Ready for a Change of Pace — This Week in the Grain Markets

Grains continued to be pressured by the Harvest 2016 season and continuous benign weather in the U.S. that are keeping crop conditions and yield projections at elevated levels. Estimates on the U.S. corn crop ranges between 170 and 175 bu/ac, suggesting around a 15-billion-bushel crop, while soybean yield estimates are sitting between 48.5 and 50.5 bu/ac, meaning 4 billion bushels will be produced. With combines rolling though, the landscape is changing out there and with yields coming in on the high end of the 5-year averages, available storage space is declining.

The hot topic lately has been the September 1st date for the introduction of China’s new policy on canola imports of max 1% dockage tolerance. Canadian Prime Minister Justin Trudeau and Co. were able to convince their Chinese counterparts to move the date further back a few weeks to allow further discussion of “science” (when we all know it’s just politics at play). Some companies are selling the Canadian oilseed into China already at those 1% max dockage, making it tough for negotiations, but palm oil has also been supportive of canola prices.

Asian 2016 production has been relatively disappointing, and combined with increased demand, inventories are starting to dip, which is lending support to soyoil prices (a substitute), which in turn is lending support to canola prices (which, when crushed, is another substitute). We’ve seen some analysis suggest that even with the aforementioned large U.S. soybean crop, the stocks-to-use ratio could be around 7%. With lots of livestock in China to feed (among other places), there’s certainly a case for oilseed prices to remain supported at or near today’s current levels.

While China mulls import policies, one thing they need to think about is the effectiveness of their domestic reserves auctions, where selling grain that’s 2-5 years old and has been stored in poor conditions for prices near the market doesn’t really work. As such, there is some who believe that the poor quality grain won’t be bought and imports could increase. This would intuitively support corn and soybean prices that seemingly have been sitting in a wet paper bag whose bottom is leaking.
While China is thinking of imports, Russia is looking to get more of its wheat out, and has officially cancelled its wheat export tax for the 2016/17 season, coming at time when Egypt is reinstating a zero-ergot tolerance (there’s lots of wheat in the world, and you’re the largest wheat buyer so why not set the requirements?).

AgriMer in France recently reported that just 75% of the French wheat crop harvested had a Falling Number better than 240, down 4 points from last week and a sharp contrast to 95% of the crop meeting those specs last year in 2015.

wheat_mature_headsOn the opposite side of the globe, Lanworth is pegging the Australian wheat production at 27.2 million tonnes, thanks to stellar growing conditions (the USDA is currently pegging the Aussie wheat crop at 26.5 million tonnes). Looking deeper though, Dutch trader Nidera thinks that this year’s crop could top the 2011/12 record of 29.6 million tonnes with possibly more than 30 million tonnes if the growing season in the Land Down Undaa finishes strong.

In South America, Brazil is undergoing a leadership change and it’s unclear what sort of impact the new president may have on the burgeoning agricultural industry there. Starting September 15th, Brazilian soybean producers are able to get back into the fields (there’s a planting moratorium til then) but there are some questions around how aggressive acres may be this year due to a tight credit environment and weather (we’ve been suggesting for quite some time that a La Nina event would dampen planting pace in Brazil).

Next door in Argentina, AgResource is sticking to its forecast of corn and wheat production increasing substantially in 2016/17 from this past year, with a corn output estimate of 40M tonnes, up from 27M (+48% YoY) and wheat pegged at 17M tonnes (+55% YoY). Comparatively, Dr. Cordonnier of Soybean and Corn Advisor is pegging Argentinian corn production at 35M tonnes on 25% more acres getting planted this year.

With some of this thinking in mind, CHS points out that when US corn yields last saw big jumps in the USDA’s forecast, futures values “posted a low in September and rallied $0.75 – $0.95¢/bushel” by December. Conversely, more analysts think that the 83.7 million acres of soybeans planted in the US this year could see another half a million added to it, meaning, roughly, another 25 million bushels for the balance sheet (and even more ill will towards oilseed values).

While there’s many who hope that oil prices do steady, grain prices remain depressed and there are lots of questions of just how much corn might actually get taken off this year in the US and the implications of what just 1 bushel per acre less could do to the balance sheet (spoiler alert: there’ll still be a lot of grain left over by the end of 2016/17).

While $4 wheat in Chicago is good for the Argentinian producer thanks to currency effects, it is not helping the North American farmer. Technically speaking for wheat, chartists point out that there’s not many levels of resistance from here to a number in Chicago below $3/bushel. At this point, with a lot of crop coming off – the winter wheat harvest being complete and spring wheat quickly advancing – the only hope for a better value in wheat may be the drop in the U.S. Dollar.

The other factor is the premium paid for better quality but with Harvest 2016 not complete, it’s largely unknown exactly what is getting shipped. Mustard is one of those crops that are looking rather large, but prices are being pressured by a few factors. This includes a bigger crop from the US (Canada’s largest buyer of mustard), more than half a million acres in Canada (+52% YoY), and lacklustre European demand (don’t be jaded – we strongly recommend posting your block of mustard on the FarmLead Marketplace ASAP now for dozens of buyers to see and start dealing directly with you).

With the entrance into September not only comes the changing to fall colours but also the change of U.S. Presidents come early November. U.S. Presidential election debates will begin this month and while crop comes off in North America but starts to get planted again in South America, we’re likely in store for more volatility this fall season.

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