Today’s Breakfast Brief looks at yesterday’s StatsCan update to Canadian production estimates, effects of the monsoon in Australia, and South American weather premiums coming into the market.
We often refuse to accept an idea merely because the tone of voice in which it has been expressed is unsympathetic to us.” – Friedrich Nietzsche (German philosopher)
Grain markets this morning are all in the red as a stronger US dollar weighs on most of the complex.
Statistics Canada (AKA StatsCan) said yesterday morning that Canadian farmers were able to harvest a very large crop.. This, considering the tougher growing conditions most saw in 2017.
As such (and as Garrett noted in Grain Markets Today, the market lost some strength yesterday, namely in wheat prices.
The massive rainfall in Southern Australia that we discussed earlier in the week was a blessing and a curse. For livestock farmers, it provided an opportunity to replenish watering holes and potentially bring some grazing land back to life after a dry year.
On the flipside, there was a lot of wheat and barley that wasn’t harvested, in addition for a fair amount of canola still not combined.
Farm incomes in major ag-producing states like Iowa and South Dakota continue to take a hit with low grain prices. It’s a true paradox as trying to produce every bushel possible to maximize revenue per acre is leading to lower grain prices. This just leads to a greater need to produce more to make the same amount of money per acre.
South American Weather Check-In
Yesterday, the Brazilian Central Bank cut their benchmark interested by 50 basis points (or 0.5%) to 7%.
Yes, the interest rate in Brazil is now seven percent.
This will make the cost of borrowing for the Brazilian farmer slightly cheaper in 2018. However, a fair amount of “purchasing” of crop inputs in Brazil remains done through something called “bartering”. This is when a farmer will confirm a certain number of bushels or tonnes from the harvest that will come from using the crop inputs they’re trying to buy.
Anyways, soybean seeding in Brazil is now over 91% complete, in line with last year and slightly ahead of the five-year average.
Positive rains are falling in the major soybean growing regions in northern and central regions of Brazil. Conversely, multiple weather models agree that there’s practically no rain that will fall in southern Brazil or most of Argentina before mid-December.
While you could argue that there’s some bearish US soybeans exports, the potential for a La Nina rally is real.
StatsCan Retains Bearish Title
According to Statistics Canada, farmers in the Great White North harvested a record canola crop this year.
To repeat: Record. Canadian. Canola. Crop.
When you have your second-best yield ever of 41 bushels per acre and put that across a record of more than 22.8 million acres harvested, why wouldn’t you get a record crop.
Thus, StatsCan said 21.3 million tonnes of canola were taken off this fall by Canadian producers. Canola prices didn’t react to negatively though, which is interesting because the average guesstimate heading into the report was for more than a million tonnes less than what StatsCan showed.
As we suggested in Monday’s Breakfast Brief, StatsCan’s margin of error could eventually show a 22.5-million tonne canola crop in Canada.
The Canadian wheat crop also was bigger than originally thought, according to StatsCan. The market was expecting to see a 28-million tonne total wheat crop coming out of Canada, after a 27.1-million-tonne estimate in September.
However, StatsCan said the Canadian total wheat crop is closer to 30 million tonnes.
I suggested on Monday that using their usual margin for error, the Canadian spring wheat crop could end up at 20.5 million tonnes.
StatsCan said that the Canadian spring wheat crop is 22.5 million tonnes in size! That’s in part attributed to a 52-bushel-per-acre average yield (which would be 10% above the 5-year age of Canadian spring wheat yields).
We also used StatsCan +15% margin for error to suggest this year’s Canadian durum crop would be at least 4.5 million tonnes (compared to August’s estimate of 3.9 million tonnes and September’s data-driven forecast of 4.3 million tonnes).
StatsCan slapped every one in the face when they suggested a 4.96 million-tonne durum crop. Nearly 5 million tonnes of durum wheat coming out of Canada. That’s still technically 16% below the five-year average but that also aligns with average yields of 35.3 bushels per acre being 16% below the five-year average.
With these bearish numbers in mind, where should the market go? We cover durum wheat’s factors in depth here and look at the next event we’re watching for in spring wheat here.
Rounding out the StatsCan December production estimates, barley production was pegged at an impressive 7.9 million tonnes. That’s higher than the 7.5 million tonnes the market was expected but still 7% below the five-year average of 8.5 million tonnes.
Canadian oats production was estimated this time at 3.7 million tonnes, slightly below the market’s expectations and September’s estimate. However, this crop is still 17% bigger than last year and 14% bigger than the five-year average.
The market was expecting to see 14.1 million tonnes for Canadian corn production and 8.1 million tonnes of soybeans. Corn was right on the money, but soybean production by the Canucks was lowered to 7.7 million. Mind you, that soybean number is still 18% higher than last year’s crop and 31% higher than the five-year average.
The market was expecting to see 4 million tonnes of Canadian peas and 2.6 million tonnes of lentils. They were nearly right as StatsCan said 4.1 million tonnes of peas and 2.56 million tonnes of lentils. With the slower pace of exports, it looks like Canadian pulse 2017/18 ending stocks will sit at new records.
Flax production was upgraded to 548,000 tonnes, which is better than the market’s expectation of 517,000. However, it’s still a 24% decline from the five-year average flax production number in Canada.
Log in to GrainCents to view a more detailed look at what Statistics Canada said about each crop and where we think things are going next.
Due to travel, there is no futures market data today in the Breakfast Brief but you can click here to find some.
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