Coming off the long weekend in North America, the grains market started the month of September trying to hold onto higher levels on varying weather affecting crop development and the situation continuing to unfold in eastern Europe.
While reports vary on a proposed ceasefire between the Ukrainian army and pro-Russian separatists, the latest rumour to lift wheat prices was that Russia will cap grain exports at 26.9 million tonnes, stirring up memories of 2010, when they banned grain exports because of a harsh drought, and wheat prices nearly hit $9/bushel! The rationale is that Russia will need the grain to increase the size of their livestock herds since they can’t depend on Western meat imports anymore. At their current pace of exports, this would likely put the ban starting in the first quarter of 2015 (Jan/Feb/Mar). All this in mind, we should expect some premium to get built into prices but this seems more of a “buy the rumour, sell the fact” sort of scenario.
On the wheat import side of things, the USDA’s attaché in Algeria is suggesting that the North African country will import a record 7.5 million tonnes, cementing its spot as the number two world importer after Egypt. Further, with the quality of wheat down this year from France, Algeria’s usual trading partner, other major exporters like Canada, Germany, and USA. may be the big winners. Germany’s farm ministry has admitted that their harvest will be almost 12 per cent bigger than last year (almost 30 million tonnes coming off, second in the EU after France), but late/harvest rains have left some crops not worth harvesting! First samples coming in have shown average protein levels at 12 per cent, well below last year’s 12.7 per cent level. Across the Channel, harvest rains in the U.K. are slowing things down too, and accordingly, the quality has declined, most notably being average Hapberg falling number coming in at 264 seconds, a significant drop from 284 seconds last week and 331 the week before that!
Coming back across the Atlantic Ocean, harvest in both Canada and the U.S. are being stalled by untimely rainfall (and even snowfall in southern Alberta). Usually 65 per cent of the U.S. spring wheat harvest is combined by now, but this year only 38 per cent of the crop has been taken off, making 2014 the slowest harvest on record for the cereal. On the condition side of things, the rain is also seen as a negative to the cereals near to or trying to get harvested as overall good-to-excellent (G/E) rating was down three points 63 per cent. This is most notably in Idaho where only 30 per cent of the spring wheat crop and 31 per cent of the barley crop is considered G/E. For corn rated good-to excellent, numbers climbed by one point to 74 per cent, the best since records started being kept in 1995 and ironic as this is usually the time of year when corn crops start to deteriorate. Echoing corn was the soybean G/E rating improving by two points week-over-week to 72 per cent.
On Friday, September 5th, the StatsCan Grain Stocks report came out and the report suggests that there’s less wheat and canola than the market was expecting as the one million tonnes-per-week railroad movement mandate seems to be doing its part! Total wheat inventories as of July 31st were 9.8 million tonnes (pre-report expectations were 10.7 million), almost double last year’s carryout of 5.05 million tonnes. A more significant drop was seen in canola as the trade was expecting a three million-tonne carryout but the actual number was 2.38 million tonnes (2013 ending stocks were 590,000 tonnes). Between these numbers coming in below estimates, and the Russian rumours, canola and wheat prices enjoyed a significant bounce on Friday.
An interesting piece of data was that on-farm storage of canola rose 700 per cent year-over-year to 1.4 million tonnes. Rounding out the complex, oats and barley stocks more than doubled year-over-year to one million and 1.9 million tonnes respectively but, again both below pre-report estimates. Flax inventories were seen at 100,000 tonnes (nice round number StatsCan!) but the big surprise came in lentils, which saw inventories dropping 45 per cent from 2013’s ending stocks to 169,000 tonnes! All in all, these are the facts but it remains to be seen that rumours are more exciting to talk about than the truth.