Grains came through mid-October with corn and wheat staying relatively unchanged-to-lower while the oilseeds complex saw a bit of a tick up. Overall, the market has been weighing in El Nino reports, more North American harvest progression, and the dryness of some areas around the world. Some headlines to watch include scorching temperatures continuing to downgrade the crop size in Australia while limited fund money inflow equates to limited continuous gains in the complex. Add in some dryness in Brazil that is grabbing headlines as farmers plant soybeans, there are some catalysts out there holding up markets, but not much to push the fanfare back down either.
This week we got some new Chinese trade data showed a positive trade surplus albeit the market remains leery of any significant rebound in the growth story of the People’s Republic. Included in the data is that China imported 7.26 million tonnes of beans in September, down 6.7% from August but up 44.3% from September 2014, while total calendar-year-to-date imports are up 13.1% at 59.65M tonnes.
Also supporting soybeans though is the N.O.P.A. crush number this week, which showed 126.7 million bushels of U.S. soybeans that got crushed in September, a bit below market expectations but still 27% better than September 2014 and the highest volume for the 9th calendar month since 2007’s record.
Egypt’s state-grain buying agency, the GASC, bought 240,000 MT of Russian and Romanian wheat yesterday at an average delivered price of almost $212 USD/MT, the highest price Egypt has paid since the start of July (also when prices were at the 2015 calendar year high’s). France was unable to be competitive in the tender again, which is disappointing considering they have a record 41 million tonnes of soft wheat production available to move!
One positive is traditional trading partner Algeria, who has already bought 914,000 tonnes in just July and August, more than double the amount traded over the same 2 months a year ago! The country has a long way to go through to move through its 11.5 million tonnes earmarked for international export, albeit they are doing some small business with West Africa, China, and even Mexico (which shows you how non-competitive US wheat is, given France is able to sneak in the back door!). With the gluttony of wheat out there in the world, EU wheat acres are expected to decline for 2016, with more land getting seeded with other cereals and rapeseed.
Thanks to back-to-back dry years in India, pulse crop demand continues to remain strong, specifically in the lentils and yellow peas markets. Prices only briefly pulled back in the last few weeks, a time when plentiful supplies usually puts downside pressure on the market. Nevertheless, as Chuck Penner from LeftField Commodities points out, deliveries of on-farm stocks are significantly above the 5-year average, and even last year’s aggressive pace.
Specifically on peas, 34%, or 1.16 million tonnes, have been shipped out in the first 8 weeks of the marketing year, above last year’s 28% at this time and the 5-year average of just 18%. Comparably, for lentils, 13% of on-farm product has been delivered, well above the 4% seen the last 2 years! This all likely adds up to more selling opportunities down the road as international demand looks to remain strong, but you should not be dead set on a specific number.
As planters hit the fields in Brazil, there are a ton of estimates coming out at us. Simply put, with the Brazilian Real (their currency) down 38% against the US dollar in the past 365 days and 34% against the Chinese yuan, prices and export demand are at mult-year highs, setting the scene for more soybeans to go in – about 2-3% more or around 80 million acres. Why? The oilseed has the best margins, given crop input requirements vs corn, and the fact that producers are buying crop inputs that are imported with a weaker Real, it becomes suddenly more expensive.
There is some growing groupthink that Russia’s wheat export taxes might push more farmers away from planting the cereal, and instead switch over to something like corn or barley. Wheat has habitually been the main cash crop in Russia (this year: 60.8 million tonnes of wheat, 17.4 million tonnes of barley, and 12.1 million tonnes of corn, per SovEcon), but as Andrey Sizov of SovEcon points out, “if the tax stays, it could result in a noticeable decline of farmers’ margins and a gradual decline in production and exports.”
This would likely be a welcome scenario to the rest of the world today, given the record supply of wheat available, especially in the EU, and specifically the UK where available wheat for export at the end of this year should come in at 3.62 million tonnes, 553% higher than what was the available 2 years ago! Let’s keep in mind though that this isn’t going to change in just 1 or 2 years (it took Ukraine 6 years to go from 7.4 million tonnes of corn output to 30.9 million in 2013) so don’t be like baseball players who celebrate like they won a world championship after every series win (go Jays!). Yes, the potential is there, but the fanfare surrounding it may be a bit early.
More than anything, our hearts go out to Bott family and the entire community of Withrow, AB this week who tragically lost three little girls in a farm accident. As another harvest season winds down, reflection can be commonplace and Real Agriculture’s founder Shaun Haney has some solid, yet sobering comments around the issues that I recommend reading. Farming is an incredible, rewarding occupation, but there are omni-present dangers that we can easily take for granted because it’s around us all the time. Educating the next generation is a responsibility, but often overlooked – take some time to review that this winter.