The commodity market has been on edge as of late due to the U.S. government shutdown, which has, in turn, limited U.S.D.A. daily, weekly, and monthly reports (like no October U.S.D.A. W.A.S.D.E. whatsoever) that every agribusiness in the world uses as a foundation to work off of.
While in-field reports (via Twitter and other private estimates) are helpful, the USDA has been the long-standing authority when it comes to setting the tone of the market.
Without the referee there to help slow the pace of the game when things get a little testy, it’s relatively open season. Further, with significant discrepancies in market opinions, the uncertainty creates more volatility and ultimately, the unknowns outweigh the knowns.
When the lights go back on at the USDA (whenever that may be), there could be more than a few people caught the wrong way.
One country that probably isn’t happy with the lack of market information is Egypt after they cancelled their tender to buy wheat for the first time since early September, saying prices were too high for their liking.
Specifically, all bids were, at minimum, $24 per tonne higher than the last price they bought at in September ($294 per tonne delivered was the lowest bid entered from Romania).
If Egypt, the largest wheat importer in the world, is trying to talk the market lower, well it did a decent job in the near-term as futures dropped about ten cents in the following 24 hours. However, the market quickly corrected itself thereafter after over-sold conditions warranted a bounce.
Egypt will eventually have to accept the reality, lock the chatter-box up, and do what they have to do to feed their people (Lord knows what happens over there when there’s not enough food to go around).
The corn market has been reeling as well after some buzz coming out about the U.S.’s E.P.A. dropping the renewable fuels standards (or R.F.S.) ethanol mandate by 200-500M bushels.
The consensus seems to be that the quota would drop by 6 per cent in 2014 and 2015. This is all because the E.P.A. is saying they can`t sell enough of the biofuel. While there’s no W.A.S.D.E. coming out on time, Informa Economics put out its own estimates, saying that a better than expected corn harvest will increase 2013/14 ending stocks by 74M bushels from the current USDA forecast of 1.855B bushels to 1.929B bushels.
With larger production, better ending stocks, and less ethanol demand, corn prices are likely to remain depressed, and ultimately an indication that corn acres could drop even further in 2014.
On top of that, the risk is increasing that wheat production could fall in 2014, and thus I’ve gotten bullish. With potentially less winter grain output, Black Sea governments are likely to increase their domestic buying, which, in turn, decreases exportable supplies.
Also, China continues to restock their supplies (food security!!!) while the aforementioned Egypt is back at the buyers table. Lastly, U.S. and Canadian ports are dealing with record production, providing upside support (think Brazilian ports plugged with soybeans this past spring).
Although most wheat buyers are covered through December, if someone needs a cargo or two, European or Indian wheat is the only possibility.
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).