Grains this week were mostly lower as realities about supply continue to trump ideas of fresh demand. The U.S. dollar lost 2.7% for the week, which helped other commodity currencies appreciate. Weather kept to the sidelines for the most part, indicating fluctuations in currency are certain to be the theme into spring.
Oil World is forecasting European rapeseed production to be relatively the same as last year, at 22M tonnes, with France and Germany making up for losses in Poland and the United Kingdom. More than a few analysts believe though that the E.U. rapeseed number could be higher if not for the neonic ban that seems to be capping farmers’ interest in planting the oilseed.
New winter wheat crop ratings out from the USDA saw Kansas’ good-to-excellent (G/E) portion grow by 1 point to 55% in January (+9 points year-over-year), while Illinois, the largest SRW wheat grower, saw G/E ratings increase to 65% in January (up 7 points month-over-month and 16 points from January 2015). Other than that, winter wheat states saw G/E ratings drop slightly, though they’re still much better than last year’s numbers. Factoring winter kill into the equation, and average harvested acres will likely be similar to 2015.
Egypt has started to get a little snobbish when it comes to the wheat they’re sourcing. Despite numerous complaints by grain companies/sellers about payment and movement concerns, Egypt recently rejected boats of French wheat due to ergot contamination. In January, the country changed its tolerance levels from max 0.05% ergot to zero tolerance, prompting the obvious reaction from the market to offer zero lots of wheat to the General Authority for Supply Commodities in their tender this week. There’s concern that Egypt, the largest wheat buyer in the world, will run its reserves dry by the end of April.
At the mercy of the markets, Egypt reversed its attitude towards ergot levels, but nothing was really offered in another tender. With physical traders concerned about their loads being rejected and receiving payment, European wheat bids have dropped slightly. On the weather front in Europe, warm temperatures in parts of the Black Sea region are getting attention, as snow cover may expose crops to follow-on freeze and/or affect their winter hardiness (a bit bullish!).
CONAB (basically the Brazilian USDA) recently lowered its estimate of their soybean crop to 100.9 million tonnes, with the majority of the downgrade attributed to “volatile weather” in Mato Grosso. On the flipside, CONAB is estimating the first corn crop to take off 28.35 million tonnes, but between exports and feed demand, the bureau did highlight a supply tightness, which suggests more corn could be planted in the 2nd/safrinha crop (though CONAB didn’t raise their corn production estimate for it!).
While Brazil exported a record 32.5 million tonnes last year, the lower Brazilian Real is supporting farmer sales to export positions, not domestic end-users. With Brazil’s financial situation looking more than just a little bleak, the government there is looking to shore up its own bank account. While state governments enforce tariffs of trade within regions, exports are exempt, which leaves 25.5 million tonnes of expected corn exports in 2015/16, ripe for the picking.
To the west, the USDA’s attaché in Argentina sees 58.5 million tonnes of soybeans coming off this year. That’s 1.5 million higher than the official USDA estimate, but we could likely attribute the difference to the attache’s 40.8 million acres of seeded area (370,000 acres more than the USDA’s official acreage estimate). With Argentina’s capacity to crush soybeans sitting at 62 million tonnes — 26 million of which is owned by Bunge, Cargill, and Louis Dreyfus plants — the country has a long way to go before they hit full capacity (keep in mind that Argentina is already the world’s largest exporter of soymeal and soyoil).
In their recent earnings report, ADM pointed out that Argentinian farmer sales of the estimated 12 million tonnes of soybeans that they’re still sitting on is quite slow. The aforementioned crush capacity, running at only 2/3 its max, could easily accommodate that extra tonnage sitting in grain bags and silos, but with inflation AND the export tax still relatively unchanged from the previous government, there hasn’t been too much incentive for Argentinian farmers to unload their inventory.
Speaking of inventories, this week we got Statistics Canada’s perspective on where Canadian grain and oilseed stocks as of the end of December were sitting. The winner for the biggest change year-over-year goes to the lentil sector at 1.68 million tonnes, a 47% decline over December 31st, 2014 and over 48% lower than the 5-year average (the better question is how much of this tonnage is already contracted?!). On-farm stocks of Canadian lentils was where most of the decline was seen with just 720,000 tonnes available (again — how much is contracted?).
The other major export pulse crop, peas saw a 2.7% decline year-over-year to 2.165 million tonnes with almost all of the difference being attributed to a 23% decline year-over-year in commercial inventories (-42.5% from the five-year average). There hasn’t been a huge reduction in on-farm stocks, which isn’t too surprising given the amount of green peas that haven’t been contracted with prices being substantially lower than their 10-year averages.
At the opposite end of the spectrum, Canadian flax stocks at the end of 2015 are up 24% from the end of the 2014 at 732,000 MT, and 52% above the 5-year average (no wonder bids are sitting around the $12/bushel handle). It’s clear that more of the oilseed is being held by farmers because on-farm stocks are up 30% year-over-year and +60% from the 5-year average. The other big swing to the opposite end of things was corn, with stocks up 17% year-over-year & 11.5% from the 5-year average at 11.36 million tonnes.
For the big names, total Canadian wheat stocks are down 19.3% from 2014 to 20.7M tonnes (-11.7% from the 5-year average) while durum stocks actually increased by 3% year-over-year (and unchanged from the 5-year average) at 4.23 million tonnes. For canola, inventories as of the end of December were roughly 4% below the end of 2014 but almost 14% higher than the 5-year average with 12.1 million tonnes still sitting on the farm and in commercial silos.
Rounding out the complex is oats at 2.55 million tonnes (basically unchanged from 2014 but 5.2% higher than the 5-year average), soybeans at 3.35 million tonnes (+1% YoY, +19.9% from the 5-year average), 5.7 million tonnes of barley (+4.1%, -2.2%), and 135,000 MT of rye (+17%, +11.5%).
So what does this all mean from a price standpoint? We can definitely attribute the decrease in stocks of our pulses, wheat, and canola to that the lower Canadian Dollar. As mentioned, with a lower Loonie, the purchasing power in that currency makes it easy for the buyer to get more aggressive (and local prices also increase to equalize with that additional demand). While the Loonie did gain about 0.7% this week, it poked its head above the 73 cents USD level briefly before ending the week back below 72 cents.
Can we expect prices to rally significantly between now and planting? It’s hard for me to say yes. Translation: there’s likely only a 20-25% chance of a 10% rally for major row crops between now and the first weekend of May. While we’ve seen some balmy temperatures to start February, grain prices are feeling the aches and pains of being too big and this fever will likely keep them in bed, suppressed into the spring.