The Markets This Week — The End of the Easy-To-Move Grain, Export Estimates & Quality Spreads

Heading past the halfway point of September, the pace of the North American harvest picked up with excellent weather allowing crops to dry out from late growing-season rains. That being said, the quality of the crop coming off is quite variable with reports of fields next to each other swaying a few grades one way or the other. As such, we’ve seen prices for higher quality crops spreading higher against their lower grade counterparts. For example, the Saskatchewan Ministry of Agriculture said recently that 79 per cent of the provincial durum crop will fall into the bottom two grades. Thus, from what we’ve seen, prices have already adjusted to the variable quality so further increases may limited based on the fact that there’s record crops coming off across the world, especially (and obviously by now) in corn, wheat and soybeans.

Nonetheless, ABARES, the Aussie-equivalent of the USDA, trimmed its forecast of wheat and canola exports to five-and four-year lows respectively, on expectations that a smaller crop will be taken off. ABARES downsized its forecast for total wheat production last week by 360,000 to 24.23 million tonnes (USDA’s estimate is at 25.5 million tonnes) and, from that, 18.1 million tonnes of that will get exported this year. As for canola, exports are forecast to fall by 28 per cent year-over-year to 2.3 million tonnes, mostly because 10 per cent less crop is coming off than last year with only 3.39 million tonnes in 2014/15. All of this in mind, some chilly weather (read: frost) in Southern and Eastern Australia aren’t helping much a few weeks before their earliest-seeded stuff gets harvested.

Coming back to North America, recent applicable crop insurance acreage data out from the USDA’s Farm Service Agency suggests more acres than previous thought, but also more acres were lost to prevented plantings. It comes as no surprise really that the biggest prevent plant states for corn and soybeans were in the northern U.S. regions, specially North Dakota and Minnesota, which saw a combined 834,000 acres of prevented plant corn (or 53 per cent of the total) and 517,000 acres of soybeans prevented plantings (or 61.5 per cent of the total). One thing to remember though is that the data from the F.S.A. is still incomplete and while the trade reacted strongly to the report, the real numbers to focus on will be out in October.

Oilseed analyst Oil World has recently noted that the combined exports from the U.S., Brazil, Argentina, Paraguay and Uruguay in the month of August dropped 24 per cent from last year to 6.1 million tonnes. The most logical reason for the decline has to do with the seasonally decreased pace from South America and North American supplies being fairly tight. Comparably, Oil World says that China imported only 4.2 million tonnes from these countries in August, down 21 per cent from August 2013’s 5.3 million tonnes. One reason for the decline can be attributed to the $65 per metric tonne loss that Chinese soybean processors are incurring for crush purposes. Between soybean prices dropping internationally and soybean demand dwindling on lower feed demand within China, the Chinese National Grain & Oils Information Center (CNGOIC) suggest that U.S. soybean imports could drop by 25 per cent in 2014/15 (the U.S. sent roughly 27 million tonnes of the oilseed to the People’s Republic in 2013/14 and the USDA is estimating 30 million tonnes this year).

Syngenta is facing two lawsuits now over the issuance of its MIR 162 corn variety that has not yet been approved by China. Trans Coastal Supply Co., a major exporter of DDGs is suing the seed company on the grounds that it will lose at least $41 million this year, echoing Cargill’s lawsuit for $90 million filed last week. Considering that Oil World is suggesting the US has exported 7.2 million tonnes of DDGs between January and July this year (up 48% from the same time frame in 2013), China accounted for at least a few of these tonnes, but a fair amount were rejected (hence why Trans Coastal isn’t happy).

Finally, In an interesting move, Real Agriculture was the first to break the story that CP Rail had filed a lawsuit against the Canadian Transportation Agency and the Attorney General of Canada, stating that the new interswitching rules aren’t legitimate as the government “abused its discretion” and “exceeded its jurisdiction” in changing things. Ag Minister Gerry Ritz balked at the lawsuit, saying that by extending the interswitching limit to 160km from the previous 30km, shippers have better access to rail competition. CP is claiming the new rules will cost them $13 million in additional admin and operations and that it will actually make moving grain harder, not easier. On top of this, CN Rail is getting a financial slap on the wrist for not meeting the weekly grain movement mandate. It seems that with most big elevators (read: easy-to-reach grain) now serviced, the hard-to-reach business (i.e. producer cars and shortlines) just isn’t generating the same volumes.

 

Brennan Turner

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, he spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and 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 ([email protected]) or phone (1-855-332-7653). @FarmLead

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