Opinion
The USDA came and went this week with another WASDE report that was basically a “nothing-to-see-here” release, as the big story to watch is the Grain Stocks and Prospective Plantings report due at the end of March. However, you could look at in the sense that this report gives us a relatively flexible floor as we head into seeding season in the Northern Hemisphere (drills have been spotted in northern U.S. states and southern Manitoba and Alberta). Granted, it’s not the floor that we’re going to be setting out the fine china on, it does give us an idea of how much space we have for the size of table (read: supply and demand) to put everything on to.
Domestically, the report showed corn ending stocks were dropped by 50 million bushels to 1.78 Billion thanks to increased exports and feed use by a combined 100 million bushels (although ethanol use did drop by 50 million bushels). U.S. ending stocks for wheat & soybeans were relatively unchanged at 691 million and 385 million bushels respectively, which was somewhat surprising for the latter given decent exports in February.
On a global level, world corn ending stocks were below the lowest pre-release survey estimate, coming in at 185.3 million tonnes, compared to 189.6M-tonne number from last month. Simply put, this indicates that corn demand is improving after two years of big global production and the price of the coarse grain dropping by 43 per cent over that time frame.
Net importing countries like Saudi Arabia will take advantage as the Kingdom is moving away from barley feeding for animals and more towards corn and wheat. Much like the U.S. domestic numbers, world wheat and soybean ending stocks for this marketing year were left relatively unchanged, especially notable for the latter given that Brazilian production estimates have dropped by most analysts over the past month and the USDA attache in Beijing dropped their estimate for Chinese soybean imports to 73 million tonnes this year.
Analytics and brokerage firm Allendale Inc. came out this week with their own report, with this one on U.S. acreage estimates. According to the Illinois-based company, American corn acres are seen falling to their lowest level in five years at 88.5 million acres, a drop of 2.1 million acres (-2.3 per cent) from 2014’s area and slightly below the USDA’s estimate of 89 million acres last month at their Outlook Forum.
Accordingly, some of these acres are expected to go into soybeans, whose area is seen growing by 2.8 per cent or 2.35 million acres year-over-year to 86.05 million. This is way up from the USDA’s Outlook estimate of 83.5 million so in all likelihood, the number will likely be around a high 84 million-low 85 million level. Total planted wheat area is seen falling by 1.95 million acres (-4.6 per cent) from last year to 40.45 million but that loss is almost completely attributed to less winter wheat acres getting seeded this past fall.
Conversely, spring wheat acreage is seen increasing by 1.48 million acres from last year to 14.5 million (+3.7 per cent). Of more significance for Canadian producers is that Allendale forecasts U.S. durum acres to grow by 325,000 (or +23 per cent year-over-year) to 1.72 million. With acreage in Western Canada also rising by about 20 per cent from 2014, total American-Canadian durum acreage in 2015 could be up by about 10 per cent year-over-year.
The warm temperatures across the Canadian Prairies and U.S. Midwest have more than a few farmers itching to head into the fields with their drills (as mentioned). While the snow is melting earlier than normal, according to the USDA’s most recent drought monitor, drier patches are showing up in the U.S. Northern Plains (SD, ND and MN) in addition to extreme drought conditions near the Texas-Oklahoma winter wheat belt.
Certainly, there are a few fields up in the air when it comes to what’s going to get planted, be it soybeans versus wheat versus corn in the U.S. and Eastern Canada or canola and wheat versus anything else in Western Canada. These swing acres could provide a significant push one way or another from a grain price perspective. For example, with more soybeans going into the ground initially in the southern U.S. states, this will put downside pressure on the oilseed complex. Sure, the Canadian Loonie’s depreciation has helped prop up canola prices but how profitable is canola when prices are sitting around $10 a bushel when you could plant something that requires less money and attention to grow?
Overall, the next month or so will likely bring some volatility to the markets as the trade tries to sort through all the noise of new acreage estimates coming out. Locking in on some of the good basis levels we’re seeing right now isn’t a bad idea from my perspective and although other opportunities are going to become available, keeping emotions in check and the long-term goal in mind is the proper course of action. Don’t be like me, circa 20 years ago trying to sneak a cookie after midnight and getting caught (and in trouble) because I stepped on the wrong part of the floor that creaked the loudest. Of course, hindsight is 20/20 but taking the right steps across the aforementioned “flexible floor” (i.e. making a 20% sale of production here, 10% sale there) puts you on the right path towards the long-term goal of making a profit (also know as eating a few cookies).
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