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FEBRUARY 6 – GRAIN MARKETS GRASPING AT STRAWS
Grain markets this morning are mixed with most of the focus on the potential for precipitation in North AND South American main grain-growing regions. However, the big news in grain markets yesterday and today isn’t about grain at all. If you’re in US equities, you might want to check your portfolio because yesterday, the Dow dropped nearly 1,200 points.
In one day.
Add this on top of the 666 point-decline on Friday, what you get is all the gains made in January have now been erased. Further, this morning, the Dow is down already more than 200 points. Put another way, in the last week, the Dow has dropped about 10%.
Garrett recapped what happened to grain prices yesterday (as he does daily with his Grain Markets Today column) but also acknowledged the broader US equities sell-off.
Granted, we also saw a StatsCan report that had some surprises, but it didn’t really shock the market. Even despite record canola numbers, the Canadian Loonie dropping back below 80 cents USD is supporting canola prices this morning.
More Wheat in Russia…Again
Wheat prices took a bit of a hit though as some rain and snow are in the forecast for major North American-producing regions. Drought conditions in the U.S. especially have remained persistent as, by the end of January, 33% of the country was in some form of drought.  Thus, with a good rain or two in the next couple weeks, it could completely change the outlook for soil moisture (and the winter wheat crop performing better than all the bulls are hoping it does).
Not to get more bearish on winter wheat but IKAR is forecasting Russia to produce anywhere from 73-82 million tonnes of the cereal in the 2018/19 crop year.  They also think that anywhere from 32-36 million tonnes could get exported! Compare that to their forecast for the current crop year exports of Russian wheat at 36.5 million tonnes.
Add in that the Russian government is planning to sell some of its state reserves; there’s just a lot wheat coming out of there. We’ve previously covered the rise of the Russian Wheat King in one of our exclusive FarmLead Insights pieces from September.
A quick sidenote: winter crops in Romania and Ukraine are looking pretty good with more 95% rated in good-to-satisfactory condition.
China Trade Policy Targeting US Grains
We know that China is getting a bit more stringent on the quality of soybeans being imported from the U.S. We also know that they’re buying less American beans relative to what they were ten years ago. In fact, the US used to own 38% of all Chinese imports a decade ago. Today, it’s 31%.
Comparably, Brazil is likely to account for 57% of China’s soybean imports in 2017/18. Ten years ago, they were responsible for just 34%.
More recently though, the Chinese Ministry of Commerce launched an anti-subsidy/anti-dumping investigation on US-originated sorghum imports.  There’s an aura of politics about this as the impact will likely befall most on sorghum growers in the southern United States where President Trump enjoys a fair amount of support.
Between Trump targeting Chinese solar panels and aluminum, and now China pushing back on American agricultural products, it’s safe to say that the trade relationship between the world’s two largest economies is deteriorating a bit.
Some Grain Stocks Surprises from StatsCan
Yesterday morning, Statistics Canada came out with their numbers for grain still left in the pipeline in Canada as of December 31st, 2017.  We got a few surprises.
First things first, canola numbers were a bit big at 14.15 million tonnes still left lying in both commercial and on-farm storage. This was less than the 14.3 million tonnes that were still expected, and so canola was able to close out in the green. Nonetheless, these canola stocks are still a new record, 17% higher than the 5-year average for this time of year, and 6% – or 762,000 tonnes – more than what was available as of December 31st in 2016.
As mentioned over the weekend, the words “record” and “canola” are becoming synonymous with one another.
Digging in, on-farm canola stocks are up 9% year-over-year and 17% from the five-year average to 12.54 million tonnes. Comparably, commercial canola stocks of 1.605 million tonnes are down 12% year-over-year, but still 17% higher than the five-year average. We’ve got some deeper analysis for our GrainCents canola readers that will be posted later today here.
Another notable was durum wheat, which saw total Canadian stocks as of December 31st, 2017 at 4.83 million tonnes. This is a 21% – or 1.32 million tonnes – less than what was available at the same time a year ago. The decline was seen in both on-farm and commercial stocks, both down 21% and 22% respectively year-over-year to 4.13 million tonnes on the farm and 695,000 tonnes in commercial storage.
Non-durum wheat (AKA spring and winter wheat) stocks were healthy at 18.73 million tonnes. That’s technically 775,000 tonnes – or 4% – more than December 2016’s stocks, but it’s also 4% below the five-year average of 19.5 million tonnes.
The market was expecting 23.9 million tonnes of total wheat, but just 23.6 million tonnes were shown by StatsCan. This is about 540,000 tonnes – or 2% – lower than what was available at the end of December 2016.
Other numbers that jumped out at me include soybean stocks climbing 29% year-over-year to 4.3 million tonnes. That’s also 38% higher than the five-year average of 3.12 million tonnes still available at the end of December. On the flipside, flax stocks are down 11% year-over-year and 9% from their five-year average to 522,000 tonnes.
Rye stocks in Canada continue to balloon, with 309,000 tonnes available still as of the end of December. This is 72% higher than the five-year average of 179,000 tonnes. Thus, be careful if you wish for $5 CAD /bushel handles – there’s enough supply to justify buyers not having to bid up for rye.
For Canadian peas and lentils, inventories are unsurprisingly higher year-over-year at 2.8 million and 2 million tonnes respectively. These levels are both more than 20% above their five-year averages.
Generally speaking, the theme of large grain supplies has been held up with another StatsCan report. It’s not overwhelmingly bearish or bullish, but rather a healthy update for the market
Much like our analysis of AAFC’s estimates over the weekend, we’ll be providing more in-depth analysis on each crop for our GrainCents readers over the course of today and tonight (including some more robust charts than just the one below).
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