Grain prices started the month of October the same way they’ve been trending for the last five months: lower.
Last week saw two important reports from the USDA and Statistics Canada, recording grain inventories and ’14 production estimates respectively. With some of the earliest-planted fields of corn and soybeans coming off in the American Midwest, yields are coming in above the USDA’s estimates of 171 bushels per acre of corn and 46 bushels per acre for soybeans (apparently big crops do get bigger).
On the wheat side of things, there’s some conflicting headlines as the International Grains Council is forecasting that world wheat acres in 2015 will be at their highest since 1998, with 553.5 million acres expected to come off. However, soil moisture deficiencies have been pointed out in southern parts of Russia and Ukraine, and while August/September rains have certainly helped the fields in the Texas, Kansas, and Oklahoma (the US Southern Plains), the majority of these states remain in drought. Further, the market theme out of the Black Sea is that wheat exports are slowing down, making E.U. and North American wheat more competitive in the Middle East.
Banned insecticides in Germany have some producers warning the powers that be that there will be significant damage to their fall-seeded oilseed rape acres. Since producers can’t use neonicotinoids anymore, insects have overtaken large areas within fields and, accordingly, German farmers are just ploughing up the affected acres and replanting winter cereals instead. Given the fact that Germany is the world’s largest rapeseed grower, this could be seen as a catalyst for canola/rapeseed price recovery in the spring of 2015, when the full damage is assessed. Nonetheless, French-based ODA is expecting 2014/15 EU rapeseed acres to drop five percent from last year to 15.6 million acres, including a seven per cent drop in France, Europe’s second-largest rapeseed grower, to 3.5 million acres.
The USDA’s stocks report out on September 30th showed that U.S. corn inventories as of September 1st are larger than previously expected at 1.236 Billion bushels (+50 per cent year-over-year), above the WASDE estimate of 1.181 billion and the trade’s expectations of 1.191 billion. With American corn output this year set to be a record 14.4 billion bushel crop, Goldman Sachs was one of many firms revising its price estimates lower on this new data to $3 per bushel. Should that materialize, it’d be the first time since October 2006 that those levels have been used. Conversely, U.S. soybean stocks as of September 1st were just 92 million bushels, down 35 per cent from the same time a year ago, the lowest in 41 years, and well below the pre-report estimate of 128M bushels. As for wheat, total U.S. inventories were seen at 1.914 billion bushels (+2.4 per cent year-over-year) but of note is the increasing on-farm wheat stocks in the northern U.S. states with producers holding 71 per cent more wheat in North Dakota (270 million bushels on hand), 64 per cent more in South Dakota (55 million bushels), and 7.6 per cent more in Montana (155 million bushels).
Finally, StatsCan came out with its production forecast for this year’s crop on October 3rd, estimating a 27.5 million-tonne wheat output and 14.1 million tonnes of canola, 500,000 tonnes below pre-report estimate for both crops. As for other major crops, soybean production looks to set its sixth consecutive high at 5.96 million tonnes and barley production is seen dropping significantly to 7.12 million tonnes. As for relative production growth, mustard production is quite high at 178,700 tonnes while flax production is seen at 921,600 tonnes, skyrocketing not only from last year’s output of 723,900 tonnes but more than double 2012’s production of 489,000 tonnes. While it’s no surprise that yields are lower than they were last year, they’re actually relatively in-line with the 2010-2012 average. Specifically, canola and wheat yields are the same as the aforementioned average, but when 2013 is factored in, 2014’s estimated yields are 1.25 per cent and 6 per cent below the 2010-2013 average. While your farm’s yields may vary from the national average, the real love lost this year will be in the quality area as that’s what should really be the theme to this year’s crop, not the production drop year-over-year.