Grain markets had another volatile week as we dealt with conflicting bullish and bearish variables including, but not limited to: exports, acreage forecasts, weather forecasts, and currency swings. Sounds like a normal week, right?
First, the Canadian dollar lost nearly 2% this week to close under 76.5 cents USD. This is the first time it has been this low since June, 2017. The decline is pegged to Bank of Canada governor Stephen Poloz suggesting earlier in the week that interest rate increases could become more gradual going forward as the economy expands. Year-to-date, the loonie is down 4.3% and is the worst performer currency of major developed nations.
As such, canola had a great week, rebounding from last week’s sell-off and gaining 2.7%. For the year thus far, canola prices are up nearly 9%! Supporting canola was soybeans, who had a strong Friday performance to help end the week 0.8% higher. Year-to-date, soybeans are also up nearly 9%.
Part of the bullishness in soybeans this week was attributed to Thursday’s National Oilseed Processors Association (NOPA) crush report. It showed that total volume of U.S. soybeans processed domestically in February 2018 sat at 153.72 million bushels (or a little more than 4.18 million tonnes if you convert bushels to metric tonnes). This easily topped the trade’s pre-report guesstimates and is a new record for the month.
For the year, corn prices are up more than 9%, but for the week, they actually ended 2% lower. This was due more to profit-taking than anything as there was certainly some bullish headlines for corn this past week. First, net sales of U.S. corn to international buyers last week came in at a little more than 2.5 million tonnes!
That’s the largest single-week corn export sales volume in literally 24 years. It’s also three times more than what was contracted at this time a year ago and 35% higher than last week. Finally, it was double what the market was expecting, so of course, corn prices had a positive day. Keep in mind though that total shipments though are still tracking 27% below where they were a year ago.
Also bullish though for corn was Allendale’s annual survey released on Wednesday. The broker is estimating that U.S. farmers will plant 88.5 million acres of corn in 2018/19. This is the lowest level in three years and nearly 1.7 million acres lower than last year’s crop. It’s also 1.5 million tonnes lower than the USDA’s current forecast of 90 million acres. Based on normal yields, it would still produce a 14.145 billion bushel corn crop in 2018/19. If realized, this would be the 4th largest U.S. corn crop in history, with #1 being in 2016, #2 being in 2017, and #3 being in 2014.
Where are those acres going? Allendale’s survey responses suggest that US farmers will seed a record 91.2 million acres of soybeans. This is more than 2 million acres higher than last year’s acreage AND what the USDA is currently forecasting. With average yields, this would likely bring in a 4.43 billion bushel American soybean crop. Converting bushels into metric tonnes, this would mean a 120.5 million tonne crop.
For wheat, total area of all types are estimated by the survey at 46.9 million acres. This is little higher than the USDA’s current estimate of 46.5 million and 900,000 more than 2017/18 American wheat acres. This would suggest a total 2018/19 wheat crop of a little more than 1.89 billion bushels, or 51.5 million tonnes.
Breaking it down, Allendale’s survey suggests 32.55 million acres of winter wheat (down 152,000 from 2017), spring wheat at 11.92 million (up 915,000 acres year-over-year), and 2.42 miillion acres of durum (up 114,000 from last year).
If you’re doing the math here, that’s more than 1 million acres more of spring-planted wheat than what was planted in 2017/18. This could intuitively be interpreted as bearish. What’s clear is that fringe acres of corn are going back into spring-planted wheats or soybeans. The USDA will update their own estimates of 2018/19 U.S. acreage intentions on Thursday, March 29th.
For wheat, it’s certainly dry in the likes of Kansas, Oklahoma, and Texas, where the winter wheat crop’s good-to-excellent ratings sit at 12%, 7%, and 13% respectively. A year ago, those numbers were 40%, 42%, and 35%. This is significant considering these three states produced nearly 3/4s of the American winter wheat crop last year.
While this certainly bullish, the USDA noted that, “last week’s lower prices brought a bearish change in momentum that may serve as an early warning to non-commercials that turned bullish.” That being said, Chicago SRW wheat lost 4.3% this past week, while KC HRW wheat prices dropped back below $5 USD / bushel, losing 4% since last Friday. Hard red spring wheat prices in Minneapolis were able to weather the storm a bit better, losing just 0.9% for the week.
Coming back to exports, Canadian grain exports through the first week of March, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the 3-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14. What is likely going to happen as we roll through the next 6 weeks?
Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double! Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.
While CN and CP have committed to improving their rail service, the most recent Ag Transport Coalition showed us though that CP and CN railroads supplied a combined 45% of requested grain railcars in week 31 (the same period for which we’re looking at grain exports. While up 32% from the week previous, it’s the second worst weekly fulfilment performance to date.
Overall, with the volatility that we’re seeing, there doesn’t seem to be any clear direction on where grain prices want to go. Further, talking rail companies talk with a grain of salt, we’re also lack a clear direction of grain actually being moved.