Grains this week were mixed as the market was chasing weather, export trade data, and harvest headlines. We ended the trading quarter this week, and oats was the biggest loser, dropping 15% over the course of it, followed by Chicago wheat (-12.8%), soybeans (-12.1%), canola (-10.6%), and corn (-10.5%).
From a currency perspective, the Canadian Loonie fell 5% for the quarter, a bit better than the Australian Dollar’s almost 8% loss, while the Eurodollar actually gained 3/4s of a percent. Oilseed prices continue to be pressured by lower vegetable oil prices (and more broadly, oil prices), albeit canola has been able to buck the trend the last few days thanks to a lower Canadian Loonie and better crush margins in Western Canada. Given the drop of prices since the end of June, further price declines may be limited (albeit I find it hard to argue against some more short-term downside risk in the oilseeds).
The demand side of the trade equation continues to be the big question mark. U.S. weekly export sales data shows corn sales are 28% behind what had been sold a year ago. More specifically, 22% of the total corn export sales forecast have been contracted, but the 5-year average is 37%. Comparably, U.S. soybean sales are 28% behind a year ago and the U.S.D.A. is forecasting a 6% decline in total sales versus 2014/15. Digging in, total sales of U.S. soybeans is only 17% of the total marketing year goal, but the five-year average is 56% sold for this week.
This week we got the U.S.D.A.’s September 1st grain stocks report, which could be viewed as more supportive than negative for grain prices, with the numbers coming in below pre-report expectations. U.S. corn stocks were seen slightly lower than what the market was expecting at 1.731 billion bushels, but the supply will be the largest since 2006.
Similarly, soybean stocks as of September 1st were seen a bit below pre-report expectations, coming in at 191 million bushels but they did revise last year’s crop size by dropping last year’s soybean crop average yield by 0.3 bu/ac. This helped spur a bit of a rally in beans and was the catalyst for asking, “if last year’s record crop got downgraded, then shouldn’t this year’s crop get felled too since it’s a little bit behind last year’s size?”
On the wheat front, stocks sat at 2.089B bushels, again slightly below the trade’s expectations of 2.149B bushels. Interesting data point though: on farm wheat stocks dropped 9.3% from a year ago, despite stocks being 9.5% higher than a year ago. As the market was expecting more wheat though, prices got the benefit of the doubt and moved higher! The U.S.D.A. also provided more data on how they’re looking at this year’s American wheat crop, showing a harvest yielding 85 million bushels less than what they said in their September WASDE report.
This means that 2.05 Billion bushels of wheat are coming off U.S. fields this year, including 359 million bushels of SRW wheat (-21% year-over-year!), 827 million bushels of HRW wheat, 184 million bushels of white winter wheat, 599 million bushels of spring wheat, and 82 million bushels of durum. In fact, durum was the only wheat crop that saw their production numbers rise from September 11th’s WASDE report, albeit only by five million bushels. Nonetheless, quality is being reported as relatively high on spring wheat, especially in the Northern U.S. states, which is part of the reason why we’re seeing much different premium and discount schedules than we did a year ago.
On that note, given the bit of rains that fell in mid-September, more than a few Canadian grain buyers and analysts are saying the stuff taken off since the wet period is likely getting downgraded into the lower-grade tiers. The early harvested stuff is all ranking with good protein and milling qualities, suggesting that there could be more blending going on but more of those later-harvested cereals going into the feed market (hence, FarmLead’s recent calls to make some sales on feed grains).
We recently got StatsCan’s Canadian crop production estimates (phone call survey-based) and expectations were that, with Harvest 2015 cruising along, the crop is surprisingly better than what was previously guessed. For wheat, total production is forecast at 26 million tonnes, again up from the July estimate of 24.6 million, but still below last year’s 29.4 million tonnes. Breaking it down further, durum output was pegged at 4.7 million tonnes, down from last year’s 5.2 million tonnes, oat production is set by StatsCan at 3.3 million tonnes, up 10.5% from last year, and barley was set at 7.6 million tonnes, also up from last year at 7%.
In the oilseeds, Statscan said 14.3 million tonnes of canola is getting combined this year in Canada, slightly below their data-model estimate of 14.4 million tonnes from a few weeks ago, but well up from July’s estimate of 13.6 million tonnes. It’s still a 13% drop from last year’s 16.4 million-tonne crop. On flax and soybeans, production is relatively unchanged from last year at 869,000 and 5.9 million tonnes.
On the pulse crop side of things, canaryseed and chickpea production are both expected to be lower this year by 5.6% and 18% respectively, but keep in mind that for the latter (chickpeas), Australian acreage has increased dramatically year-over-year. Lentils production is seen jumping by 8.6% to 2.16 million tonnes while field peas production is expected to drop 17% to 3.16 million tonnes.
I’m also not shy to give credit where credit is due and Chuck Penner of LeftField Commodity Research continues to make calls on the pulse crop market that I definitely agree with. While Chuck reiterates that some excellent prices were definitely available to be taken advantage of earlier in the month, some prices remain strong, especially in green lentils. However, the majority of the earliest contracted ships haven’t made it to Asia yet, so prices remain decent over there.
Pea prices could be pressured by the Australian chickpea harvest, which is definitely going to be bigger this year because of bigger acres. Chuck says that prices could still go in either direction because of Indian weather (affected by the extent of rains & El Nino) and rabi crop uncertainty before the end of 2015. With that in mind, “that’s why it’s important to have a large portion of the 2015 crop sold before then, while still leaving some smaller quantities in case the Indian weather turns dry and prices rally.”
Dry weather is hitting Australia farmland, but in parts of southern Australia and Victoria, temperatures are dropping significantly at night, bringing about the dreaded “F” word: Frost. Should more crops be affected by frosts, more fields will be cut for hay, albeit there are more than a few Aussie farmers who believe that will also be more profitable than trying to push their crop through to grain harvesting, given the tough, dry finish that’s expected in the region.
Thus it was no surprise that more analysts are calling for a downgrade on the Aussie wheat crop, with as much as three million tonnes being lost to dry heat and/or frost. Specifically, the National Australia Bank is suggesting 24 million tonnes could come off, obviously below A.B.A.R.E.S. 25.3 million-tonne forecast. Full disclosure: the N.A.B. has been bullish Aussie wheat all year, even suggesting a 21.6M-tonne crop just 2 months ago. While hotter weather is on the horizon for Australia, if it were not for early-season rains, it could definitely be worse and more in line with the N.A.B.’s original forecasts.
While harvest is just about to get going in Oz, harvest is going full tilt in the U.S. Midwest and Eastern Canada, wrapping up in Western Canada & US northern states, and finally, planting is starting to roll in South America. Yields continue to surprise on the harvest side of things so consider your cashflow needs for the next 6-9 months and which crops look to have the most upside in that timeframe. The idea is to understand what you can pay short-term bills with while holding on to stuff that may earn more down the road. The best idea you can have though when it comes to marketing is make 100s of phone calls by posting on FarmLead.com.
All in all, starting a new month and quarter, trading could see some quick moves but the market will continue to mostly listen to North American harvest activity and Southern Hemisphere weather headlines.