The grain market this past week turned its attention to more demand and weather headlines as North American harvest pressures are starting to subside with the large majority of the crop now in the bin. The planting pace down in Brazil of soybeans continues to accelerate, with some of the previously drier regions finally getting rains (albeit they will continue to need good showers moving forward to make the proposed 100-million tonne soybean crop!).
On the level, oilseed prices are being tempered by better growing conditions in Brazil, supporting both seeding activity and crop germination & emergence. With Brazil’s weak currency, concern is growing that the American export demand window could be small as international buyers could be reverting their demand back to Brazilian purchases as their harvest comes online in a mid-Q1 of 2016, leaving the other exporters waiting for currencies to help them out.
Egypt picked up another 240,000 tonnes yesterday, taking total purchasing by the world’s largest wheat importer to 2.36M tonne thus far this season. The surprise though was that 120,000 tonnes of the winning wheat came from France, and another 60,000 tonnes from Poland. While it might be a bit early to call it, but the export demand that Europe has been waiting for might finally be trickling in.
While everyone’s been concerned about the size of the Australian wheat crop because of the heat it received a few a weeks ago and the threat of more down the road, rains in the forecast for New South Wales & Victoria regions might actually affect quality. Harvest 2015 is in full swing more many producers in the Land Down Undaa and rains would obviously be deterrent to both productivity & wheat coming off as high quality, leading more than a few blokes to recall 2011 when rains pushed half of the wheat crop from the east side of the country into the feed column of the balance sheet.
Overall though, most analysts believe that the Australian wheat crop is going to come in somewhere between A.B.A.R.E.S.’ estimate of 24 million tonnes and the U.S.D.A.’s call for 27 million, suggesting that El Nino rhetoric being prophesized will have little effect on the crop in the Land Down Undda. Conversely, little rain is on the horizon for Black Sea crops but some good showers are in the long-term forecast for the U.S. southern plains so things are sort of being balanced out in that regard.
We saw a good pop early in the week for wheat with futures markets making a one-day 4% positive move as less-than-expected precipitation hit the Southern Plains last weekend whereas areas of Ukraine and Russia are expecting cooler temperatures and limited amounts of rainfall. Earlier this week, the Russian Ag Ministry says that 35.55 million acres of winter crops are now seeded (91% of the expected total), but emergence is rumoured to be spotty and this is still more than a few passes behind the more than 40 million acres that had been seeded by this time last year. Looking back, 2010 was the most recent year that Russian winter wheat crops experienced poor seeding conditions in the fall, then a harsh winter, followed by a drier spring. This all led to a crop of just 41.5 million tonnes (they took off more than 60 million this year) and prices into fall 2011 rallied almost 50%.
The International Grains Council raised its forecast for the 2015/16 global harvest for the 4th straight month, albeit, at 1.999 Billion tonnes, that’s still 27M below last year’s production! The positive thing is that demand was raised, to 1.991 Billion tonnes, including feed use almost matching last year’s record demand number. However, global ending stocks are seen closing out the 2015/16 marketing year by the IGC at 454 million tonnes, 7 million tonnes less than 2014/15, but most of that increase being attributed to bigger production in China (ending stocks in major exporting countries is pegged at 142 million tonnes, down two million tonnes from a year ago).
The Canadian Ag Ministry increased its pulse crop production estimates from its September numbers to almost 6 million tonnes, but that’s still 9% below last year’s 6.584 million-tonne crop of peas, lentils, mustard, beans, canaryseed, and sunflowers. Specifically, dry pea production was increased by 8% from its previous estimate to 3.156 million tonnes (still 17% below last year’s 3.81 million tonne crop) while lentils production was increased by 3.8% from September’s estimate to 2.162M tonnes (up 9% from 2014/15).
On the demand side of the equation, strong pulls from both the domestic and export markets equals tighter Canadian ending stocks with lentils and peas carryout dropping 27% and 77% respectively from 2014/15 to just 265,000 and 100,000 tonnes remaining by July 2016. What’s this mean? More potential for prices to run as Indian demand continues to be strong and Turkish buying has increased lately.
That being said, some speculation is happening on whether or not India will be able to produce sufficient supplies in their rabi crop (to be harvested in February/March), given the dry conditions they’re currently planting into. Indian farmers are a little behind in their rapeseed seeding but pulse crop sowing appears to be on schedule. Nonetheless, with El Nino weather pressure still on the horizon, I think that it might be a little early to be looking to aggressively price out new crop pulses.
Coming back to Canada, with the crop in the bin, the attention seems to solely be on grain marketing. Wheat basis levels dropped into negative territory this week as buyers are pulling back on purchasing after record deliveries in September and despite the Canadian Loonie hovering below 76 cents. Producers who were able to lock in basis levels that were more than a dollar above the Minneapolis price are sure to be able to take advantage of higher winter and spring prices that most analysts are forecasting (including yours truly). However, there are more expectations from the market that the crop seems to be getting bigger, so even with decent demand, it’s hard to expect that any massive moves in the next 6-9 months.
Overall, some decent export data out of the U.S. and some fresh tenders on the cereals side of things are positive. The demand is welcome and providing a bit of a backstop against the gluttony of supply out there, but lower crop prices mean tighter balance sheets, which is why crop input providers continue to feel the pinch with a lower demand outlook, including Potash Corp. who has suggested they’ll start shutdowns at three of their Saskatchewan mines in December. This demand will need to be sustained moving forward or, more than likely, any rallies could be limited over the next few months.