Halftime analysis in the grain markets


As we turn the calendar into July, we’re taking a look back at the markets over the last six months. We’ll also offer our expectations for the balance of 2017.

In our 2017 Grain Markets Forecast (posted in January), we made several timestamped projections. You can review them here at your convenience.

The U.S. Federal Reserve increased its interest rate twice so far this year. Those hikes are putting some pressure on international interest on American grains. At the beginning of 2017, markets expected the Fed to raise rates three times. Members of the central bank have projected one more interest rate hike by December.

Across the 49th parallel, the Bank of Canada is expected to raise its benchmark rate in July. But this rate hike was a surprise to the market. The slight uptick could pressure Canadian grain exportability.

Overall, oilseed and pulse crop markets trended generally lower since the start of 2017. Meanwhile, prices for coarse grains and cereals have pushed higher.

We think this trend can continue. Still, we see limited upside for corn.

Golden wheat

I wrote in January that we didn’t expect wheat prices to improve much in 2017. I cited record global carryout and acreage staying strong pretty much everywhere but America. We said wheat would trade sideways until the 2nd quarter (Apr-May-June) of 2017. But we projected that planting concerns could drive prices higher.

And, oh boy, have they.

While acreage is strong compared to previous years, spring wheat and durum acres are down across North America. For durum, only French and Italian acreage can compete with U.S. and Canadian production. (You could argue Mexico too, but it isn’t the same quality grain).

Durum flour is processed into pasta and things like couscous and Mediterranean breads. Spring wheat is a higher protein product. The wheat produced Europe and Black Sea fails to reach the 13-13.5% levels that spring wheat provides and is sought by millers produce the flour for breads, croissants, and pizza crusts.

Hard red winter wheat is used to make foods like Asian noodles and flat or pan breads. Soft red winter will go into foods like cakes, baguettes, and crackers.

Canadian wheat exports seem to be dragging. They have declined by 12% compared to a year ago. We’ve seen about 13 million tonnes shipped out for the 2016/17 season with five more weeks left in the marketing year. Canadian durum exports are sitting at 3.9 million tones. This figure is 3.3% lower than the figures from the same period of last year. There is still a lot of Canadian wheat in the pipeline, ready and willing to be bought. But at what price are farmers willing to sell?

We said back in January and continue to say that demand for milling wheat is strong. In November 2016, we explained that the spread between low and high-quality wheat had been slowly widening. Now, we’re seeing the acceleration of this trend with many questions remaining about 2017 production.

While spring and durum wheat acres are already in decline across the U.S. and Canada, markets are scrutinizing every weather report and update on quality.

The extremely dry conditions across the Dakotas and Montana have pushed spring and durum wheat prices much higher. By the end of June, Minneapolis spring wheat prices were up 34% for the month and 40% since April 1. Starting into July, they touched a four-year high. Like spring wheat, durum values also are ticking higher. Through July, I’m expecting things to continue to tick up until the quality of the Canadian crop is more known.

The USDA’s projection of 10.9 million acres for spring wheat acreage is 6% lower than last year’s level. American durum wheat area will drop 20% from 2016 to just 1.92 million acres.

Early estimates are that average yield will fall below 40 bushels per acre for both crops. This would be the lowest level since 2011. In Canada, spring wheat acres are down 8% from 2016 to 15.8 million. Canadian durum acres should be 16% lower from last year at 5.2 million.

This is important to know. Canadian spring wheat and durum wheat crops’ development is a bit behind in 2017. We saw a late start to the seeding process, but conditions are looking much better. Canadian acres and production have become more important to the North American demand complex. One cannot just rely on information from the USDA anymore when making buying and selling decisions.

Other cereals

I’ve heard a lot of chatter about expectations for higher barley prices.

That’s why I challenged the Barley Bulls to write out a list of reasons why we should expect prices to hit 2015 levels.

Yes, livestock prices have improved significantly in the past three months. The cattle markets have pushed these prices higher.

But here’s the thing. We’re still nowhere near 2015 levels. I don’t expect them to hit those levels before the end of 2017/18 crop year is over (barring a major production scare). From a supply measure, Canadian barley exports are up 24% compared to last year.

For Canadian oats, 2016/17 exports are up nearly 21% from 2015/16 at 1.07 million tonnes. As we expected, cash oats prices have found a little more upside, but they haven’t followed the futures board, which is up more than 25% in Q2 2017. As I mentioned in January, the substitution of European supply is limiting price upside.

Our January forecast said that “rye and triticale have turned less attractive given the massive increase in production in 2016.” Prices have improved a bit because of drought issues. While the number of rye acres in Canada (355,000) is down 12.6% from last year, the figure is still up 11.3% from the five-year average. Canadian triticale acres are sitting right at the five-year average of 65,000.


In the corn markets, it’s all about supply.

Despite the drought conditions in America, corn markets haven’t followed wheat higher. Last week, the USDA said there is 5.225 Billion bushels of corn available. That figure topped market expectations by 100 million.

I think it’s fair if your eyes pop at the news that available inventory is 11% higher than what we saw last year.

And it’s not just in the United States where supply is high.

The world is still awash in corn.

The optimists are pointing to China, where corn inventories have declined. But we have to be realists about this.

Chinese corn imports only sat at 3 million tonnes in 2016/17 and 2017/18. The fact that available stocks dropped 20% year-over-year is a nonevent.

Instead, we have to look at what’s happening on the Western Hemisphere. Yes, the 2015/16 output in Brazil was just 67 million tonnes. But analysts expect this year’s 2016/17 crop to come in 30 million tonnes higher at 97 million! Next door in Argentina, agronomists expect the 2017/18 corn acres to hit a record high.

These numbers are putting pressure on U.S. corn exports.

So far 46.3 million tonnes have been shipped so far. The expected full-year 2016/17 export number is 56.5 million tonnes.

Although U.S. crop conditions are a bit below average, the pursuit of the psychologically relevant $4/bushel handle on the Chicago futures board is key.

With hot weather expected through mid-July, there’s real potential that yield loss is occurring while you read this. The USDA said last Friday that total corn acreage sits at 90.9 million. Though the USDA still forecasts 170.7 bushels per acre as the national yield, we’re thinking the final number will come in closer to 168.

That estimate is more in line with 2015/16 yields.


We were correct in forecasting 89 to 90 million acres of soybeans planted in America this year. The USDA has called for 89.5 million acres of the crop. Up until last Friday, some analysts had predicted that soy acreage was set to surpass corn acres.

Since November, we’ve been bearish on oilseeds due to the U.S. acreage number and strong South American production. For the second straight year, concerns over flooding in Argentina were overblown. The nation still harvested 57 million tonnes of soybeans.

The USDA projects that Brazilian production will hit 114 million tonnes. From that figure, the USDA expects that roughly 62 million tonnes will be exported during the 2016/17 marketing year.
As more information becomes available though, it looks like Brazilian shippers won’t hit that export number. This isn’t the best news for prices in the short-term. There will now be even more soybeans carrying over into the 2017/18 crop year.

In the U.S., export expectations are more reasonable. The projections call for 2016/17 exports to hit 56 million tonnes. With 52.6 million shipped out thus far, it’s expected to happen.
Those calling for $6/bushel soybeans are feeling a bit worried. I still think though that $7 handles aren’t out of the question though.

As I said in January, “those hoping for double-digits on the Chicago futures board” had that opportunity to cash in back in November 2016, but they saw a few other opportunities in January and late February 2017.

Right now, the USDA is forecasting a 48 bu/ac national average yield. Our view? Without significant weather issues in late July or early August for the U.S. crop, futures values will easily drop back to a number starting with an $8.00.

Canola sellers saw the same sale opportunities in November, January, and February. We said that $500 CAD / MT values on the Winnipeg ICE exchange would be seen more often in the first half of 2017.

We continue to stand by that call.

Canadian canola exports are almost 9% higher year-over-year. They will likely surpass 10 million tonnes. However, with 22.8 million acres of canola expected to get planted in Canada this year, a lot of potential production sits in the pipeline.

In the U.S., 2.16 million acres of canola will get planted, a 26% jump year-over-year. Of course, there are questions about how much really got planted and how it’s faring on both sides of the border.

Generally speaking, prices are under pressure. We suggested we could see single-digit new crop values (per bushel) in fall 2017 thanks to harvest pressures. We are reiterating that call today.
For flax, Canadian shipments out of country are 18% lower at just 260,000 tonnes moved thus far in the 2016/17 marketing year. Flax acres in Canada are expected to top one million tonnes again this year, up more than 11% than last year.

Flax supplies on a global level aren’t significant. That said, we continue to stand by our forecast that prices will stick under the $14 CAD / bushel in 2017. Price direction will be dictated by three things.

  • Chinese demand, which continues to be slow;
  • European production (which looks decent), and;
  • American production (which isn’t looking so great).

Elsewhere, Canadian mustard acreage will revert back to the mean. Analysts expect farmers to plant 380,000 acres, a figure that is off about 28% from last year’s anomaly of 525,000 acres. Canary seed acreage is expected to stay relatively flat at 255,000, down just 2% from last year’s 260,000.


Pulse prices have dipped since the beginning of 2017.

Still, we’ve seen a good bump on end-of-marketing-year demand and North American production issues. Crop ratings for U.S. and Canadian peas and lentils crops are sitting well below their long-term averages.

In Canada, 4.4 million acres of lentils are expected to get seeded this year. That figure is a drop of 25% year-over-year (but the market was expecting this). In the U.S. though, lentil acreage is expected to jump about 9% to more than one million acres, a new record.

More of these acres in the U.S. are of the green variety though. In Canada, the buzz is that there’s not a lot of green lentils but a fair amount of non-exportable red lentils. On the export front though, 853,000 tonnes of lentils have been exported out of Canada thus far in the 2016/17 crop year, a 35% increase from the same point a year ago.

On the field peas front, Canadian exports are almost 1 million tonnes and 42% higher than last year with 3.31 million total. 4.1 million acres are suggested to get sown to peas this year in Canada. That number is slightly above the market’s 4 million-acre forecast, but it is still a 3.4% drop from last year. In the U.S., 1.11 million acres are expected to get planted, down almost 20% from 2016’s large area.

Chickpea acreage continues to roller coaster, coming in at 135,000 this year in Canada. This number is down nearly 16% from last year’s 160,000 but still above the 115,000 acres seeded in 2015.
In the U.S. though, acreage is up a whopping 42% year-over-year to 462,00 acres. In Australia, a record 2.72 million acres of chickpeas are expected to get seeded by farmers for the 2017/18 crop, displacing cereals and canola.

Food for thought: Aussie chickpea acreage just a few years ago back in 2014/15 was only 1.05 million!

North American pulse crop production will compete directly with Black Sea and Australian output for international markets.

Despite areas in central and northeast India still slightly undersupplied of moisture, the monsoon season should cover the entire country over the next few weeks. With India pulses production hitting a record last year and domestic prices pulling back, farmers planted fewer acres this year.

We see a bit more upside in green lentil values, but red lentils are likely to trade sideways. Yellow peas prices have been resilient thanks to persistent Chinese demand. Our expectation of $5 new crop bids are about $2 per bushel too low right now!

As mentioned in January, “green peas continue to be the red-headed step child of the pulse complex, not performing as nicely as many would hope and are expecting much of the same in 2017/18 but you’ll likely see some $10/bushel targets get triggered like they were throughout this past year’s growing season.”

Our call back in January to consider up to 50% sold on new crop chickpea production looks to be a solid one.

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