Grains have been traded somewhat mixed over the past week as the trade continues to mull what sort of effect the wet and cool start to the growing season has created. Crude prices continue to head higher as the Iraqi militants take over more towns and even oil-producing refineries, creating concern that there’ll be less supply out there amidst the summer months when more gas is in demand (summer road trips are to blame!). Crop conditions are generally positive across North America but yes a little wet. Most analysts believe that this rain is a good thing but I can guarantee you that if rain continues to fall at this pace over the next few weeks, yield and production estimates will fall dramatically. Dr. Cordonnier of Corn and Soybean Advisor recently left his U.S. soybean average yield estimate at 45 bu/ac and the corn yield at 165 bu/ac but said that this will definitely fall if wet and cool conditions persist. The good doctor also suggested that there could be at least two million acres of U.S. planted acres to spring storms this year. Food for thought though: if one of the best analysts in the game is betting only two million acres in all of the U.S. will be lost to wet spring weather, does Larry Weber’s call of 2.5 million acres lost just in Western Canada sound plausible? Certainly there have been some losses, but that call is a little high in my opinion.
With prices somewhat depressed due to large production expectations, international grain buyers are looking to take advantage. Specifically, the likes of Egypt, Saudi Arabia, Jordan, Pakistan, and other major importers have ramped up their purchasing lately with a lot of the orders being supplied by the E.U. and the Black Sea, where big crops are expected. That being said, it’s possible that we’ll need to see lower lows in North America if we want to compete. Or as famed commodity investor Dennis Gartman wrote recently, “The concern for the moment is that U.S. prices remain uncompetitive in the world markets and that the prices of wheat, corn and soybeans have to fall further still to compete for export trade. Nonetheless, there’s still domestic demand to contend for and with livestock prices on their highs, demand for at least feed supplies will be solid.
There’s some buzz that Monsanto, in order to benefit from lower Swiss tax rates, is looking to buy Syngenta which would create the world’s largest agrochemical company. Godzilla-esque in fact. However, I find it hard to believe that the U.S. government would ever, ever, ever allow this to get past anti-trust regulation.
Further, the deal is purely shareholder-returns based in that there’s increasing pressure from investors for these companies to shore up their balance sheets and provide some returns! Although there were talks had a few months ago by the companies to create the League of Extraordinary Seed and Chemical-Makers, the Swiss have even made suggestions lately that they’ll make their tax laws moved towards those of the E.U., making Monsanto’s goal of saving some tax dollars likely just a pipedream.
To growth,
Brennan Turner
President, FarmLead.com
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 (b.turner@farmlead.com) or phone (1-855-332-7653).