Grains started September higher as Labour Day weekend rains that were initially forecasted were not realized in the U.S. Midwest. Some of the best rains were seen in the western cornbelt but the overall average seemed to be only about 0.25 to 0.5 inches, when one inch was on the radar of many. More dry days are anticipated in the U.S. Midwest, which ultimately will hurt the soybean crop as it still is filling pods. The weekly U.S. Crop Progress report continues to show that the portion of the US corn and soybean crop rated good-to-excellent is falling. Further, U.S. domestic soybean stocks continue to drag down toward zero as demand remains consistently high.
The overall consensus seems to be that bullish weather in the U.S. is being offset by bearish production numbers everywhere else. Canola is following soybeans higher in the market despite record production expected here in the Great White North. This, combined with Oil World’s prediction of a bigger rapeseed crop in the European Union and the group of 12 nations making up the former Soviet Union, the previous tight margin of supply seen the last two years is going to be erased. Further offsetting the shrinking U.S. soybean crop is South American farmers planning to seed even more soybean acres than their record numbers last year. Oil World estimates this year’s soybean output down there to be about 152.7 million tonnes while local analyst Safras & Mercado says 160 million tonnes. This obviously bodes well for big buyers such as China, who’s expected to import about 65 million tonnes of soybeans in the 2013-2014 marketing year.
Recent colder weather in some parts of Argentina and Brazil has analysts a little concerned over the development of the wheat crop planted just a few weeks ago. It’s estimated 10 to 30 per cent of Brazil’s wheat crop could be lost to the freezing temperatures. Lower wheat production in the form of one to two million tonnes is likely to also be seen Down Undaa as drier weather in Western Australia, Queensland and New South Wales have hurt yields. Nonetheless, the International Grains Council recently increased their global production estimate for wheat by four million tonnes to 691 million tonnes total. The increase is reflected in higher production by, again, former Soviet Union countries, the European Union and Canada. One should look to take advantage of the gains in the market currently and sell some of their crop on the rallies. When it comes to the bigger picture, a few singles (read: small gains) add up to some good statistics (read: big overall win).
Finally, the September trade will be characterized by the U.S. Federal Reserve’s mid-month meetings (expectation for a start of their quantitative easing tapering); US debt ceiling talks as the government will be broke sometime in October; German political elections, and geopolitical concerns in the Middle East continuing to hang over markets.
With many issues clogging the air and resolutions still pending, managing your risk will always be the most important. Play the game that’s in front of you.
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