As Farm Crops continue to emerge and develop across the Prairies as we get into mid-June, a significant month for growth in the fields. Some areas have been hit by heavy storms that have put an early negative feeling for some fields, most fields are in good condition and growing with the steady sunshine and timely rains. Every inch of rain or extra couple of points on the thermometer makes a difference but how investors view it has been consistently different.
Take for example, the production estimate for American corn. In the lead-up to the June 12 USDA world agricultural supply and demand estimate report (aka the WASDE), there was a one-billion-bushel difference. The government agency said however in the report that average yield will be 156.5 bushels per acre, a decrease of 1.5 from their May estimate. This data, combined with the fact that the USDA left planted corn acres unchanged (very surprising), keeps the 2013-14 crop above 14 billion bushels of production, much higher than what the market was expecting. While the wet weather might have push acres and corresponding yields/production lower, one should remember there is 40 million more acres of corn being planted in the world in 2013-14 versus last year.
Combine this with an expected extra 45 million tonnes of wheat being produced by the largest 10 exporters this year (versus 2012-13), more grain on a global level is said to become available (The UN’s Food and Agricultural Organization just said 2.46 billion tonnes!). Specifically, in addition to the crops here in the Prairies, production out of major growing areas in Europe and the Black Sea regions is looking good. Russia’s wheat prices have dropped to $250 per tonne FOB from southern ports. This in mind, more than a few in the market believe that the new crop contracts in North America are over-priced and that the market is due for a downside correction. Basically, the bearish sentiment for corn also has negative connotation for wheat as the two are seen as substitutes in the feed market. Case in point, recent international sales have North American grain priced $20-$50/tonne more expensive than the likes of the Black Sea (aka Russia) or South America.
A recent joint report from the UN’s FAO and the Organization for Economic Co-operation and Development (O.E.C.D.) suggests that the Asian Supernation will be able to sustain a 98 per cent self-sufficiency rate for grain production/consumption over the next 10 years. However, with China’s pig population expected to rise to almost 550 million head over the next decade, feed imports will continue to remain ultra-important.
On this note, China recently approved three new soybean GMO varieties, and one for corn in Argentina’s production line. This is significant because it signals to the market that, while China is concerned about “safe” food, they’re also concerned about making sure they can get enough to sustain their domestic demand. Let’s keep in mind though, however, that about 88 per cent of U.S. corn and 94 per cent of U.S. soybeans produced in 2012 were genetically modified (per the USDA). As such, Harvard development specialist, Calestrous Juma, says that “as the world’s food challenges increase, so must humanity enlarge its toolbox to include genetic modification and other technologies…”.
The debate continues.
Brennan Turner is originally from Foam Lake, SK, 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 (email@example.com) or phone (1-855-332-7653).
— FarmLead Breakfast Brief