Crop production Archives | Grain Brokers Australia

USDA corn numbers don’t lie! Or do they?

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The global grain markets were rocked last week when the United States Department of Agriculture (USDA) amended this season’s US corn production estimates, printing yield and area numbers much higher than the trade had expected.

The latest monthly World Agricultural Supply and Demand Estimates (WASDE) report was released on Monday of last week (Tuesday morning Aussie time) and it was generally expected to have a few surprises. Yet, an increase in corn production was the complete antithesis to industry wide projections.

The USDA decreased the corn area by a meagre 690,000 hectares to 36.42 million hectares. This area was far higher than the average trade estimate of 35.5 million hectares. The higher than expected area was a big surprise, but not as big as the increase in yield from 10.42 metric tonne per hectare (MT/ha) to 10.64MT/ha.

It is widely accepted that the corn crop was planted under less than optimal conditions, and it has not been a walk in the park for the developing crop since planting. If that is the case, it is difficult to swallow a projected yield that is only 4.5 per cent below the long-term average.

The net effect of the USDA changes was an increase in total corn production from 352.4 million metric tonne (MMT) to 353.1MMT when the average trade estimate had total production decreasing to 335.1MMT. Consequently, many don’t believe the USDA numbers and are expecting gradual downward revisions in coming months.
Maybe the Market Facilitation Program, designed to assist farmers affected by tariffs and reduced exports, provided a bigger than necessary incentive for farmers to plant regardless of the chances of crop success. But the prevent plant numbers (also released early last week) do not support that notion.

US farmers reported they were not able to plant crops on more than 7.9 million hectares this year. This is the highest prevent plant area reported since the Farm Service Agency (FSA) began releasing their report in 2007. It is also 7.08 million hectares more than was reported at the same time last year.

There is a saying that says numbers don’t lie, but these don’t seem to make sense. Corn made up more than 58 per cent of the prevent plant area or 4.53 million hectares. If you add that to the latest WASDE seeded area, it comes to a total of 40.95 million hectares.

This is 9 per cent higher than the 37.55 million hectares the USDA expected farmers to allocate to corn production in their May update, before the seeding program commenced. It is also be more than 5 million hectares above the previous record corn area.

US corn futures took a shellacking as soon as the WASDE report was released. The nearby contract was very quickly limit down (25 cents per bushel) and, despite a small rally on Friday, was down 8.8 per cent across the week. That represents the biggest weekly fall since June 2016.

The market has essentially fallen back to early May values, but production has fallen 29MMT and ending stocks are down by almost 8MMT over the same period.
The speculators in the corn market have had a rough time. They had a significant short position at the beginning of May. They lost money when the market rallied as planting conditions rapidly deteriorated. They spun around and went long only to get stopped out last week back near contract lows.

Where to from here? The market has lost around 100 US cents per bushel in the last eight weeks. Maybe it has done enough for now? With substantial scepticism around the high USDA numbers, the final disposition of the corn crop and the weather from here through to harvest, it would seem logical that a modest risk premium would be justified.
Wheat took a back seat to corn in the aftermath of last week’s WASDE report, but there were some significant revisions to global production. The production declines were led by Turkey, where a lower harvested area and poor yields led to a 2MMT reduction in output.

The USDA trimmed production in the European Union by only 1.3MMT to 150MMT, with the dry, sweltering June conditions having a much smaller impact than had initially been anticipated.
In the Black Sea region, Russian production was lowered by 1.2MMT to 73MMT, a far cry from the 80MMT being spruiked just a few months ago. The Kazakhstan wheat crop was reduced by 1MMT to 13MMT, but Ukraine bucked the regional trend with a 0.2MMT increase in production.

The picture in the Americas was positive, with US production increased by 1.6MMT to 53.9MT. Down in Argentina, the season continues to improve with another upward revision of 0.5MMT to 20.5MMT. Nevertheless, this is lower than the most recent Buenos Aires Grain Exchange estimate of 21.5MMT.

Australian production was left unchanged at 21MMT. Rainfall across much of the Western Australian, South Australian and Victorian production areas in the first half of August is keeping the crop ticking along, but we still need more rain and a kind spring to avoid a downward revision to production before harvest.

The overall impact of the revisions to global wheat production was a decrease of 3.4MMT from 771.5MMT to 768.1MMT. The key point here is that despite the decline, global production is still up by 37.5MMT year-on-year, carry-out is healthy at 285.4MMT, and the stocks-to-use ratio of 37.6 per cent is running at a historically high level.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Mixed fortunes for Canadian farmers…

Mixed fortunes for Canadian farmers…

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The first official Canadian crop estimates for the 2019/20 crop year were released last Wednesday by Statistics Canada, the national statistical office. Surveys of more than 13,100 farmers were conducted between July 4 and August 5 and farmers were asked to report their estimated area, yield and production of grains, oilseeds and special crops.

Adverse seasonal conditions have been blamed for a fall in production of wheat, soybeans and corn with either wet and cold weather in the east, or hot and dry weather in the west, taking its toll on anticipated production.

Total wheat production is expected to fall by 2.9 per cent, or 950,000 metric tonne, to 31.25 million metric tonne (MMT) compared to the 2018/19 season. However, this still comes in at 880,000 metric tonne, or 2.9 per cent higher than the five-year average. The fall is on the back of a 1.1 per cent decline in harvested area and a 2.1 per cent decline in anticipated yield to 47.5 bushels per acre (3.19 metric tonne per hectare).

Breaking the total wheat number down, spring wheat production is expected to be the largest crop in six years, up 1.17MMT (4.9 per cent) to 25.11MMT. Countering that increase is a 23.1 per cent decline in Durum wheat production to 4.42MMT and a 31.4 per cent fall in winter wheat production to 1.72MMT.

At 18.45MMT, Canada’s canola production is expected to be the lowest in four years and 3.9 per cent below the five-year average. This is a fall of 9.3 per cent, or 1.89MMT, compared to last season and was almost 1MMT below trade expectations. The main contributor to this drop was an 8.2 per cent tumble in seeded acres as farmers reacted to the ongoing trade dispute with China.

In the row crop sector, soybean yields are expected to fall by 5.4 per cent to 40.2 bushels per acre (2.70 metric tonne per hectare). The harvest area is expected to decline by 9.7 per cent to 2.3 million hectares leading to a production decline of 14.6 per cent to around 6.2MMT.

An anticipated increase in the corn area of 1.5 million hectares will not be enough to counter a 4.1 per cent decrease in estimated yield. Final production is forecast at 13.6MMT, a year-on-year reduction of 2 per cent and the lowest in five years. The culprit was cold, wet weather across the major producing areas at seeding time leading to a delayed planting and poor germination.

The big winner out of the decreased canola area is barley, with Statistics Canada expecting a 12.8% increase in harvested area to 2.71 million hectares. At this stage in the season, barley yields are estimated to average 66.4 bushels per acre (3.57 metric tonne per hectare), 2.2 per cent higher than last season. The upshot is a substantial increase in production this season to 9.64MMT, the highest since 2013.

Oats is a minnow in the global cereal picture. Nonetheless, Canada is a significant producer. Production is forecast to increase to 3.95MMT based on a 15.2 per cent increase in the area expected to be carried through to harvest. The actual seeded area came in at 1.46 million hectares, but only 79.4 per cent of the crop will be harvested according to Statistics Canada, with the balance either grazed out or cut for hay and silage.

It has been a grim year for Canadian farmers, as canola exports bore the brunt of the trade stoush with China. Earlier this year China halted imports of Canadian canola, citing pests in some shipments. Canada is the number one producer and exporter of canola in the world. Since the turn of the century, China has grown from a relatively minor market for canola to the world’s biggest importer.

The importance of canola to Canadian agriculture has expanded significantly over this same period. In recent years, China has been the biggest buyer of Canadian seed, purchasing up to 40 per cent of the crop. According to Statistics Canada, canola production contributes more than $26 billion to the Canadian economy each year.

The wheat story is the complete opposite to canola, with Canada’s share of total Chinese imports increasing to more than 60 per cent in the 2018/19 season, compared to just 32 per cent in the previous twelve-month period. At 1.9MMT, the total export volume to China was almost double the previous season and the highest since the 2004/05 marketing year.

Fortunately, the spike in wheat sales is partially compensating producers for the lower canola sales with the export gains coming at the expense of the United States (US) and Australia. US wheat exports to China have plummeted over the last twelve months after China imposed a 25 per cent tariff on US wheat.

In Australia, the drought on the east coast last year led to a substantial decrease in the exportable surplus and pushed Australian values above export parity. This resulted in decreased exports overall and a reduction in Chinese market share.

The weather has traditionally been the most significant influence on global grain production. Farmers across the world accept that it will always play the lead role in their fight for sustainability and profitability.

However, we have now entered a new era of tariff and no-tariff trade barriers. These will continue to significantly impact traditional international grain trade flows as Canadian farmers have discovered to their chagrin in 2019.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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