This just in — it’s winter. Snow is starting to fall across most areas around and above the 49th parallel, which will limit the ability to take off the remaining U.S. corn and soybean fields (some might have to wait until spring!). The cold could also have a negative effect on the winter wheat which has not yet entered a dormancy phase.
The market really continues to be pushed higher by the soy complex despite a WASDE. report from the USDA earlier this week that was not all that bullish for the oilseed. Comparisons to the 2009/10 marketing year when farmers slowed their soy meal exports are being made as this year, farmer selling of the oilseed is slow/behind the average. Add this in with a strong cash soymeal market, poor rail performance, and some technicals pointing higher, we see soy meal up above $400/short ton (was at $500 in May/June though). All in all, despite a strong marketing year start for soybeans with regards to demand, a bigger crop will offset it and while the corn crop isn’t as big as once thought, it’s still huge.
The WASDE report showed corn yields dropping from October’s estimates to 173.4 bushels per acre, a stark contrast to the upgrade to 175.2 the market was expecting. Nonetheless, a record U.S. corn crop of 14.4 billion bushels is still coming off and although domestic demand was increased, 2014/15 ending stocks are seen at two billion bushels! As for soybeans, yields were raised by 0.4 from October’s estimate to 47.5 bushels per acre, a new record (but slightly below analysts pre-report expectations). While output figures were raised to a record 3.96 billion bushel crop, increased domestic and export demand kept the 2014/15 carryout at 450 million bushels. Finally, for wheat, production was relatively unchanged with ending stocks dropping slightly to 644 million bushels and on the global level, only Australia saw a notable downgrade (now estimating a 24 million-tonne crop but we think it’ll be closer to 22.5 million). From a global carryout perspective, corn stocks are seen building 11 per cent year-over-year to 191.5 million tonnes and soybean inventories are ballooning a significant 35 percent from the end of 2013/14 to the end of 2014/15.
In South America, there is some concern that despite the recent rain falling in major producing areas, the soil moisture required to grow two big crops again may not be there as dryness could put some stress on the soybean crops in both Brazil & Argentina. The late seeding of the soybean crops in Brazil is expected to lead to lower 2nd crop safrinha corn planting in February/March, meaning that the current 75 million-tonne estimate of the 2014/15 corn crop from the USDA could fall closer to 70M tonnes. Also in Brazil, C.O.N.A.B. (their USDA) lowered its wheat production estimate by 700,000 tonnes to 7.7 million, well above the 6.3 million tonnes forecasted by the USDA and last year’s 5.3 million-tonne crop. With Brazil’s wheat crop bigger than last year, and Argentina expected to almost triple their exports year-over-year, it’s hard to expect North American wheat to be competitive directly south of the equator.
Australia is feeling the heat in east and wet in the west – as in dry conditions are likely to have a negative effect on production volumes in the former and untimely rains at the beginning of harvest are creating quality concerns in the latter (don’t you remember what the rains did to Western Canadian quality in early September or France’s quality in August? Exactly). Two major Aussie grain handlers in GrainCorp (Eastern-based) and CBH Group (Western-based) admit that they’ll likely handle less volume than they did last year. Specifically, the USDA says 24 million tonnes of wheat will come off from the Land Down Undaa, down 11 per cent from last year’s big 27 million tonne crop, but we think it’ll be closer to 22.5 million tonnes. Further, with domestic demand still strong, it leaves less room for export opportunities – the USDA thinks 17.5 million tonnes of wheat, but again, we think they’re high.
So what does it all mean?! There doesn’t seem to be any significant bullish fundamentals affecting the corn market right now whatsoever. As for the oilseed market, the 2014 crop year has been brought to you by the word “record” – as in record U.S. soybean production, record South American output, and a record E.U. rapeseed crop. Given the reality that crush margins remain quite strong for both canola & soybeans, we may see some increased demand domestically. The only other catalysts that could (read: not for sure) help prices move higher is the relatively slow start to a Brazilian soybean planting season leading to a below-forecasted output there and the pesticide ban in E.U. affecting crop quality & output. As for wheat, the dry seedbed that Russian planters drilled into could lead to lower production there but a 12 per cent increase in acres could easily offset any losses. As mentioned, the Australian wheat harvest may get further downgrades but record global production this year is tough to justify higher prices just yet. Overall, this report seemed to act like a commercial and we’ll likely get back to our regular programming with the January WASDE, where we can expect final revisions to the production numbers.