One week after Donald Trump was voted in as the next President of the United States of America, the U.S. Dollar hit a 14-year high and surprisingly, commodities didn’t tank. After a volatile election and W.A.S.D.E. week, all grains ended up for the week, led by oats which gained 2.8% since last Friday. Corn was up 1.7% for the week, supported by some bullish ethanol data, while wheat gained 1% on some winter wheat quality concerns. Oil was up for the week which helped canola climb 1.2% since last Friday while soybeans were up 0.9%. The broader market continues to sway around what a Donald Trump Presidency, but seemingly more and more are bullish that he will “Make America Great Again”.
If the American Greenback maintains its strength or further appreciates, we should start to expect that other grain options in South America, Europe, and even Australia and Canada become much more attractive! Further, the U.S. Dollar could gain even more should the Federal Reserve increase interest rates in December, which looks like it will happen! More simply put, the strong battle that U.S. export grain sales have put up are very likely to lose the marketing-year war with currency as it’s downfall. Accordingly, it’s possible that Chicago Board of Trade could start to look a bit ugly in terms of really how big this year’s record American crop is.
Even with the Trump-effect aside, the Canadian Loonie was able to regain some of the 1% in lost the week of the election, and yet canola also gained, mainly because of the snow and rain this week which has likely shut down Harvest 2016 in Western Canada. It’s been suggested that only 14M tonnes of canola will get harvested this fall, about 4M shy of the projected 18M tonnes but the Canadian Canola Growers Association is giving farmers a great opportunity to get cash advances for unharvested canola (take advantage!).
The good news is that demand remains as a recent C.O.P.A. report states Canadian canola meal sales to China from January to August 2016 were the highest in 5 years at 415,000 MT (and that follows zero exports last year!). The reason for the big change year-over-year is the trade dispute we saw earlier in the year, as because canola seed exports were up in the air and so domestic crushing would’ve slowed, importers just started buying up canola meal until the dispute was resolved in September. Of note though is that Canadian canola crush board profit margins are about $100 CAD / MT, or double what they were this time last year.
With harvest basically wrapping up in North America (snow is forecasted this weekend for many parts of the Midwest), the focus turns to the South American crop rather quickly where growing conditions continue to be generally favourable While we are watching some wet issues in Argentina, more bulls are waiting for a La Nina weather event to strike, but most forecasters continue to call for a weak event that will likely have little impact on crop production.
On that note, recent rains in Argentina likely means less soybean acres, as the Buenos Aires Exchange is now suggesting 48.4 million acres, a 2.5% drop year-over-year, with about a quarter of acres now planted. For corn, 40% of the expected 12.1 million Argentinian acres have been planted. Next door in Brazil, C.O.N.A.B., softly trimmed their top estimate of this year’s soybean crop down there to 103.5 million tonnes, from 104 million tonnes last month (U.S.D.A. at 102 million). Conversely, they pegged the top end of Brazilian corn production at 84.6 million tonnes (U.S.D.A. at 83.5 million), thanks to better moisture conditions for first-crop corn, which is also viewed as a positive for soybeans.
Of note is that in the past week since the U.S. election, the Brazilian Real has fallen 6% against the U.S. Dollar, which in turn can help increase the value of domestic prices. Thus, it’s created some good selling opportunities for Brazilian farmers who haven’t pre-sold much of the soybean crop that they have just planted or are planting right now. That being said, because the Brazilian soybean crop is going in faster than usual, combined with the recent currency depreciation, more buzz is building that said crop will start getting exported in January (again supporting our theory that international demand could switch to other origins sooner than later)!
While eyes are mostly focused on those South American growing conditions, Informa has already come out with their estimates for 2017 acres, calling for 88.6 million going to soybeans (+6% from 2016), 90.8 million acres of corn (-4% year-over-year), and total wheat acres of 33.8 million (-7.5%). Overall though, given relatively decent conditions setting up in South America, Societe Generale believes that any corn and/or soybean rallies should be viewed as selling opportunities, something we tend to agree with given global 2016/17 production.
Something to consider on the corn side of things though is the U.S. ethanol numbers out from the E.I.A. suggesting production is tracking 4% higher than where it was a year ago, making things in line with the U.S.D.A.’s corn-for-ethanol use demand. That being said, University of Illinois economists think that, although ethanol and exports demand are going to be higher this year, it’s actually going to be the feed market that will dictate where prices go from here. The rationale here is that export demand will likely shift and there’s basically a cap (AKA blend wall) as to how much ethanol can be blended in with gasoline.
Looking across the pond to Europe, Strategie Grains is calling for a similar amount of wheat acres getting planted in 2017 at 60 million. This is mainly due to the lack of attractive return for other crops, including rapeseed as acres are excepted to remain relatively unchanged year-over-year as well at 16.4 million. Despite the price appeal of rapeseed, European growers remain seemingly timid about production potential, citing seed treatment limitations as the major reason.
Heading further east, Ukraine is expected to seed about 14.6 million acres of winter wheat this fall, down from the 15.3 million originally forecasted because of heavy October rains, but it’s still about 6% higher than the 13.8 million acres planted last fall. While this year’s harvest in Ukraine was surprisingly strong, recent political and economic controversies is amplifying the complexity of farmers there to operate as their currency continues to depreciate. Making matters worse is transportation networks, namely railroads, are aging, and just being to get grain loaded on a railcar is proving difficult (similar to winter 2013 in many parts of North America).
Next door in Russia, it’s been estimated 42.5 million acres of winter grains have already been planted, about 1 million ahead of where we were this time a year ago, and SovEcon says we could see as many as 44.5 million acres planted before snow flies, the most since 2009. However, the largest corporate farm in the world, Black Earth Farming says that Russian wheat prices have dropped about 1/3 in the past year, thanks to the Russian ruble appreciating.
Rounding things up, we’ve continue to see major wheat, corn, and oilseed crops trade sideways, as they have for the past week, but still down from where they were ago. Conversely, pulse crop prices are well above where they were in mid-October, and we’ll continue to watch what sort of impact the new currency regulations in India have on kharif season planting there. Overseas durum bids have started to climb, continuing to slowly but surely support domestic prices. Overall though, heading into the last 6 weeks of the calendar year, we’ll be watching currency effects and if there are hints of a Santa Claus rally to help grain prices and bank account statements feel great again.