USDA forecasts keep outlook gloomy

The U.S. Department of Agriculture reminded us last week that the world appears set on a course to another year of comfortable supplies of major grains.

For Canadian farmers, it means another year when it is critical to know costs of production, watch for the inevitable modest rallies that spring up during the seeding and growing seasons and incrementally sell and hedge into those rallies.

There are crop problems around the world, but they are not of the magnitude that change global supply and demand balances.

Southern Africa is in severe drought, but it is not an internationally important production region. It will increase corn imports by a few million tonnes, but that is not enough to affect international prices.

It is also dry in much of North Africa, particularly Morocco, but again, a production shortfall there is not going to change the international supply and demand picture.

Canada might gain by shipping a few more boatloads of durum to the region.

In fact, early this week Algeria bought at least 280,000 tonnes of durum, mostly from Mexico, but news reports said some might come from Canada.

India is also dry, and shortfalls in its unirrigated pulse crops should lead to good demand for Canadian pulses.

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However, a good percentage of its wheat crop receives some irrigation, which should lessen the impact on that staple crop — although we wonder how long India can mine its groundwater reserves before a crisis develops.

I think the winter crop situation in India is a lot worse than the official government production forecasts let on.

The country carries large government-owned wheat stocks, but imports might be needed. However, even 10 million tonnes of imports would pale compared to an expected world wheat carryout of 240 million tonnes.

Given this overall picture, the USDA’s forecasts for American planted acreage and production did nothing to dispel the pall over the global crop market.

The numbers released at the department’s annual outlook conference last week are its best guesses based on trends and economics and so should be considered as tentative.

The USDA’s planting intentions report, based on a farmer survey, does not come out until the end of this month.

Much can change in the weather as we transition from winter to spring, which could alter the actual number of seeded acres.

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However, the report gives traders something to talk about until the weather starts throwing curve balls.

USDA economists expect American farmers will seed more corn acres, steady soybean area and a little less wheat. Crop prices in U.S. dollars might be the lowest in years, but reduced costs for inputs such as fertilizer and fuel partly offset the misery for American growers.

Large carry-in stocks and average weather during the growing season would produce record large total domestic supplies of the three main U.S. crops.

Exports of corn and wheat will likely continue to struggle as the strong American dollar gives a competitive edge to other exporters with weaker currencies.

It sees 2016-17 year-end U.S. stocks of corn and wheat rising and soybeans slipping only insignificantly.

Weak currencies in the world’s other major crop exporting countries mean crop prices in the local currencies don’t look bad, so farmers there are eager to continue increasing production.

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