What happened to grain markets this quarter?


This week’s grain markets were largely influenced by that was happening in currency markets and government reports. The Canadian Dollar lost about 1.1% this week but has basically ended where it began September, up just 0.15%. On Wednesday, the Loonie saw it’s largest single day loss in eight months after the Bank of Canada’s governor Stephen Poloz said there wasn’t a set-in-stone path for further interest rate hikes. The market interpreted his comments as evidence that we will see no interest rate hike anytime soon. Regardless, the Canadian Dollar climbed more than 4% this past calendar quarter to close above 80 cents USD.

Grain markets also traded generally sideways this month but generally was lower for the quarter. Canola was the biggest loser of the complex in September, but only dropped 1.55% from where it started. The loss was mainly owned by this past week as it lost 0.65%. For the quarter, canola lost 7.25% on the Winnipeg ICE futures board. Oats was the biggest winner this month, up 5.8%. For the week, it gained 1.1% but from the start of July through today, the cereal lost 5.3% on the futures board.

Corn lost 0.4% this month but it could’ve been worse if not for this week’s 0.8% gain. The Chicago-traded coarse grain lost 3.6% for the quarter though. Soybeans gained 2.4% over the course of September but it would’ve been more if it wasn’t for this week’s 0.8% loss. For the 3Q2017 calendar quarter, soybeans gained 5.1%.

Chicago soft red winter wheat improved 3.35% since end the of August, despite a bit of a bearish report, although it only lost 0.1% for the week. However, wheat prices all started July really hot, and so December Chicago wheat lost almost 18% from where it ended June at. Kansas hard red winter wheat fared worse, dropping more than 24% since the start of the third quarter. For the month though, it gained 1.5% but it would’ve been more if it didn’t lose 1.7% this week. Finally, Minneapolis spring wheat took the biggest hit of the wheat complex this week as the December contract lost 2.3%. That echoes the 2.6% it lost for the month of September but pales to the quarterly loss of 18%. It lost 3.1% on Friday, September 29th alone because of the bearish USDA production and stocks report.

Digging into those numbers, the market was expecting was expecting the USDA to show 389 million bushels of spring wheat production in its Small Grains Production Report. However, the number came in at 416 million bushels. This is still a drop in production of more than 15% year-over-year. For durum wheat, the USDA thinks that American output is down 47% year-over-year to just 55 million bushels (or just under 1.5 million tonnes). The market was expecting 50 million bushels. Moving forward, we’re still cognizant of the USDA’s report in December of how many wheat acres didn’t get harvested in the Northern Plains, but baled instead.

Total American wheat inventories to carryover from 2016/17 to 2017/18 will sit at 2.253 billion bushels. This was about 33 million bushels (or about 900,000 MT) above what the market was expecting. This is where the bearish numbers ended though.

The USDA said that corn inventories as of September 1st would be a 30 year high. To start the 2017/18 marketing year, there is estimated to be nearly 2.3 billion bushels. This was about 55 million bushels below the pre-report estimate from traders. It is, however, about 32% higher than where we started the 2016/17 marketing year.

Especially worth noting though is that there is 2.5 times as much corn sitting in North Dakota as there was a year ago. More specifically, there is 4 times as much corn sitting on North Dakota farms. Given some of the action we’ve seen on the FarmLead Marketplace, we know that there’s definitely some bushels heading north into the Canadian feed supply chain.

For soybeans, the USDA says that 2017/18 will start with 301 million bushels of soybeans in America. That’s up 53% from last year’s carryover but it is 38 million bushels below the pre-report estimate. Despite the big jump in available supplies year-over-year, soybeans prices on the futures board are still very similar to where they ended the September 2016. Where you’re seeing these increased stocks factored is wider basis levels.

Soybean prices in Brazil continue to be more compelling than corn though. Acreage is expected to increase there but there are concerns over dryness. It’s still early in the planting game though so price premiums are hard to come by. There’s not a lot of premiums for corn prices in Brazil though as values are under $2.00 USD / bushel in Mato Grosso, the largest grain-producing state.

Next door in Argentina, the Buenos Aires Grains Exchange (BAGE) now forecasts a soybeans harvest of 54 million tonnes in 2017/18. This figure is down from the official 2017/18 USDA forecast of 57 million tonnes and 2016/17 crop of 57.5 million tonnes. Comparably, the USDA pegged this 2017/18 Argentinian crop at 42 million tonnes, up 1 million tonnes from 2016/17. The reason for the smaller soybeans but bigger corn harvest is export taxes. There are none on corn but it’s still 30% on soybeans. Ultimately, Argentinian producers will have to continue to navigate the tough political climate.

A similar feeling is certainly being felt by Canadian producers regarding the proposed tax changes by the federal government. As indicated by a recent interview with RealAgriculture.com, it’s even more concerning when the Canadian Ag Minister literally doesn’t understand the impact on Canadian farms.

The Canadian market is also having a tough time interpreting India’s current position on the fumigation of pulse crops. As discussed on RealAgriculture.com with Gord Bacon from Pulse Canada, the current three-month exemption of Canadian pulses not requiring fumigation before leaving Canadian ports is set to expire this weekend on Saturday, Sept. 30.

This has been an ongoing subject of debate for a couple years now and it continues to be side in the thorn of many exporters doing business into India. Basically, the cost of fumigation at the port of origin would intuitively be passed down to the producer. Today that doesn’t have to happen because of the exemption but if the exemption is lifted, this likely mean lower prices for pulses (or at least those going to India).

Nonetheless, pulses have been trading generally sideways-to-lower since harvest started in Canada. There is a pretty sizeable amount of inventory that’s carrying over from 2016/17 to the 2017/18 crop year. For this year’s production, there are more yellow peas than green coming off in both Canada and the US this year. There are also some decently-sized crops coming out of the Black Sea. Estimates show that Russia and Ukraine will produce a combined 3.7 million tonnes of peas this year! That number is up 19% year-over-year.

Part of the carry over into this year includes a record crop in India after some excellent monsoon rains last summer. The first estimate of this year’s kharif (summer) pulse crop production in India is down 8% from last year. Again though, last year was a record crop. I expect the total number will be somewhere close to about 12% to 15% below last year’s crop. Acres are substantially lower (more than a 30% drop year-over-year), and monsoon rains weren’t as good this year. Nonetheless, India will likely see its second-largest crop of pulses in the past decade.

At FarmLead, we continue to be sellers of yellow peas, feed grains, winter cereals, and milling oats. Conversely, we’re holding onto oilseeds and higher quality wheats for better opportunities in 4Q2017. On the latter, we continue to strongly recommend getting your wheat tested for important quality parameters like protein, moisture, HVK, Falling Number, and vomitoxin or DON levels. Get your wheat tested by any of FarmLead’s independent partner labs on GrainTests.com today.

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