Acreage Shifts, Feed Supplies, and Shipping Lanes – This Week in the Grain Markets

by

Grain markets had a pretty busy week as we head closer to #plant17 with more focus on any little headline to trade off of, since there’s no major changes to production or demand at this time. Canola was the biggest loser of the week, down 4.15% since last Friday, thanks to the combination of lower oil prices (-2.35%) and soybeans (-2.45%). Corn and wheat didn’t fare much better, losing 3.2% and 2.5% for the week, with oats the best loser, only dropping 1.7% in five trading sessions. Simply put, without much fanfare for hedge funds to stay in the markets, the game has to change to a more bullish tone for them to come back and play at this point.

The next major announcement will be on Friday, March 31, 2017, when the USDA will announce their 2017 acreage estimates and stocks as of March 1. MetLife Ag Finance thinks U.S. farmers will only plant 87 million acres of soybeans this spring, below the current USDA estimate of 88 million and Allendale’s forecast of 88.8 million acres. A couple other estimates include INTL FC Stone’s call for 87.3 million of soybeans and 91.6 million of corn, while Rabobank thinks 91.5 million of corn and 86.4 million of soybeans is more likely. MetLife may be on to something though as with the NOAA’s recent spring forecasting calling for dry conditions in the second quarter of 2017, corn planters may continue to roll instead of switching over into beans.

Ultimately, depending on how weather conditions shape up in the next six weeks, there’s about two million acres that could swing either way in my opinion (if early conditions are good, most expect more corn to go in). There’s definitely a profitability factor that one can consider as farmers consider what is going to give them the best return on their investment, and if the banks have any say, there’s more emphasis on bean acres. Some grain marketing gurus are suggesting to target a 10% ROI in 2017 and 20% to 30% in 2018 if you’re a corn, soybean, or wheat farmer. This begs the question that we ask every spring, “do you know your cost of production?”

Spring wheat area in the U.S. is being forecasted to the lowest level since the early 1970s, with the buzz that things could actually drop below 11 million acres. Opinions vary as to when prices could rebound with some thinking that El Nino conditions could help prop numbers back up before the end of this calendar year, but most are pointing to early 2018 before substantial improvements occur.

Something we’ve been harping in conversations with FarmLead users since late September 2016 (yes the last six months) is if you have any feed grains, it’s probably not worthwhile to hold onto it in hopes you’ll be able to take advantage of higher prices later on. One of the reasons for this is because of road bans can tend to cut into any of those additional cents/bushel you see in the usual seasonal spring rally but the second is the bearish pressure from the amount of feed grains out there which will be compounded by anything that got left out in the fall that still needs to be harvested. Even going back to September 2016 when it was very apparent there was some disease issues, we made the call then that it wasn’t worth holding onto poor quality grains because we anticipated feed markets being more than well supplied all the way back in our weekly RealAgriculture article in late September

Switching into flax, there’s been some decent new crop bids available on FarmLead, thanks to some lower acreage and production last year and some new regulations affecting exportability of product out of the Black Sea. Expectations are that Western Canadian flax acres could see a solid rebound in 2017/18 as farmers look to diversify away from pulses and/or cereal crops that have been plagued by disease the last few years.

Heading across the equator, the Argentinian corn harvest is under way with about an eighth of the crop likely cut before the weekend. One of the more pleasant surprises in South America comes from Paraguay where the soybean harvest is nearing its end and the Ag Ministry says that farmers will combine a record 10 million-tonne crop (USDA at 9.4 million tonnes), setting them up to be the world’s 4th-largest exporter of the oilseed in 2016/17!

AgResource is reporting that ship wait times in Brazil are half of what they were a year ago, with vessels getting loaded within two weeks of pulling into ports. On that note, one is able to have a view on how many boats are expected to get loaded and where they’re going, with the data suggesting that Chinese soybean imports in April could come in at 8 million tonnes, which would be 1 million tonnes higher than April 2016.

Looking more long-term, China is expected to continue drive things in the oilseeds markets as the USDA attaché there is forecasting that the People’s Republic to import 89 million tonnes of soybeans in 2017/18, but this is up only up 3 million tonnes or 3.5% from 2016/17, below the average growth rate the last 2 decades. However, if realized, the 89 million tonnes would be the 14th straight year a new record of soybean imports was realized. Elsewhere, the USDA’s Beijing office is expecting 4.1 million tonnes of rapeseed to be imported in 2017/18 by China (record was 5 million tonnes in 2013/14) despite domestic production falling to a 7-year low of 13.1 million tonnes as the government abolished their minimum price supports.

Staying on the production side, the USDA’s attaché in Indonesia is expecting palm oil production in the country to hit a record 36.5 million tonnes in 2017/18 thanks to a strong recovery from dry El Nino conditions, but exports are expected to be stagnant around 25.5 million tonnes thanks to more competitive pricing with soyoil and canola oil.

In India, the need to import as many vegetable oils this is year won’t be as pressing, thanks to a large domestic crop. After President Modi called for farmers to plant more oilseeds and pulses, supported by higher guaranteed state prices, Indian producers answered the call, and oilseed production should top 34 million tonnes (+33% year-over-year), and accordingly, oilseed prices are down just about a third in the last 6 months.

Similarly, pulse crop prices have been fallen significantly, down 30% in the past 6 months. with pulse crop production this year likely to climb above 22 million tonnes (+35% year-over-year).  A piece of good info is that an Indian newspaper has recently suggested that an extension of the exemption for fumigation of Canadian pulses bound for India is imminent, switching concerns to joy (and hopefully bids higher again).

U.S. wheat exports are now trailing behind what the USDA has predicted for the 2016/17 crop year. On the flipside, U.S. corn shipments are 65% higher than where they were last year while U.S. soybean exports are 14% above a year ago. Worth noting is the fact that the U.S.D.A. attaché in Mexico City doesn’t expect corn imports from the U.S. to decline in 2017/18, despite the multiple headlines suggesting so. While 2017/18 Mexican corn production is expected to be bigger than last year by 1.25 million tonnes (or +5% YoY) to 25.25 million, the attaché is forecasting total corn imports to be 13.4 million tonnes, with all but 200,000 of those tonnes coming from America.

Thanks to the end of state supported-prices and a 20% drop in futures prices, it’s expected that China’s corn harvest will drop again for the second consecutive year. With acres down by about 1.6 million this year, there’s still a lot of corn that will be produced, but it’s not so much the current production that’s an issue, but the hundreds of millions of tonnes of stocks that are the burden (the real number is hotly debated, ranging from 200 – 250 million tonnes with the USDA’s latest estimate at 231 million).

With a significant amount of it unable to be used for food, more policy-makers are arguing for the sub-par quality and multi-year-old corn to put into ethanol. On the flipside, there’s more financial incentive from the government of the People’s Republic to plant soybeans, alfalfa, and silage corn, products that would all go into livestock feed markets in an attempt to slow the need for China to be reliant on imports (they currently are expected to be responsible for 63% of global soybean imports in 2016/17!).

Editor’s note: Congratulations to the FarmLead team on their big news this week — drumming up $6.5 million USD in venture capital.

Please register to read and comment.

 

Register for a RealAgriculture account to manage your Shortcut menu instead of the default.

Register