Grain prices this week flopped around a bit as the market dealt with some currency moves. Relatively decent harvest weather has greeted western Canada and, though dryness concerns are still hitting other parts of the world, it’s time to turn the bushel number counter on for corn and beans across the U.S. and eastern Canada.

The Black Sea, U.S. southern plains, and Australia are all experiencing warmer conditions, helping prices move up a bit on futures board this week. Eastern Australia is especially notable as the next few weeks and months don’t look very favourable for any additional crop growth, especially on the eastern side of the Land Down Undaa.

Estimates of crop sizes aren’t getting downgraded elsewhere too aggressively. In fact, the National Farmers Union (NFU) says that this year’s average wheat yields in the United Kingdom are a record 135.3 bu/ac! Still, official government reports peg the U.K. crop at 16.13 million tonnes overall, well below the NFUs call for 16.7 million tonnes.

UK Grower Sets New Wheat Yield Record

Oats prices remain under pressure as it looks like end-users are bought up into the new year, which again suggests more opportunity into the winter months to make some sales.

Speaking of sales, some farmers are taking advantage of some of the current high lentils prices while thinking about holding on to a block or two for winter or spring rallies. Quality of the Canadian crop has been impressive with industry estimates suggesting 12-15% of the crop is a coveted no. 1 grade, with 59-70% considered no. 2 quality. Those numbers are better than the 10-year average (74% of the crop being ranked a no. 2 or better).

Mature soybeans. USDA photo by Scott Bauer.
Mature soybeans. USDA photo by Scott Bauer.

Australian bank Macquarie says that the overall agricultural price sector (especially fertilizer prices) may still have more room to head lower though as “in order for markets to balance, prices will need to fall to levels that invoke supply cuts.” Specifically in soybeans, the downside risk remains relatively significant given large supplies coming off in the U.S., the large carryover from 2014/15, and what looks to be another monster crop in South America as seeded acreage is expected to go up with devalued currencies there.

On the bright side, more corporate entities are joining analysts (including Macquarie), saying corn prices are bound to pick back up above the $4/bushel level on the futures board. Keep in mind, though, that corn has a lot of substitutes when it comes to feed (including sorghum, which is expected to yield high in the U.S. this year), oil prices remain depressed (can affect ethanol production), and the strong dollar is hurting exports (though it is starting to fall back some).

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The Canadian Dollar continues to appreciate against the U.S. dollar, climbing back above 77 cents. The closer we get to the Canadian election, the better investors are feeling about any change in government, and subsequently, the strength of the Loonie. With a stronger Canadian Dollar, you can likely expect any strong basis levels you might have seen lately, start to pull back a bit.

The United States Department of Agriculture’s (USDA) world agricultural supply and demand estimates came out on Friday, October 9, with few surprises. Corn yields were seen at 168 bu/ac (higher than the 167.1 bu/ac the market was expecting and the 167.5 bu/ac the USDA pegged the crop at last month). As for soybeans, yields were raised only slightly from September to 47.2 bu/ac (in line with expectations). The big kicker was the drop in harvested acreage of beans — 1.1 million acres.

As for wheat, production is relatively unchanged but U.S. ending stocks came in at 861 million bushels (the market was expecting 819 million bushels). However, Australian production is still unknown, and weather reports are suggesting smaller production potential. Still, the USDA surprised the market by actually upgrading their wheat output forecast by 1 million to 27 million tonnes (most other firms have things pegged somewhere between 24.5 – 25 million tonnes). World ending stocks also came in larger than expected at 228.5 million tonnes, a number that has nothing bullish about it today.

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USDA photo by Bob Nichols, CC 2.0.
USDA photo by Bob Nichols, CC 2.0.

Total U.S. corn production was set at 13.56 billion bushels, basically unchanged from September’s numbers, thanks to better crops in upper Midwest and Northern Plains. This helped push ending stocks down to 1.561 billion bushels to end 2015/16, above expectations of 1.534 billion bushels which is why corn prices ended the week lower. As for soybeans, U.S. production was pegged at 3.89 billion bushels, smaller than September’s and investors’ pre-report estimates, helping push U.S. ending stocks to 425 million bushels (still above the 414 million bushels the market was expecting). While this could be seen as bullish, the USDA and CONAB (the Brazilian version of the USDA) both pegged the Brazilian soybean crop at 100 million tonnes!

While the new report does reset some of the goalposts, more analysts are expecting that to come in the November report. Specifically, soybean yields have been upgraded in November by one full bushel or more in four of the last 10 years. In corn, yields have fallen by 1-2 bu/ac in that report in 7 of the last 9 years.

Yes it’s another month away but it’s important to be cognitive of some of these types of numbers as we look to hold and/or market grain in the next few months to come.

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