As we celebrated the nation’s 146th birthday, positive weather continued to shine down on the Prairies and most of the US Midwest. Unfortunately, all the Canadian pork, beef, beer and fireworks bought up for the celebration didn’t help the strength of the Canadian dollar, which continued its decline past $0.95 US. Not to say that our beloved Loonie is becoming worthless, it’s just that all that work by the U.S. Federal Reserve has increased the relative strength of the American Greenback.
All currency wars aside, the most recent USDA Stocks and Acreage Report on June 28, came out pretty bearish. While the market was expecting planted corn acres in the U.S. to be around 95.5 million acres, the analysts in Washington said that the inclement, wet weather hadn’t actually put a damper on seeding and that 97.4M acres would be planted. Further, the USDA actually increased wheat acres planted in the U.S. to the most since 2009 but moved soybean acres up only 600,000 to 77.7 million acres, a lot less than what was expected.
While improving crop conditions in North America continue to put a damper on prices, the lower prices may bring more international buyers to the table. While Egypt, the world’s largest wheat buyer, said they wouldn’t be putting any more tenders out until December, recent political unrest there may have forced their hand as the government recently bought 180,000 tonnes. While foreign currency reserves continue to spiral downward and political tension is building, the military there recently started a coup d’état to unseat the not-so-popular Muslim Brotherhood and its leader, President Morsi.
The majority of the tenders for Egypt came from the Black Sea region, with Ukraine and Romania winning the tender at prices that steeply undercut current North American export prices. This ultimately suggests that there is more grain coming off the combine than we had initially anticipated. As of July 1, the Russian Ministry of Agriculture said that 8.5 million tonnes of grain have been harvested so far, well up from 4.9 million tonnes at this time last year. Further, 6.8 million tonnes of that harvest is all wheat, again, well up from the 4.3 million tonnes brought in by this time last year. In the Ukraine, six million tonnes of grain had been harvested as of July 3.
Switching gears, the edible oil market continues to get messy as there continues to be a build of supplies, especially in palm oil and soybeans. There are still many demand questions linger on depreciating emerging market currencies (i.e. the Indian rupee weakening past 60 per U.S. dollar, a record low) and worries of economic growth in the E.U. and Asia (especially China, the largest market). Case in point, according to a recent Commerzbank survey, nearly 70 per cent of Germany companies believes that Euro will depreciate in the next year, implying weaker economic prospects.
Ultimately, old crop prices will likely be supported here in North America by smaller inventories, but with more supplies coming through the pipeline over the next few months, not only oilseed, but other cereals will certainly feel the negative effects.
Brennan Turner is originally from Foam Lake, Sask., where his family started farming the land in the 1920s. 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