The grain market continues to stagnate as traders, managed money, commercials, and producers alike are trying to determine if a bottom has finally been found. Goldman Sachs is expecting livestock prices to underperform relative to grain and oilseeds over the next year as the Wall Street titan thinks things are due for a reversal. Specifically, with a record U.S. soybean crop, record South American output, and an expected slowdown in Chinese import growth, higher animal inventories and lower prices are expected in the new crop year. Following up on this train of thought, Australia and New Zealand Bank (or ANZ) says grain prices have offered sound value as a record U.S. crop has now been “fully priced” into the futures market. Adding to their optimism is the fact that eastern Australia remains dry, which will likely lead to a downgrade in the Aussie wheat and canola crops. Will this dryness persist though in Southeast Asia as an El Nino event comes into play? Most likely but it may not be as harsh as once thought as the Australian Bureau of Meteorology has dropped their estimates of an El Nino event happening in the fourth quarter of the calendar year to 50 per cent as parts of the Pacific Ocean are beginning to cool (the U.S. Climate Prediction Center is still hovering around 80 per cent though).
Concern is mounting in Europe on a few levels, both geopolitically and in the fields. The EU harvest will certainly be large but quality is dropping thanks to harvest rains, especially in France where three-quarters of the harvest is complete but only half of the grain taken off has a Hapberg falling number over 180. That being said, the U.K. is poised to provide Algeria and other closely-situated markets with the quality milling wheat that France normally exports to these markets. On the geopolitical front, the E.U. and U.S. are very close to imposing new financial sanctions on Russia for their “participation” in the fighting in Eastern Ukraine. The new sanctions would potentially restrict their economy and companies from accessing international capital markets to fund their business. As such, Russia’s economic forecasts have already been downgraded. On the flipside, Russia has suggested that they’ll ban U.S. chicken and some E.U. fruit while suggesting that they can easily be a self-sufficient country (that usually doesn’t work out too well). Staying in Russia, wheat production estimates continue to rise as the harvest moves along, with I.K.A.R. now suggesting a 57.5 million-tonne crop. With some trade sanctions in place though, the ability of Russia exporters to move this grain out of country could be in question.
Coming back to the Americas, soybean production in Brazil is going to be larger for the third straight year as farmers there are continuing to plant more of the oilseed. In the U.S., yield estimates continue to tick up with the most recent Reuters survey of 20 analysts pegging corn yields at 170.5 bu/ac, well above the USDA’s forecast of 165.3 bu/ac and the previous record of 164.7 bu/ac set in 2009. Ultimately, crop development here in Western Canada is fairly variable but generally positive, albeit some parts of western Manitoba, eastern Saskatchewan, and the Peace Region in Alberta. Fingers crossed as we’re close to taking the crop off.
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 now mobile grain marketplace (app available for iOS and Android). 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).