Grains started the month of September higher as Labour Day weekend rains that were initially forecasted were not realized in the U.S. Midwest.
More dry days are anticipated in the U.S. Midwest, which ultimately will hurt the soybean crop as it still is filling pods. The weekly US Crop Progress report continues to show that the portion of the US corn and soybean crop rated good-to-excellent is falling.
Further, U.S. domestic soybean stocks continue to drag down towards zero as demand remains consistently high.
Speaking of stocks, we recently got Statistics Canada’s estimate for Canada’s stocks of principal field crops as of July 31, 2013.
The big take away from the data was that supplies are down across the board from the same time last year. This obviously doesn’t mean that prices should skyrocket because there ARE differences in production numbers from last year but it does mean that demand for Canadian grain is there.
Specifically, total wheat stocks fell 14.8 per cent from the same time last year to 5.1 million tonnes (five-year average is 5.5 million tonnes) while canola stocks fell 14 per cent year-over-year to 608,100 tonnes, significantly lower than the seasonal average of 1.5 million tonnes.
In the pulses, lentils, dry field peas, and chickpeas stocks were seen down 65 per cent, down 41 per cent, and up 391 per cent (!!!) respectively.
The overall consensus seems to be that bullish weather in the US is being offset by bearish production numbers everywhere else.
Oil World predicts a bigger rapeseed crop in the European Union and the group of 12 nations making up the former Soviet Union. As a result, the previous tight margin of supply seen the last two years is going to be erased.
Further offsetting the shrinking U.S. soybean crop is South American farmers planning to seed even more soybean acres than their record numbers last year. Oil World estimates this year’s soybean output down there to be about 152.7 million tonnes while local analyst Safras e Mercado says 160 million tonnes!
This obviously bodes well for big buyers like China, who’s expected to import about 65 million tonnes of soybeans in the 2013-2014 marketing year.
Lower wheat production in the form of one-to-two million tonnes is likely to also be seen Down Unda as drier weather in Queensland, and New South Wales have hurt yields.
Nonetheless, the International Grains Council recently increased their global production estimate for wheat by four million tonnes to 691 million tonnes total. The increase is reflected in higher production by, again, former Soviet Union countries, the European Union, and Canada.
One should look to take advantage of the gains in the market currently and sell some of their crop on the rallies. When it comes to the bigger picture, a few singles (read: small gains) add up to some good statistics (read: big overall win).
Finally, the September trade will be characterized by the U.S. Federal Reserve’s mid-month meetings (expectation for a start of their quantitative easing tapering); US debt ceiling talks as the government will be broke sometime in October; German political elections, and geopolitical concerns in the Middle East continuing to hang over markets.
With many issues clogging the air and resolutions still pending, managing your risk will always be the most important.
Play the game that’s in front of you.
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 grain marketplace. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (firstname.lastname@example.org) or phone (1-855-332-7653).