Cutting Things Out — This Week in the Grain Markets

Grains shot out of the cannon this week as heavy trading volumes propelled markets to new multi-month highs. Soybeans led the charge, thanks to concerns over the size of the Argentinian harvest.

With soybean markets rallying well above the $10/bushel handle, profits were taken and the complex settled below the coveted double-digit level before weekend cocktail orders started. Soybeans still ended up almost 3% for the week, which puts them up 8% since the USDA’s March Stocks & Acreage report. With soybean production falling in Argentina, some of the global for oil demand could largely be fulfilled by the United States.

The current rally for soybeans from November lows is mostly attributed to technical momentum shifts and strong buying by hedge funds getting longer. Popular financial markets blog ZeroHedge posted its own theory, that, given the back-to-back record trading volume on Tuesday and Wednesday, there are some manipulators participating in the market — and not the Chinese, commercials, or hedge funds could produce those changes in such a short timeframe. When you’re trading more than 100% of the US crop in a given week, something smells.

The fundamentals of some lower-than-expected ending stocks and US acreage are hard to ignore as well, but there’s still a good supply out there. With November 2016 soybean contracts at a high of $10.23 on Thursday, one has to wonder how many soybean acres have been bought in the last few weeks? It seems more like a one-off event that will ultimately create new levels of support and resistance to trade within. The smart money this week was to sell old crop and lock in some cash profits in new crop beans.

Switching gears and continents, a recent Bloomberg survey has 11 analysts pegging the 2016/17 EU wheat crop at 154.9 million tonnes, a drop of 3.4% from last year’s monster, but the 3rd straight year of production over 150 million tonnes. A couple notables from the survey include France’s durum harvest increasing 5.2% year-over-year to 1.9 million tonnes, the UK’s wheat harvest dipping 5.8% to 15.3 million tonnes, and the German wheat crop falling 1.8% from last year to 26 million tonnes. This would align with expectations from Strategie Grains of lower carryout, primarily thanks to a stronger EU wheat export program.

Canola didn’t follow its oilseed brethren this week until we got StatsCan’s report on Thursday, as a Canadian loonie hovering around 79 cents USD kept in check any support offered by the soybean rally. Canola acreage across Canada is expected to be 3.7% lower than last year, contrasting pre-report expectations for a 1.5% increase, with Alberta being the big dropper (down nearly 8% from last year to 5.63 million acres). On wheat, total acreage is expected to be just 1.3% lower this year at 23.9 million acres with less acres in the west being offset by 48% more in Ontario, with 1 million acres going in there.

More Pulses, Barley, Durum & Corn — StatsCan Paints the Acreage Picture for ’16

Looking deeper, just 7.05 million acres of spring wheat is expected to be planted in Saskatchewan (-9.6% from last year and 15.3% lower than the 5-year average), but durum acreage in the province is estimated at 5.275 million acres — up 5.5% from last year and 25% from 5-year average. This would account for 86% of the 6.1 million acres of durum going in across Canadian fertile land. As for spring wheat, total Canadian acres are down 5.7% from last year to 16 million, with a little more than 7 million acres being planted by Saskatchewan farmers (-9.6% from last year and 15.3% from the 5-year average).

While we were expecting big pulse crop numbers, StatsCan didn’t disappoint as the agency is calling for 5.14 million acres of lentils, up a massive 30% from last year and almost 70% (or 2 million acres) from just two years ago AND the 5-year average. The biggest provincial increase is expected in Saskatchewan with an increase of 1.115 million acres, for a total of 4.855 million acres (+31% from last year and 71% from the 5-year average). Alberta is expecting growth too, as lentils are expected to increase by 122% compared to the 5-year average at 285,000 acres.

The total area seeing peas is also up by 16.3% from last year, to 4.28 million acres. Manitoba will take on 121% more than last year — up 177% from the 5-year average — to 155,000 acres. The province will see more soybean acres as well this year, up 10% year-over-year and 50% from the 5-year average to 1.525 million acres. Conversely, almost 8% fewer acres of soybeans will be planted in Ontario this year, with 2.675 million acres going in there.

Giving up acres to the pulse crops include flax (-32% from last year but just 7.3% lower from the 5-year average with 1.115 million acres) and oats (-11% from last year but just 4% lower than the 5-year average to 2.97 million acres). For oats, the notable decrease is in Saskatchewan (-16.5% to 1.51 million acres) whereas oats acreage is actually seen climbing in Alberta by 9% from last year to 730,000 acres. Rounding things out, barley acreage will be up 3.8% from last year to 6.777 million, 430,000 acres of mustard is expected (+24.6% year-over-year) and 3.477 million acres of corn (+6.2% from last year).

Overall, StatsCan confirmed what we thought — more pulse acres are going in at the expense of less profitable oilseeds and cereals. As Plant 2016 gears up, the usual suspects of poor weather slowing pace and acreage unknowns, will create some volatility and opportunities to sell on the high side. When production concerns like those in Argentina are hot and heavy, the market tends to get overbought. Our call remains that any rallies will be cut back on the remaining supply situation.

Remember, “sell on the rumour, profit on the fact.”

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