Grains market at lowest levels in recent years

The grains market, in the last few days of July were at the lowest levels it had seen in more than a year as large expected production

The grains market, in the last few days of July were at the lowest levels it had seen in more than a year as large expected production continues to outweigh any demand headlines. On the relative good growing conditions, famed commodity investor Dennis Gartman recently suggested that the 2013-14 U.S. corn crop continues to creep towards 15 billion bushels of production, despite the USDA most recently saying it’ll be closer to 13.95 billion bushels.

There’s much consensus that corn and soybean buyers (i.e. ethanol plants or soybean crushers) have secured enough supply through the end of August. This is because with the larger crop expected, buyers are anticipating lower prices at which they can secure inventory at. As such, basis levels dropped significantly across the industry (as in $2.40 over futures bids one day, zero bids the next).

While domestic buyers may not be interested now, the lower prices certainly have the likes of China getting in the mix. Between the new government in Egypt reigniting their wheat procurement program and China’s worse-than-expected wheat crops, some traders in the Eastern Hemisphere have suggested wheat prices could rise by ten per cent over the next six to 12 months. Already in the 2013-14 marketing year, China has bought 3.5 million tonnes of wheat from the U.S., 1.5 million tonnes from Australia, 295,000 tonnes from Canada and 275,000 tonnes from France. As a result, there’s some buzz Aussie farmers are holding onto their grain until those prices materialize. One factor to keep in mind regarding China though, is many analysts have pegged the Asian supernation for a slowdown from its decade-long double- digit annual growth, including Societe Generale who is forecasting six per cent and Barclays at the bottom with three per cent.

That’s sure to also affect the fertilizer market which just saw a shake-up of major proportions after Russia’s Uralkali publicly broke up with Belarus Potash Company (BPC), leaving Canpotex (AKA Agirum, Mosaic and Potash Corp. of Saskatchewan), as the world’s top potash exporter and the possibility the price of potash “may fall below $300 a tonne.” The two consortiums accounted for about 70 per cent of the global potash trade and set identical prices in major importing countries such as India and China. Now, however, with the partnership over, Uralkali will become aggressive in the market, as it is the only potash company in the world that can ship directly to China by rail.

Also, with lower corn prices, fewer acres of corn will likely be planted in South America this fall, (corn requires more fertilizer than other crops), intuitively leading to smaller fertilizer demand and lower prices. Lastly, the most recent US Wheat Quality Council’s Spring Wheat tour in North Dakota, South Dakota, and Minnesota showed yields will basically equal last year at about 45 bushels per acre. However, this will come off significantly less acres than last year as many parts of the three states were wet in April/May and many acres didn’t get planted. This is significant for Prairie producers because, with lower market prices and a stronger U.S. dollar relative to the loonie, U.S. buyers are more likely to be competitive with local elevator prices and if you get paid, should you really care who buys your grain? (Just a heads up — we have more than 20 U.S.-based buyers on the FarmLead Marketplace).

Brennan Turner is originally from Foam Lake, Sask., 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 grain marketplace. 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).

— FarmLead Breakfast Brief