Grain markets continue to shift lower as harvest pressures – namely better-than-expected yields – and a stronger Canadian Dollar put pressure on cash prices. This past week the USDA came out with their monthly world agricultural supply and demand estimates. Most of the market was expecting yield and production downgrades in the US but the USDA were more bearish and actually raised numbers. Specifically, for US corn, the market was expecting 168.2 bushels per acre, but the USDA said they are expecting 169.9. For US soybeans, the market was expecting 48.8 bushels per acre but the USDA challenged that as well, lifting their estimate to 49.9 bushels per acre. These are the 3rd– and 2nd-largest yields respectively in the US.
With these sort of bearish numbers, the market immediately dropped before rebounding a bit over the subsequent days. From a cash grain standpoint for Western Manitoba, prices continue to pull back. For canola, prices haven’t really changed much month-over-month in the western part of the Keystone province. What is interesting though is that 2018/19 crop prices have started to tick up and are getting closer to that $11 / bushel handle. In the past month, 2017/18 hard red spring wheat prices have lost nearly 10% to sit back around that $6.50 CAD / bushel level. We think that there are some better opportunities to price out wheat down the road, but this will include protein and other quality premiums. We continue to recommend that farmers order their independent grain tests from GrainTests.com.
Coming back to the September WASDE report, many producers continue to question how it’s possible that the USDA is expecting a similar crop as the last 3 years, yet conditions are noticeably worse. My guesstimate is that the US yield gets revised lower by a little bit in the October or January reports. It’s worth noting that while average pod counts are lower, the USDA is suggesting that the weights of the pods are the heaviest ever. And by a longshot. Seems like the USDA is really working the excel spreadsheet to make the numbers dance.
On the canola front, the USDA raised the 2016/17 Canadian crop to 19.6 million tonnes but lowered their number for the 2017/18 crop to 19.9 million tonnes. This latter number is still literally 1.7 million tonnes above StatsCan estimates. Perhaps the USDA is just accounting for the fact that StatsCan has an abysmal record of revising their canola production numbers higher? Regardless, 2017/18 Canadian canola carryout is pegged at 1.1 million tonnes. Is there a chance this number goes below 1 million this year? I think it can but it won’t be done until this time a year from now when the market is already looking to the 2018/19 crop. What we do know is what the USDA is telling us today, is, logically speaking, worth nothing down the road.
Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available) that has moved almost 400,000 MT in the last 2.5 years. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (email@example.com) or phone (1-855-332-7653).