On Friday, September 11, 2015 (a historic date in its own right), the USDA released its latest world agricultural supply and demand estimates. Most expectations going into the report were that the world crop soothsayers would keep things relatively mute on a global level, and downgrade U.S. production. Alas, the boys and girls in Washington, D.C. had other plans in mind, specifically, increasing U.S. soybean yields to 47.1 bu/ac (a full bushel above what the market expected).
On corn, U.S. yields were felled to 167.4 bu/ac from the previous estimate of 168.8 bu/ac, but still above the market’s pre-report expectation of 166.6 going into the report. Despite the actual number still being greater than the market’s pre-report guesstimates, corn rallied on the day, erasing the losses of the previous 2 weeks.
Overall, the USDA appears to believe U.S. growing conditions have things on track for another big crop domestically (not a huge surprise given the conditions to end this year’s growing season).
Globally, corn carryout for 2015/16 was seen falling more than the market was expecting to 189.7 million tonnes. Soybean 2015/16 ending stocks, on the other hand, are expected to grow to 85 million tonnes on bigger U.S. and South American crops. When it comes to wheat, the USDA followed the lead of many other analysts/firms and raised their production and ending stocks, both domestically and internationally. The global inventories at the end of this marketing year, they suggest, will climb to 226.56 million tonnes, up from 2014/15’s 211.3 million tonnes.
Despite the bearish implications of the wheat market, wheat farmers from Black Sea countries continue to see pretty decent prices for their production. On a globalized U.S.-Dollar denominated market, those prices actually translating into the lowest in the world. It’s not really a surprise then that Russian producers are looking to plant even more winter wheat this year, thanks to prices climbing 35% year-over-year as a result of the depreciated rouble.
With their currency down 44% against the U.S. Dollar, international buyers are able to buy more product than a year ago, and that lifts the domestic price of the product as a result (demand grows).
The Russian Ministry of Agriculture says that their comrades will plant 42.26 million acres of winter grains this fall, up from last year’s 41.5 million acres. The bigger question though is: will the dry conditions they’re planting into have the same result as this year’s crop? (Which, by the way, is expected to be the 3rd-largest in their post-Soviet Union history!)
While business is busy in the Black Sea, prices are at 10-month lows for French wheat thanks to a record harvest that seemingly has nowhere to go! FranceAgriMer is forecasting that French soft wheat exports will to a three-year low of 18.8 million tonnes (despite the quality of the crop being the best since all the way back in 1996!).
Conversely, domestic French demand for wheat will increase 16.3% from last year — to almost 16 million tonnes — as feed rations switch from corn to wheat as a result of this year’s French corn crop falling by 21% year-over-year to just 15 million tonnes.
France isn’t the only place with lower export expectations though, as Germany and other E.U. countries are also facing stiff competition from cheaper Black Sea supplies.
Australia is a few weeks away from their first fields coming off but ABARES (the Aussie version of the USDA) has raised expectations for the crop from the Land Down Undaa, thanks to favourable growing conditions and good rains. The forecast for wheat output was raised to 25.3 million tonnes, up 1.7 million tonnes from the previous estimate and above last year’s 23.67 million-tonne crop. The barley and canola crop sizes were also increased to 8.62 million tonnes and 3.15 million tonnes, respectively. The biggest increase though is expected in chickpeas, with production climbing 78% from a year ago to almost one million tonnes, the largest harvest in the last 10 years.
More accurate production estimates will certainly be available in another month. But, given the current outlook of a big global output across all the major row crops, the question is: where will demand fit in?
For North America, the outlook for corn demand remains relatively bleak, given lower oil prices (affects ethanol), lower exports (thanks to bigger competition from other export players like Ukraine, Argentina, and Brazil), and softer feed demand (mostly because of the plethora of cheap wheat available).
On the soybean front, China recently upped its ante to say that they will continue to buy a lot of soybeans (despite economic troubles, people are demanding meat, and those pigs need feed!). However, the devaluation of South American currencies to the U.S. dollar has created more buying power for the likes of China from places such as Brazil & Argentina, giving those producers a better price domestically. Much like corn, this can put a damper on U.S. soybean export expectations.
On that note, with the strong selling power out of South America, it’s expected that producers will plant even more soybeans this year (doesn’t it sound very similar to the wheat sales/exports and new crop acres in the Black Sea market?). And, there’s a strong correlation between big yields in South America and El Nino years, as it brings more rain to the southern continent, so we might have be a little cautious there.
Comparably, drought-like conditions are again concerning in India and there are some big question marks for what sort of production potential the more than 200 million farmers in the country can achieve in 2015/16, given said conditions. The monsoon rains have departed earlier-than-normal, and as a result, less acreage of water-intensive crop types may go in (though the aggregate grain & oilseed production level of the country will remain relatively high).
On that note, we’ve seen prices in Western Canada generally track sideways with the rest of the market but harvest pressures have started to hit some crops, notably flax, durum, and some of the pulse crops, including small red lentils and yellow peas. Rumours are that India’s back teeth are floating with small red lentils purchases and China’s buying may slow a bit as a result of their strong purchasing. Prices in chickpeas continue to be pressured by decent Canadian yields, but also a much bigger acreage and corresponding production number in Australia. Canola and wheat prices should continue to track the broader futures markets but quality coming off this harvest continues to be pretty good.
Surprisingly, it’s the same theme across all other major growing regions and quality continues to impress.