Where's your confidence? — This Week in the Grain Market


Grain markets hit the mid-way point of June with more bullish weather driving prices into the green.

Canola and soy oil were able to make up some losses from earlier in the week on the news that the U.S. EPA will release new biofuel requirements soon, helping the quota for advanced biofuels (corn-based biofuel needs are expected to stay the same). Gains across the board were also limited by the U.S. Federal Reserve raising interest rates and suggesting that they’re going to start unwinding its $4.2 Trillion balance sheet (yes, Trillion with a “T”). Basically the “Fed” has more confidence in the U.S. economy, and accordingly, this means a stronger U.S. dollar, which in turn means less purchasing power (and confidence in buying?) for international grain buyers.

Minneapolis spring wheat was the big winner this week, climbing 8%, but the for the month, it’s up a full $1 USD / bushel, or 18.7% since May 16th. Oats was the 2nd best performer of the week, up 6.05% since last Friday and 16.4% in the last month. Chicago soft red winter wheat wasn’t far behind, climbing 4.5% for the week and 9.8% for the month while Kansas City hard red winter wheat futures were up 3.5% over the past week and 7.6% over the past month. Corn, soybeans, and canola all ended lower for the week by 0.9%, 0.15%, and 0.05% respectively, but over the past month, corn has gained 4.5%, canola has lost 2.05%, and soybeans have fallen 3.7%.

The U.S. spring wheat crop suffered the worst, dropping 10 points week-over-week to 45% G/E, miles away from the 79% crop rating and the 5-year average of 71%. As was suspected, North Dakota’s G/E portion dropped from 52% last week to 43% this week, South Dakota fell from 25% a week ago to 13% G/E now, and Montana took the biggest hit, dropping from 48% G/E a week ago to just 23% this week. The U.S. winter wheat harvest is accelerating with 17% of the crop now in the bin compared to the 10% that was combined at this time a year ago and the 5-year average of 15%.

The most recent Saskatchewan crop report shows that most fields are developing normally or ahead of schedule but oilseeds are the slowest, with 44% of acres behind normal progress for this time of year. Next door in Alberta, the most recent provincial crop report says that 80% of entire crop is in good-to-excellent health, with canola being the worst at an average of 77% G/E. Further, the report says that 78% of soil’s moisture conditions are in good to excellent conditions.

U.S. soybean exports for last week could continue to be viewed as bullish as total commitments are now sitting at 106% of June’s WASDE forecast for total-marketing-year exports, meaning the U.S.D.A. will have to up the ante in their July report. On the domestic front, NOPA crush numbers surprised the market to the upside with 149.25 million bushels getting processed in May. This was much better than the 143.2 million bushels the market was expecting and the 2nd best May on record but still 2% below the actual record set last year of 152.3 million bushels (as well as the 4th consecutive month that this production didn’t beat it’s volume from a year earlier).

On the other side of the equator, Brazilian farmers continue to slow sellers of their soybeans, hoping that U.S. dryness and currency issues will help their domestic cash prices rally more (Pssst – hope is not a risk management plan). Port workers in Argentina again are striking, holding up at least 20 ships in the Parana River, intuitively slowing down grain exports from the South American nation. This comes as the Rosario Grains Exchange raised their soybean production estimate for this year’s Argentine crop by 300,000 MT to 57.3 million tonnes, 500,000 below the USDA’s 57.8 million-tonne forecast. The Exchange also provided their first acreage estimate for their 2017/18 wheat crop, calling for 13.8 million acres, or an 8% jump over last year.

Strategie Grains cut its forecast for most crops in Europe due to some hotter temperatures lately, pegging the soft wheat crop at 141.6 million tonnes, down 1.1 million tonnes from the last estimate, still 4% better than last year’s crop. The E.U. barley crop was lowered by 1.6 million tonnes to 58 million tonnes, which is a 3% decline in output year-over-year. Finally, Strategie pegged the European corn crop at 60 million tonnes, down 100,000 MT from the previous estimate still the same as last year’s harvest.

There continues a lot of conversation about the available supply of good-quality wheat, or rather, the lack of it. With yield estimates for the U.S. hard red spring wheat crop starting to drop, the suggestion is that the 2017/18 American carryout could be the below 100M bushels if average production is below 40 bu/ac (we’ve seen about 47 bu/ac the last 3 years).

The French Ag Ministry says that the country will produced a decent rapeseed crop of 4.8 million tonnes, slightly higher than last year’s crop, but still below the average of 5.1 million tonnes (I.G.C. is forecasting 4.3 million and Coceral is estimating 4.5 million tonnes). While forecasters may be using different acreage numbers, the Ag Ministry is forecasting a 55.5 bu/ac average yield for France’s rapeseed crop, while E.U. agronomy agency MARS is forecasting 57.7 bu/ac.

In neighbouring Germany, the farm co-op group DRV raised its wheat harvest estimate back above 25 million tonnes (IGC at 25.6 million, Coceral at 24.9 million), pushing It further past last year’s 24.5 million-tonne haul. They’re also forecasting a 10.65 million-tonne barley crop (beer!) and 4.8 million tonnes of rapeseed (still below the long-term average but also better than last year).

Moving to the other side of the globe, Lanworth says that soil moisture is at record lows in Western Australia, which isn’t helping a newly-seeded crop, and accordingly, has helped futures prices on the board in Sydney hit a 1-year high on Friday. However, this is on the heels of ABARES raising their crop production estimates to 24.2 million tonnes, which is more in line with the usual production (versus last year’s monster of 35.1 million tonnes). ABARES also cut its canola production forecast for the Land Down Undaa to 3.3 million tonnes, as more acres are going into chickpeas than the oilseed.

More specifically, 2.72 million acres of chickpeas are expected to get seeded by Australian farmers for the 2017/18 crop, with the expectation that it will produce 1.4 million tonnes (acreage was just 1.05 million back in 2014/15). Moreover, ABARES also increased the 2016/17 crop by almost a third to 1.85 million tonnes (last year’s ideal conditions continue to surprise)! This will certainly compete Indian acres as with chickpeas prices still high and current monsoon rains in India 15% above their long-term average, we expect to see a large area get planted to chickpeas again (last year India produced 9.1 million tonnes of chickpeas!)

Coming back to the hot topic of the week though (wheat), the rally continues to impress, especially considering that the winter wheat harvest is ramping up, letting on that there are certainly some quality challenges this year. However, if we look around the world, Australia’s crop was an anomaly last year. Things are expected to be more average while the Black Sea’s wheat crop is seemingly on course for another decent year while European production is expected to be up by about 4% from last year’s smaller harvest (but still 6% below the record of 160.5 million tonnes in 2015/16).

While we know that U.S. and Canadian wheat production will be lower year-over-year by 17.5% to 78 million tonnes, a carryout of 30.3 million tonnes is about 22% lower than a year ago. Compared to 2 years ago when global production was still rising in the 2015/16 crop year, production between the 2 countries this year is only 7% lower and carryout is about 4% lower from the 2015/16 crop year. More simply, while we’ve been saturated with supply the last few years with average quality, much like parts of the Northern Plains, the pipeline is feeling much more parched than what we’ve been used to.

All things being equal, we’re hearing more of the “how high will this dry weather take us” conversations. I think we’ll still produce a decently-sized crop in North America, but the intuitive question is what’s the available high quality product. The NOAA’s long-term forecast through July suggests some above-average temperatures in the U.S. Midwest but the Dakotas are expected to some above-average rain as August starts up. Since the spring wheat market is up almost 20% in the past month, you should be asking how much more gain do I need to make my next sale? The one recommendation we can confidently make today is to hold onto any old crop wheat that has higher protein (above 13% for spring wheat, above 11.5% for winter wheat) for at least another 2 weeks (and possibly longer, dependent on how these next 2 weeks go weather-wise).

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