This Week in the Markets: Canadian Rail, Demand Shifts & A Record Low U.S. Oat Inventory

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The second week of April brought the USDA’s monthly instalment of the world agricultural supply and demand estimates and the numbers were: relatively bearish wheat, bullish soybeans, and bullish corn. Oats year-end inventories were dropped by 10 million bushels to a new record low of 20 million bushels, with concern that this number will continue to drop until Canadian railcar movement into the U.S. improves. Further bullish for the oats complex is COCERAL, the E.U. trade association, forecasting E.U. oats production to fall nine per cent from last year to 7.75 million tonnes.  U.S. corn stocks for the end of the marketing year came in below pre-report expectations at a bullish number of 1.33 Billion bushels as exports were increased by 125 million bushels. This only adds fuel to the fire that the USDA’s initial corn acreage number from last week is too low. U.S. wheat 2013/14 year-end stocks came in at 583 million bushels (right at expectations) as feed and residual use was lowered by 30 million bushels. However, wheat is traded more at a global level as country-by-country substitution is fairly easy. That beings said, global demand was decreased by 2.4 million tonnes, mainly due to Chinese feed wheat use declining by two million tonnes!

U.S. soybean ending stocks were shown at a precariously tight level of 135 million bushels, slightly below the market’s expectations and last month’s estimate. While this helped push the market above $15 a bushel initially, it’s since fallen back on concerns of China being unable to maintain their pace of soybean imports as soybean crush margins have fallen into negative territory ($80-$100 per tonne loss). As such, no surprise that that Chinese soybean importers have defaulted on at least 500,000 tonnes of U.S. & Brazilian soybean cargoes (worth about $300 million), a bearish indicator for demand. On the flipside of this move, China may be substituting more corn for feedstuffs. This can be validated by the People’s Republic officially opening their doors to Brazilian corn after finalizing two major acquisitions by the country’s state-grain buying agency, COFCO. The move also comes on the heels of the amount of U.S. corn rejections topping one million tonnes since November due to unapproved varieties being included in the shipments. As animal feed demand increases in the world’s most populous country, working with the world’s number two corn exporter in Brazil is a potentially sustainable, long-term relationship.

Coming back home, there’s been a flurry of announcements from grain companies about building and/or expanding grain elevator capacity. New locations in Kindersley (Viterra), Colonsay, SK (CWB), Portage la Prairie, MB (CWB), and expansion in Morris, MB (Cargill) is an indicator that these players are not willing to depend on the railroads to keep them from being competitive. Storage space allows one to hold inventories and intuitively, market advantage via selling power. This comes as Bill C-30 for the Fair Rail for Grain Farmers Act continues to head towards becoming a law. It would set minimum grain volume movement requirements, inter-switching to provide better service to value chain players, and increase data reporting (I/FarmLead really like transparency). The bill also includes a clause that would force railways to pay compensation to shippers for not meeting the aforementioned service obligations.  Whether or not these fines gets passed down to farmers or put into infrastructure investment (which I would like to be see done), is still unknown, but it’s a lot better than just playing the finger-pointing game.

To growth.

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