OPEC may be more interested in letting the price to continue to fall in order to get more Asian business. That being said, a few major banks see oil prices holding the $80/barrel level (I think it could run to $75) after they’ve dropped 15 per cent in the past month. Therefore, the question ultimately becomes after this significant downside pressure recently, which countries will have to cut back on production since it is no longer profitable? Canada could be considered in this mix – just recall 2008 when prices dropped significantly (Fort McMurray was at a standstill!). Obviously this will affect the Canadian Loonie, which itself has dropped three per cent in the past month to the 88¢ level (most calls are for the Loonie bottoming around 85¢). Ultimately, a lower Loonie correlates with lower oil prices, and with Canadian grain being cheaper in relative terms, there is potentially more demand coming to the Great White North.
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 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 (firstname.lastname@example.org) or phone (1-855-332-7653).