Play the Game in Front of You — This Week in the Grain Markets

rainbows spring seedingGrains this week have been in a bit of a slump as #plant14 is finally wrapping up and crop conditions are generally good. The start of the week focused around the portion of the U.S. corn and soybean crop rated good-to-excellent at 75% and 74% respectively. Wheat continues to trade lower with bigger expectations out of Europe and the Black Sea. Canola is the only market that looks to end the week on a positive note as it remains range-bound with crop condition still somewhat up in the air. Ultimately, weather will be the variable to watch the next few weeks as the crop emerges but some geopolitical risk (i.e. a possible civil war starting in Iraq), may be the catalyst to take us higher again. However, the facts indicate all systems go for another good year. As such, you have the play the game that’s in front of you, not the one you hope will get put on the field (or ice or whatever playing surface you relate to best).

On Wednesday, June 11th, 2014, we got the June installment of the  USDA’s WASDE report and, boy, was it a stinker. As in everyone left the ice, err, trading floor and screens, and didn’t want to play anymore because there was barely anything changed from the May report a month previous. One of the numbers poured over the most was the old crop soybean carryout, which ended up getting downgraded slightly (but as expected) to 125 million bushels, which, at 3.7 per cent, is the lowest stocks-to-use ratio since records started being kept in the 1960s.

Alas, we’re almost done the old crop marketing year so what’s new crop doing? Truthfully, it’s not music to your bank account’s ears at this point. The USDA’s world production estimates for the 2014/15 marketing year all rose which, in turn, raised ending stocks for the 14/15 season. The one bull that seems to still be in the neighbourhood is the risk of an El Nino hitting Australia’s wheat and canola crops and, further north, the pulse and vegetable oilseed fields in Southeast Asia. That being said, more reports are surfacing that the weather event will be just moderate and that losses won’t be too significant – AKA it could take a few percentage points off of total output, but not half the crop.

Spanning the rest of the world, China has suspended imports of U.S. dried distiller’s grains feedstock as more than a few shipments included traces of the unapproved Syngenta corn variety, MIR 162. Unsurprisingly, this comes on the heels of April owning the record for the largest amount of DDG import by the People’s Republic in one month. On the flipside, soybean crush margins in China are starting to improve so cue the boats from South America to get rolling again. Speaking of which, Brazil’s wheat crop is being forecasted as bigger than initially expected, joining the E.U., the Black Sea…the list goes on.

That being said, the Australian Oilseeds Federation is estimating that this year’s canola production in the Land Down Unda’ will be 3.86M tonnes, almost 400K tonnes higher than ABARES’ recent forecast of 3.47M tonnes and well above the USDA’s 3.1M-tonne estimate. To get even more bearish, the AOF described the start to the 2014 canola season “as the best in a generation, with a full moisture profile available at planting time in many regions, and good follow-up rain & warmer-than-average temperatures in the weeks after seeding.“ The increase in production is a reflection of the 2nd highest amount of land seeded on record, with 6.23M acres getting planted with canola. While the threat of El Nino (and drier, hotter weather) is still on the table, Western Australia isn’t expected to get hit as bad and it is the top canola-growing region in the Land of Oz.

However, to end on a bit of a positive note, according to the Port of Thunder Bay, they had their busiest month in 16 years in May, moving 1.3M tonnes of grain, more than a 90 per cent increase over the five-year average. While CN Railway boasted about its ability to move 5,500 cars per week in May, 38 per cent more than the previous record, I’m still hearing many producer car orders/obligations are not being fulfilled by the railroads. Adding to the woes is the Canadian Association of Petroleum Producers who recently forecasted oil movement by rail in Western Canada to more than triple in the next two years as the industry’s options remain idled by pipeline regulatory approval & construction. Ultimately, Canada is a resource nation and I can guarantee you that the next two years won’t be pretty as industry groups, private companies, and the government will all be scrambling to get on and secure their portion of the playing surface (AKA infrastructure). Make sure you know your position(s) on the field too — due diligence and pre-game planning can pay off.

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