Grains continued their push higher to end the month of April as a multitude of factors extended the fenceline for bulls to run along. Money flows into the commodity sector have been the biggest reason for the rally, as the commodity complex had its best one-month since 2010, beating all other asset classes (i.e. stocks, bonds, currencies, etc). Is the commodity downturn over? The fundamentals posit that things are starting to balance out but when it comes to the grains complex, we’re nowhere near the supply and demand sheets we saw the first half of this decade.
Playing second fiddle was the U.S. dollar, which was down more than 2% over the past week against a basket of other currencies and almost 6% thus far in 2016. Accordingly, the Canadian Dollar touched 80 cents for a short breath on Friday, but it’s now sitting a full 10% better than what we entered 2016 at. With the U.S. dollar down though, international buyers took advantage of this flyer sale as origination of grain got switched up a bit.
Case in point, U.S. corn export sales last week came in at 2.1 million tonnes of old crop and 439,000 tonnes of new crop, which was a one-week marketing-year high and the best week for U.S. corn export sales in 4 years! The uptick was mainly due to aggressive buying form Asia and Latin America as they seek to diversify their origins of procurement with South American supply/pipeline issues from the strong Brazilian export program and possibly even smaller crop there because of drought conditions.
Analyst estimates as to just how much corn production may be lost to the arid weather range from 5-10 million tonnes for a crop maybe somewhere around 80 million tonnes. With Brazil’s strong exports this year in corn, they’re not sourcing aggressively outside of the country, with even American corn making its way south (which, again, supports Chicago futures values). Next door in Argentina, it’s estimated that 1/3 of all soybean acres are water-logged but they did see some drier weather this week. Compared to last year’s monster South American soybean crop of 171.6 million tonnes, even updated estimates of 168 – 169 million tonnes suggest a big crop is coming to market.
Across the Pond, the E.U.’s crop monitory agency, MARS, has hiked its expectations for their wheat and rapeseed crops as decent winter and spring conditions have boosted optimism on yields. For wheat, they’re expecting an average of 91 bushels/acre across the Bloc, a 4.5% hike from the 5-year average but slightly down from the 93 bu/ac yields seen last year. For the rapeseed crop, average yields across Europe are forecasted to come in at 59.6 bu/ac, or a bump of 4.5% from the previous forecast in March.
The agency continued to note tougher weather conditions in the eastern half of the continent, which may benefit those whose exports compete with the likes of Ukraine, as political & financial turmoil there can compromise shipment activity from a country who is responsible for about 12% of Europe’s arable land! Specifically, UkrAgro Consult is expecting Ukrainian grain exports to fall 9.5% from this year to 2016/17 with just 32.4 million tonnes getting shipped, mainly thanks to a smaller harvest.
With the solid crop coming out of Europe, the International Grains Council revised its estimates for the 2016/17 year to a 2.006 Billion-tonne global crop, with world ending stocks of all grains bulging to 472 million tonnes. The main reason for the increase was bigger wheat and corn harvests, with good conditions in Europe contributing more wheat for a total world crop of 717 million tonnes, whereas 998M tonnes of corn are forecasted to be harvested across this big blue ball that is Earth.
The downgrade by the I.G.C. was in oilseeds though, with ending stocks falling 3% year-over-year to 31.7 million tonnes, with a notably “much tighter scenario” in rapeseed/canola because of lower expected output in Canada. However, there are a few analysts who believe canola acres were understated by StatsCan last week in their 19.3 million-acre estimate, and that, with the recent rally, we’ll see the 20 million-acre mark for the 5th straight year.
Despite the speculative money flow (especially in oilseeds), the market is trying to price in Plant 2016 concerns in North America with rain this past week across the Midwest, but are also being driven “crazy” by varying estimates on the size of South American crops, despite better weather helping the harvest in Argentina & crop development in Brazil.
Mike Jubinville of ProFarmer points out that in the past 2 years commodity indices have rose steadily from January until May/June before pulling back. A similar trend can be spotted in this calendar year and with near-average weather in North America, one could posit a similar result. For levels to stay elevated, most market participants agree that we’ll need more weather concerns and U.S. exports to echo this past week’s strong numbers, which would contrast the time of the year where the numbers slow down.
While rain surely slowed this past week’s Plant 2016 pace in the U.S., Monday’s crop progress report form the U.S.D.A. showed that 30% of the corn crop had been planted, almost double the 5-year average of 16%. The rains have eased some soil moisture questions in a few areas but we’ve seen the last couple years that 30-40% of the crop can easily get planted in one week so being this ahead of schedule shouldn’t bother the market too much.
Overall, soymeal was again the big winner of the week, up 6.2% for the week and over 22% for the month of April! Corn was up about 4.4% on some more short covering & some positive U.S. export headlines, helping pushing it almost 10% higher for the month. Soybeans dragged its feet a little bit though after last week’s big swing, up just 3.4% this week, but still 12% in this month, whereas canola gains were reined in by the aforementioned strength of the Canadian loonie, up 2.3% for the week and 5.1% for all of April. From a cash perspective, basis has widened but those $11 handles are back on bid sheets.
Good luck & stay safe out there with your seeding season starting up!