Grains this week were mixed as the USDA’s April WASDE report was published, and seeding starting in multiple areas across North America. Favourable weather conditions on the north half of the equator are competing with less favourable conditions in South America, which is why corn and soybeans ended the week up over 4% each (it also helped that the U.S. Dollar hit an 8-year low during the week). As for wheat, good rains in the U.S. Southern Plains and generally decent growing conditions elsewhere around the world kept the cereal in check for the week as it was relatively unchanged. With the thick of North America’s planting season starting, the competition of production from different countries will begin to compete with the competition of acres going into the ground.

In Argentina, Oil World says that roughly 2-3 million tonnes of soybeans could be lost due to flooding, adding that it could be even worse if rains persists (it’s supposed to rain into the middle of next week in affected areas). This would match the call from some local analysts who are a bit more aggressive, suggesting 3-5 million tonnes — worth up to $2 billion USD.

Thanks to the removal of corn export tariffs in the country, the USDA attaché in Argentina is forecasting that the area seeded to corn for the 2016/17 crop year will grow 31% from this year to 10.4 million acres, resulting in production climbing 17% to a record 31.5 million tonnes (versus this year’s 27.5 million tonnes). They also suggest corn exports growing 19% year-over-year to 21.5 million tonnes in 2016/17. Wheat export tariffs were also removed by the new Argentinian government, which is supporting wheat acres to climb 26% from 15/16 to 11.86 million acres, suggesting a 14 million-tonne crop (+27% YoY), or the highest in 5 years.

Next door In Brazil, dry weather cross the Corn Belt is creating yield concerns for the 2nd season safrinha corn crop, with early estimates of up to 9 million tonnes lost if rain doesn’t fall soon. This is bad news for Brazilian livestock producers who are already facing a shortage of corn due to an aggressive export program. But, with the current Brazilian government under scrutiny for corrupt practices and possibly on its way out, the Brazil Real is getting stronger, making it slightly cheaper to import corn.

The biggest corn story of the week may go to China, as expectations are that they may have to write off up to $10 Billion USD of corn this year as they try to rid themselves of inventory that is more than a few years old and too moldy to even feed to animals. Further complicating the matter is WTO trade rules, which would be breached if China tries to export the subsidized corn.

Whatever the case may be, Chinese corn stocks are set to fall for the first time in 6 years, with the USDA’s Beijing attaché estimating only 110 million tonnes (or half of the world’s total inventory) will remain in storage by the end of the 2016/17 marketing year. Their estimates are that the Chinese will plant 2.9% less acres than last year (a drop of about 8 million acres) and will harvest about 2.9% less as well.

On the reporting side of things, the WASDE report showed that U.S. wheat stocks are set to climb to their highest levels since 1987. This shift is largely due to weaker feed demand, thanks to the 976 million bushels still available in America at the end of the 2015/16 crop year. Globally though, ending stocks were put at the top end of pre-report estimates at 239.26 million tonnes after the USDA added a few tonnes to the E.U. and Argentina wheat harvests to make 2015/16 a record year with 733.14 million tonnes of the cereal coming off.

Like wheat, U.S. corn ending stocks were raised by 25 million bushels from March to 1.862 billion bushels thanks to lower feed & residual use. As for soybeans, U.S. carryout was pegged 3.3% lower than its March number at 445 million bushels thanks to more exports. Worldwide, soybeans stocks were raised a slight amount to 79.02 million tonnes, mainly thanks to a slightly larger Argentinian harvest (though debatable with the aforementioned flooding) and 100 million tonnes out of Brazil. This would be a 1.7% increase year-over-year, but a 28% increase from just 2 years ago.

We can see the validation in the U.S. soybean stocks drawdown, as recent export data from China shows that they imported 6.1 million tonnes of the oilseed in March, a new record for the month and up 36% from March 2015’s numbers (In Q1, China imported 16.26M tonnes of soybeans, up 12.5% year-over-year). On the flipside though, U.S. soybeans crush numbers for the month of March came in at 156.7 million bushels, a decline of 3.7% year-over-year, and well below the 163.64 million bushels needed monthly to meet the USDA’s total year target.

The Malaysian palm oil production report came out on Monday, showing 1.22 million tonnes were produced in March, above both pre-report estimates and February numbers. However, inventories fell 13% from a year ago to 1.885 million tonnes as exports in the month rose 23% year-over-year, continuing to indicate the strong demand for veggie oils amidst lower production in southeast Asia.

Canola did not follow soybeans higher this week on the multiple bullish headlines, mainly because the Canadian Dollar ended up about 1.3% for the week, crossing above the 78 cent threshold and holding above it to end the week. Across the pond, E.U. rapeseed stocks are likely to fall to a 13-year low of just 767,000 MT by the end of 2016/17, which appears good on paper for the likes of Black Sea and Australian producers but limited upside for Canadian canola as it really only gets imported by the E.U. for biodiesel purposes (maybe we see that change?).

Staying in Europe, France’s farm ministry says that their soft wheat area will come in at nearly 13 million acres, which would be 1.2% above 2015’s area, 4.7% above the 5-year average, and the largest since 1935 (durum acres were pegged at 877,000, up 11% year-over-year).

Coming back to North America, it’s still unclear as to whether we will see that 93.6 million acre corn number come down, but with some good sunny weather across the corn belt through to next week, corn will be the first thing planted.

University of Illinois agricultural economics professors Scott Irwin and Darrell Good suggest that the market hasn’t yet priced any production risk into new crop prices, especially for corn. From a math perspective, this would be roughly 9 bushel/acre drop for average corn yields and 2 bushels for soybeans to see ending stocks return to more normalized levels.

With the market playing the “wait-and-see” game when it comes to new price directions, more data suggests that we are seeing El Nino dissipate and it could be gone by early Q3. No place has been hit harder from the dry conditions than India, but weather models are already suggesting that a strong monsoon season will be enjoyed this year, precipitation that will be welcomed with open arms (and open cracks in the soil).

Some of the pressures to grain prices (other than Mother Nature) can be oil prices, which will likely be affected on April 17, as major oil producers will meet in Doha, Qatar, where a production freeze will be discussed amongst major oil-producing countries (Canada, US, Norway, and Libya aren’t going to be there though). Further, with “million-dollar rains” hitting the Southern Plains, there is some bearishness pushing on wheat prices.

Staying on that side of the ring, usual bearish analytical firm AgResource, suggests that the agricultural boom in emerging markets like Brazil and Russia will persist with weaker currencies making it very profitable to produce as much grain as possible. On the flipside, AgResource doesn’t see demand matching the growth of the production, which is why the market has to work through the oversupply situation.

AgResource is likely the loudest bear in the room right now, calling for $4/bushel Chicago wheat, $2.75 corn, and $7.70 soybeans. Granted, I think these are extremes and just tend to create headlines for the firm — I wouldn’t be surprised if decent growing conditions this year if we see low $4 and low $8 handles in Chicago for corn and soybeans, respectively.

Ultimately, we continue to believe in scale selling and locking up block sales as rallies happen. For example, the smart, risk-management play today may be to look at protecting against downside risk for soybeans and getting more optimistic on corn upside potential, assuming we see less than the gargantuan & aforementioned 93.6 million acres. With no negative weather conditions forecasted for wheat (except maybe here in southwestern parts of the Canadian Prairies), the call remains neutral-bearish as we must work through the supply/demand game.

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