Grain markets saw a wild ride to start the month of May as the week started out with big concerns about weather before cooler heads prevailed and bullish gains made earlier in the week were reined in.
Oats were the big winner, up 8% since last Friday on the futures board on planting delays. Canola made up some lost ground from earlier in the week to finish up 1% on the Winnipeg ICE Futures board, also aided by planting concerns, lower Canadian stocks, and the volatile Canadian dollar. Soybeans gained 1.85% for the week, closely followed by corn’s 1.35% advance. However, the big story of the week was in wheat, up 2.45%.
The wheat market jumped higher on both Monday and Tuesday before traders bought the rumour and sold the fact of what damage was out there.
The Eastern Cornbelt was ahead of its normal planting pace, so the rain this past week could potentially help the recently seeded fields, although given the amount of precipitation that has fallen already, there’s a higher risk of flooding in some areas. That will intuitively mean replanting on more than a few fields, setting back those percentage planted numbers back a bit. Conversely, some drier weather in the western half of the Midwest could help get those states back on track in terms of progress in the field.
A recent Farm Journal poll of over 1,300 U.S. farmers showed that 63% think they’ll face some planting delays in 2017, with 32% saying they’re way behind, 31% suggesting they’re only slightly behind, 20% saying they’re on pace, and 18% ahead or way ahead of schedule. Veteran trader Tommy Grisafi admits though that every time he’s bet against the farmer to get the crop into the ground, he’s lost every single time. Grisafi also blames new ag tech for the lower crop prices as farmers are producing more with the technology. I think that the increase in better non-tech production practices overseas in emerging ag markets like Brazil and Russia is also to blame but Grisafi does have a bit of a point here.
The U.S. long-range forecast from the Climate Prediction Centre is showing mostly drier weather for the next weeks, but average weather through the rest of the summer. Meanwhile, AccuWeather is calling for a relatively normal May and June in Western Canada but some drier weather from northwestern Alberta down to southeastern Saskatchewan in July and August. We continue watch for some needed precipitation in Western Europe, while conditions in the Black Sea are fairly benign, and weather in South America is non-threatening right now.
Brazil’s first corn crop and the soybean harvest is basically complete, sitting at 90% and 95% combined. AgResource upped their estimate of the Brazilian soybean crop to 112.1 million tonnes, a nearly 2 million-tonne hike from their previous estimate. Meanwhile, Informa increased their estimate by 2 million tonnes as well to 113 million tonnes, but lowered their forecast of the Argentinian soybeans crop by 700,000 to 56.8 million tonnes.
South American farmers continue to hold onto stored soybeans, waiting for higher domestic prices amid the bullish rumours around North American #plant17 weather premiums. We pointed out almost a month ago in another FarmLead column that this probably wasn’t the smart play, and that call is proving true, especially as Chinese crush margins have turned negative and the sentiment towards soyoil (and GMOs in general) by population of the People’s Republic is souring.
The hold out on selling by Brazilian producers has caused at least one commodity trader there to file for bankruptcy protection as Seara Ind E Corn looks to restructure US$662 million in debt, including $200 million owed to CHS. Further, ADM admitted in their first quarter earnings statement that margins have been tight in Brazil “as farmer selling hasn’t kept pace with export demand due to weak commodity prices and the strong Brazilian Real.” Bunge and the Andersons also dealt with similar margin pressure in the first quarter. This comes as the U.N.’s FAO expects another large grain production year in 2017/18, notably wheat carryout to be yet another new record at 247.6 million tonnes
The Wheat Quality Council annual crop through Kansas wrapped up on Thursday, May 4th, pegging final yield estimates at 46.1 bu/ac across 469 stops, suggesting a total production forecast of 282 million bushels, a figure that includes 20% crop abandonment. This would be a 40% decline or about 185 million bushels less than what was produced a year ago. Given the snowfall and frost conditions that have hit the region a few times leading up to the crop tour, there are many out there who are skeptical of even this number.
An interesting point though is that last year’s wheat tour said the crop was going to come off at 48.6 bu/ac and the final state average ended up being 57 bu/ac. Not all fields got measured this year because of snow-cover, and therefore many feel that the market isn’t accounting this. The truth though is the market is already accounting for that lower harvested acreage number because yield numbers are one thing, total production is another.
To end the week, on Friday, May 5th, Statistics Canada came out with what they think Canadian grain stocks were at the end of March 2017. Total wheat stocks were pegged at 15% higher than last March, 16.6 million tonnes, but that’s actually 1% lower than the five-year average. There’s still a lot of durum out there according to the StatsCan survey though, saying 4.08 million tonnes are still in the market, which would be a 51% (or double) last March’s supply and 33% than the five-year average.
On canola, available inventories are 23% last year but just 9% below the five-year average at 6.57 million tonnes. Confirming of the bearish pulse crops pressures is lentils stocks sitting 93% higher than what they were a year ago but also just 9% below the average at 1.07 million tonnes. Peas stocks of 1.7 million tonnes is 26% above last year’s available supplies as of March 31, 2016, and 21% above the five-year average.
Rounding it out (and compared to last year and the five-year average), 4.58 million tonnes of barley is more than the market was expecting (+23%, +25%), as were oats inventories of 1.66 million tonnes (-8%, -6%). Rye supplies remain quite large at 198,000 tonnes (+100%, +97%), corn supplies are pegged 6.57 million (-23%, -9%), soybeans at 1.86 million (-4%, +5%), and flax at 404,000 MT (-23%, -9%). It’s also worth noting that farmers are holding onto 84% of all available lentils, seven points higher than a year ago. It’s a similar story in durum as 79% of all durum is being held by farmers, nine points higher than the 70% held this time a year ago.
Overall, the market’s needs continue to be well-supplied and the rallies that some continue to want and hope for (i.e. earlier this week) continue to be reined in. No matter how much some people might complain about the Kansas crop tour’s numbers, the market has priced in the total production numbers. As is usually the case, when a one-off/surprising event like this happens, the extremist views are shown and so the photos/news of devastated crops (and don’t get me wrong, it is devastating) are taken as gospel, with many thinking that it’s the case across millions of acres.
This, however, was a simple case of traders buying the rumour early in the week and selling the fact towards the end of the week. From a grain marketing perspective, the challenge is to weed out the noise and sell your physical grain on the rumour and profit on the fact.