Opinion
What a week! A big USDA report; end of the month; end of the quarter; shortened trading week because of the Easter holiday long weekend…if you wanted to see how markets can trade high and low, and all in the same day, this was the week.
Corn and oats got the worst of it, both dropping 1.2 per cent on the front month contracts while the oilseeds did well, with soybeans up 1.9 per cent and canola improving by 3.7 per cent over the course of the week. The real star was wheat though as it went up and down and up and down but ended up for the week – up 3.4 per cent in Minneapolis (HRSW), 5.1 per cent in Kansas City (HRWW), and 5.3 per cent in Chicago (SRWW). This week was definitely not the week to cut your teeth in a trading environment, but if you did, welcome to the game.
Wheat started out the gate hot on Monday, jumping four per cent on concerns over dryness in the southern plains and short covering going on (I mentioned last week that this could be a factor that accelerates any rally). Southern Plains states are not beating the heat as Kansas good-to-excellent (G/E) ratings were down two points week-over-week to 39 per cent and 61 per cent of soil moisture is in a short or very short condition. Nearby in Nebraska, G/E ratings have fallen a whopping 28 points in the last month to 34 per cent. Up north, South Dakota G/E wheat portion fell by 14 points from a month ago to 35 per cent but next door neighbour saw its winter wheat crops in better health, rising 14 points in March to 58 per cent G/E.
Conversely, moisture has been good to soft winter wheat growing regions in the Midwest. That being said, it’s creating a good bed to plant corn and soybeans into. Not the same can be said for the Southeast though as only four per cent of the corn crop was planted as of Sunday in Mississippi (five-year average of 39 per cent) while Arkansas had only two per cent of their corn fields seeded (compared to 39 per cent), but it’s no comparison to Louisiana where only 18 per cent of the corn crop was in, way behind the 81 per cent five-year average.
With seeding behind schedule in the southeast and drier conditions in the southern plains, US farmers are turning to sorghum, a cheap crop to plant that’s relatively easy to grow, and is in hot demand by China right now. With exports expected to hit a 35-year high thanks to China’s use of sorghum for moonshine-like liquor, acres are seen growing to almost eight million, the most since 2008. So, while most grain prices have been troubling, southern U.S. farmers are following the money.
On Tuesday, the U.S.D.A. released its annual Stocks and Acreage report, which usually lays down the foundation for U.S. grain consumption through the rest of the marketing year and acreage estimates to price new crop off of. In three of the last four years, corn has moved its limit thanks to the time of year – end of the month, end of the quarter, and weather forecasts all play a factor (not to mention the algorithmic/high-frequency speculators). Ultimately, the report did have some surprises but most of it was seen on the soil side of things and so, while some fireworks went off, it wasn’t like the recent shows of years past
Going into the report, there was some speculation that U.S. feed and residual use for corn and wheat may be lower given their decreased price spread over the first quarter of the calendar year and livestock inventories being higher year-over-year. However, corn inventories as of March 1st were categorized as up 11 per cent year-over-year at 7.74 Billion bushels and above the average trade pre-report estimate of 7.6 Billion bushels.
Wheat stocks were pegged at 1.12 Billion bushels, up six per cent from last year but relatively in line with expectations, as were durum stocks, pegged at 37.6 million bushels. The March 1st inventory of oats was up 69 per cent from last year at 59.4 million bushels while barley stocks dropped three per cent to 118 million bushels. Finally, the amount of available soybeans was up a significant 34 per cent from 2014 at 1.33 Billion bushels.
Many analysts were expecting soybean acres to be quite high going into the report with an average guess of 85.9 million acres, but the number that the USDA published was well below that at 84.6 million (although still a hearty climb from last year’s 83.7 million acres). As for corn, planted area isn’t seen falling as much as analysts were expecting but still below last year’s 90.6 million acres at 89.2 million. Finally, total U.S. wheat area is seen down from last year by over 1.4 million acres to 55.4 million, with the majority of the decline attributed to winter wheat acres, falling to 40.75 million from 42.4 million last year.
Rounding things out, U.S. durum acres are seen growing 18 per cent from last year to 1.65 million acres, barley acreage is up 9.5 per cent to 3.26 million, oats acres are seen also up by eight per cent to 2.93 million, canola acres are down nine per cent to 1.55 million, flax acres are up 29 per cent to 401,000, and peas and lentils are up 7.5 per cent and 37 per cent to one million and 385,000 acres respectively.
Ultimately, the report showed us that. farmers are still a little up in the air over what they may plant as the total number of acres mentioned in the report are well below the historical average. More sorghum is going into the ground in the south while more wheat and specialty crops are clearly getting planted in the north. One thing that could shift the supply and demand tables though a little bit is whether or not the Russian government will continue to tax wheat exports after July 1st.. SovEcon says that an extension of the tax program is unlikely thanks to slowing inflation and crops looking good in the southern Krasnodar and Stavropol regions. Keep in mind that while the Russian Ag Ministry confirmed 17 per cent of fall-seeded fields were lost to winterkill, they’ll still produce 100 million tonnes of grain this year. No way, José.
On that note, the most recent A.M.I.S. report shows that crop conditions worldwide remain mostly favourable, with only “keep-an-eye-on” areas in the US Southern Plains, Eastern Europe, and small pockets in South America & southeast Asia. Specifically in Eastern Europe, we’ll need to keep closetful watch of crop conditions there as crop inputs used are expected fall this year. Dialing it down, the Ukraine Director of the National Scientific Centre says that the cost of fieldwork in Ukraine this year is up almost 60% from 2014, including NPK fertilizer costs up almost 80%! With those sort of farm costs, it’s definitely not a game I would enjoy playing.