USDA shocks markets with bearish estimates
The U.S. government released its monthly World Agricultural Supply and Demand Estimates Report this week. The August report traditionally is one of the most watched and greatly anticipated of the year, as it holds the first survey-based yield estimates for spring crops. All of the previous reports for the coming new crop hold a yield that is based purely on historical statistics. The August report takes surveys from growers and U.S. Department of Agriculture officials and compiles them into a yield estimate for the spring crops, taking the actual crop and growing conditions into consideration.
This year, the weather has not been quite as favorable as the previous, with obvious drought problems all spring and early summer in the Northern Plains, and some heat and dryness stressing crops in the Corn Belt in July. For that reason, many expected some fairly large declines in yield from the estimates made earlier in the year (again, statistics-based).
Spring wheat yields fell as expected. But the biggest story was about corn and soybeans. Corn yield was expected to fall to 166 bushels per acre from 170.7 but only fell modestly to 169.5. This is still a decent crop, and the market was very surprised, falling sharply. Soybeans also surprised the market, with an unanticipated yield increase to 49.4 bushels per acre from 48 bushels per acre, previously. The entire ag complex saw lower prices with this report, and the stage is set for a less bullish than expected tone heading into the final months of the growing season.
The wheat market has been under pressure as the bigger, global picture has overshadowed what has been going on in the Northern Plains. While spring wheat has been suffering, there remains plenty of wheat in the world. France has recovered well after last year's crop disaster. Russia increased planted area for their winter wheat crop and after some great weather, is now harvesting a bumper crop. These countries supply a lot of the world with their wheat (along with the U.S., Canada, Australia and other European countries). So while high-protein, high-quality wheat will remain at a premium, there is a lot of wheat weighing on the market.
In the U.S., winter wheat harvest is very nearly done at 94 percent completion. And spring wheat harvest is getting going, with 24 percent completion. Look for plenty of acres of spring wheat to be abandoned given the poor crop, which should speed up harvest activity.
The durum market has stabilized, with crop losses understood from a pricing perspective. The heat and dryness in the Northern Plains in the U.S. and nearby area of Canada has cut output potential for the 2017-18 crop.
The canola market has been supported of late. Strength in the soybean oil market (until Thursday's big decline following the USDA report) has spilled over. Additionally, there has been extreme tightness of old crop canola supplies heading into the end of the 2016-17 season. The big uncertainty remains on how bad the crop in the Southern Prairies really is compared to how good the crop is in the Northern Prairies. If it turns out that the southern crop is worse than expected, supplies will be tighter as harvest gets going and the market would be supported.
Peas & Lentils
Pulse markets have some mixed drivers, making pricing difficult to predict. Weather has been an obvious issue, as production outlook for peas and lentils has been impacted by the heat and dryness in the Plains. This expectation of lower output is a clear support. However, the dryness is allowing for quick harvest in the U.S., which is a trend that will likely continue and move into Canada.
The USDA reported 55 percent of the U.S. pea crop has been harvested compared to 50 percent usually. And while the dry weather is impacting yield, it does help with the quality of the crop that is harvested.
On the international front, India remains in the market's focus as pulse import quotas are back in the news. This time, pigeon pea (also known as "tur") has been limited to 200,000 metric tons until March 2018. These import quotas diminish available markets for pulse exports from Canada and the U.S.
Canadian mustard seed ending stocks for the 2016-17 crop year have increased to 11,600 metric tons from 6,300 metric tons last year. While this does not reflect the supplies in processing or on farms, it does indicate that farmers are holding onto large stocks given the reduction in planted area for the 2017-18 crop.
The USDA cut the barley yield estimate modestly in its report on Aug. 10 to 72.1 bushels per acre from 73.5 bushels per acre previously. This resulted in a small decline in ending stocks (totaling just 3 million bushels) as nothing was changed on the demand side of the balance sheet. Barley conditions took a hit, this week: 45 percent of the crop is rated good to excellent from 49 percent a week ago.