Grain markets ended the month of April on generally jovial terms as weather concerns (AKA premiums) are playing to the minds of the bullish speculators.
For the week, oats was the biggest performer, up 5.3%, followed by Chicago’s soft red wheat market, gaining 2.55%. Corn gained 0.5% on planting concerns while soybeans fell 0.55% on the already big South American crop seemingly getting bigger. Canola paired its gains from last week with a few red sessions this week, down 2.75% since last Friday, mainly due to lower oil prices and strong farmer selling for spot movement (and despite the Canadian Dollar losing 1.1%). Overall, as we flip the calendar to May, the market’s focus is quickly turning to planting conditions in North America.
Not to be overlooked though, cooler weather in Western Europe is raising some concerns for rapeseed crops that are starting to bloom. Western Europe has been fairly dry but it appears that some rains are on the way, and it couldn’t come soon enough as 57% of the French corn crop has been seeded as of last week, compared to just 9% in last year’s wet growing season. It would also be welcome drink for wheat crops in France, as the portion of the crop rated good-to-excellent down 7 points from last week to 78% (10 points below last year too). Durum good-to-excellent crop ratings were similar, down 7 points week-over-week to 71% G/E (-19 points from the rating this time a year ago. French winter barley crops also came in at 71% G/E (-16 points YoY) while spring barley is doing a little better at 80% G/E (-5 points from last week, -14 points YoY).
Staying in Europe, according to the Russian Ag Ministry, wheat exports out of the country thus far in the 2016/17 marketing year are sitting at nearly 6% ahead of where they were a year ago, at 23 million tonnes. However, the USDA has a total-year forecast of 28 million tonnes, which would be nearly a 22% boost year-over-year, meaning Russian shipments have to substantially increase to hit their target (it doesn’t look like they will).
Apart of from slow buying from Egypt at the beginning of the marketing year due to a bunk ergot policy, the Russian Ruble as appreciated, which in turn has put downward pressure on domestic prices, enough so that farmers have locked their bin doors. Next door in Ukraine, 4.54 million tonnes of grain were shipped out in March (a 52% jump from the 3 million tonnes exported in February), including 3.1 million tonnes of corn and 1.05 million tonnes of wheat.
Staying in exports, just over 8 million tonnes of soybeans have been shipped out of Brazilian ports in April, with another 3 million tonnes expected to get loaded and sail out before Monday. If it’s realized, this would be a 33% jump year-over-year for 11 million tonnes and the largest monthly export number ever for Brazilian soybeans. AgResource points out that with the significant improvements in Brazilian transportation infrastructure, within one week, a Chinese buyer can secure a boat and start loading it, which would put it on par with U.S. port logistics. While the investment in Brazilian transportation networks hasn’t gone unnoticed, it’s far from being done with buzz that Cargill will be one of the investors in an 1,100 km railroad from growing regions to ports.
Next door in Argentina, the Buenos Aires Grain Exchange is reporting that the soybean harvest there is now 32% complete, a bit ahead of last year’s wet progress, but still behind the 5-year average of 50%. About 2.6 million acres have also been abandoned (cue the crop insurance call). That being said, the Exchange says that between good yields and good weather in the near-term, the size of the crop could be upgraded from their current 56.5 million-tonne estimate (for the record, these production estimates already account for lost/abandoned acres).
Looking forward, the USDA’s attaché in Buenos Aires says that planted soybean area will drop next year though due to agronomic reasons (there’s a bit of a weed problem when planting bean crop after bean crop after bean crop), as well as lower export taxes put on wheat and corn. As such, the department is forecasting corn acres in Argentina to increase 4% in 2017/18 to a record 12.35 million acres, while wheat area should touch a 9-year high of 12.85 million acres, up 10.5% YoY.
This in mind, the International Grains Council is expecting decent crop production in 2017/18, meaning they’ve revised the global grains carryout number higher, mainly thanks to wheat and corn. For corn, globaly production is being forecasted by the IGC at 1.026 billion tonnes (+2 million tonnes from previous estimate) while worldwide wheat output was increased by 1 million tonnes to 736 million, albeit, they did acknowledge that there is slightly higher production risk in the northern hemisphere. Thanks to bigger crops in Europe and Canada, the IGC is calling for a 71.2 million-tonne global rapeseed/canola crop in 2017/18, just shy of the record set in 2013/14. It’s also worth noting that thanks to good sales to Europe, Australian canola exports in 2016/17 are expected to climb 70% year-over-year to 3.2 million tonnes.
While it hasn’t fully been digested and priced out by the market, it was initially rumoured that U.S. President Trump was considering backing out of NAFTA completely before backtracking later in the day on Wednesday, saying he’d rather re-negotiate. Hopefully The Donald understands that Mexico and Canada aren’t necessarily the competition, especially if you asked multiple U.S. farm groups who are pushing back.
However, the USDA’s Canadian attaché did come out and say that a re-negotiation of the free-trade agreement should include “fairer grain trading rules”. More specifically, U.S. wheat delivered into Canadian gets downgraded mainly to feed, while what’s considered a #2 or #3 quality wheat in Canada is usually graded a #1 as per U.S. wheat grading standards. Overall, we know the original deal struck in 1993 is likely going to be re-worked but it’s hard to say, with President Donald Trump dancing between positions, just how much it’ll change.
Coming back to grain markets, next week we’ll see the start of the Kansas Wheat Quality Tour, which will tour through major winter wheat production areas at a time when temperatures are likely to drop close to or below freezing. If the mercury drops too far, you could expect a pop, and this is part of the reason that some analysts are feeling a bit more optimistic about prices after they’ve been languishing for the past few years.
Also helping the market a bit are livestock producers looking for some summer coverage before new crop supplies start trickling in. We’ve mentioned more than a few times in the past that the market is unlikely to see a significant bump in the seasonal swing because of available supplies, but we do expect higher than the lows we’ve been at. Expecting more than a 5 percent bump would likely only be related to significant weather issues, but market analysts continue to point to more upside in corn than soybeans at this time.
Here in North America, Plant 2017 is likely still more than a week away for many producers in Western Canada and parts of the U.S. Northern Plains as a lack of super warm temperatures and drying weather are keeping things wet in the fields. For the crops already planted in these areas, there’s the possibility of frost showing its ugly side over the weekend. Further south into the Corn Belt, 100% of the eastern half of area will see rain this weekend through Tuesday, while only about 3/4s of the areas in the western half will get precipitation. It’s a bit of a different story in the U.S. Northern Plains and Western Canada as below-average temperatures and some more wet weather is expected to continue to delay Plant 2017 getting to full speed.
Overall, the wet weather isn’t helping things, and each incremental day it stays that way, the market will price in more risk. The question you should ask yourself from a grain marketing standpoint is, “how much waiting for the top should I do before locking something in?” Pro Tip: manage price risk exposure instead of speculating and just thinking “oh I think there’s a little more room to go until more of the crop gets in.”