Grains, for the most part, closed out the shortened trading week well below their mid-week highs as U.S. dollar-traded commodities faltered on the strong greenback. Canola bucked the trend, ending the week slightly higher as export and domestic demand continues to remain strong.
Labour issues featured as the soup du jour though for the week as U.S. West Coast port workers continue to haggle with shippers for better wages while Brazilian truck drivers shut down a major highway to the ports, asking for the government to help lower diesel prices. After negotiations failed, CP Railway employees headed to the picket lines for all of one day before C.P. and the Teamsters union agreed to a mediated arbitration, a deal that squashed possible government intervention. Don’t hold your breath just yet though as Unifor, the union representing 4,800 CN Rail employees, say they could move to strike as early as late March and they won’t budge for any government intervention, assuming CN will just hold out until the Feds try to step in. Hopefully, agreements can be mediated smoothly and put these labour questions to bed and keep grain moving.
Negotiations also are ongoing between the western world and Russia over the fate of eastern Ukraine where clashes continue to increase after a ceasefire was broken. From an agricultural standpoint, a recent poll of farmers by APK-Inform suggests that spring seeding costs will be 60 per cent higher than last year! (Can you imagine your seeding costs growing that much in a year?) Next door in Russia, the Ag Ministry is currently estimating total winter grain production to be down to 28-30 million tonnes, a 40 per cent drop from last year’s 48 million-tonne winter output.
Conversely, Russian corn planted area has more than doubled in the past four years to a record 6.4 million acres and may continue to expand if the winterkill crop rates are high. Domestic wheat prices in both Ukraine & Russia continue to rise thanks to the continued devaluation of their currencies. This could prompt more farmer/domestic selling despite government controls to slow exports down. Should more government intervention occur, markets would see it as a negative & prices would increase, validating our argument the last few weeks that the Former Soviet Union region is the strongest catalyst to pull wheat prices higher in the short-term.
Comparably, U.S. wheat exports continue to take the biggest beating of the big three American crops, with shipments down 30 per cent year-over-year (Canadian wheat exports are up eight per cent from the same time a year ago). The G.A.S.C., Egypt’s state grain buyer wouldn’t even take advantage of a U.S. government 100 million USD line of credit this week, instead sourcing from France & Romania.
Looking at the year ahead, the U.S.D.A. in its annual Ag Outlook Forum sees U.S. corn acres dropping to 89 million (90.6 million in 2014), producing 13.6 billion bushels (14.2 billion in 2014) off of an average yield of 166.8 bu/ac (171 in 2014). As for soybeans, the U.S.D.A. is staying conservative compared to most other estimates, pegging 2015 acres at only 84 million, with an average yield of 46 bu/ac for a total output of 3.8 billion bushels (Compared to 2014’s 83.7 million acres, 47.8 bu/ac average yield, & 3.97 billion bushels total production). Finally, 2015 U.S. wheat acres are seen at 55.5 million (56.8 million in 2014), taking off 2.13 billion bushels thanks to a 45.2 bu/ac average yield (2.03 billion and 43.7 bu/ac in 2014, respectively).
The USDA is forecasting corn ending stocks to drop year-over-year from 1.83 billion bushels to 1.687 billion by the end of the 2015/16 marketing year, while soybean stocks are seen growing to 430 million bushels by the end of 2015/16, compared to ending this year at 385 million bushels. Wheat carryout is also seen building from 692 million bushels to 763 million.
Historically, the USDA tends to be more bearish in their February Forum forecasts, but they admit that over the next 10 years, the world will need an additional 50 million acres of corn, soybeans, and wheat to ensure the demand is met, namely that in Asia (hello China!). This in mind, with more emerging agricultural markets (i.e. Africa) start growing corn and other coarse grains, will it force traditional major-producing players to shift away from these crops? Perhaps we’ll see it this year with even more pulses in Canada.