Sell feedgrains early to avoid competition

Late seeding limits U.S. yields | Too early for price predictions, says analyst

REGINA — A CWB analyst says the downside potential for new crop prices might not be as bad as the U.S. Department of Agriculture projects.

However, Neil Townsend told a forum at Canada’s Farm Progress Show in Regina last week that market volatility is the only sure thing about grain and oilseed markets in 2013-14.

Speculation is that last year’s canola production didn’t reach Statistics Canada’s reported 13.3 million tonnes and that carryout stocks will be tighter than anticipated.

He said even if this year’s canola crop grows to 15.5 million tonnes, strong demand means carryout for 2013-14 would likely remain low, supporting prices.

Townsend said carryout stocks of durum are low, making price predictions difficult.

Internationally, ending stocks of durum for 2013-14 are expected to be about on par with last year, with slightly lower Canadian production because of late seeding dates.

U.S. carryout for 2013-14 is expected to fall marginally to 735,000 tonnes from 792,000, with Canada’s dipping from 1.16 million tonnes to about 1.06 million.

He said late planting in the American corn belt and in Western Canada would likely prevent higher than average crop yields.

He sees spring wheat production in Canada rising by about 750,000 tonnes to 27.6 million tonnes, with a slight rise in ending stocks.

“At this point in the season we don’t know what is the reality of the situation. Some folks are speculating pretty heavily, but the fact is that it isn’t safe to speculate this early in the year,” he said.

Many traders and farmers expected a large corn and soybean crop in the United States last year after nearly ideal planting conditions, but drought intervened beginning in July. Townsend said the markets and farmers shouldn’t forget how that turned out.

He projected an American corn crop of 13.6 billion bushels, less than what the USDA projects. However, stocks at the end of 2013-14 will still likely be more comfortable than the current USDA projection of a tight 769 million bu. this year.

The U.S. Midwest corn crop has a good chance of being average to above average, resulting in a corn price of about $5 per bu. and a wheat price of about $7.

Townsend said prairie producers with feed grains should look at moving them early to avoid competing with corn and dried distillers grains, which will compete for western Canadian market share as the new crop comes in.

About 15 percent of Canadian wheat ends up in domestic feed, so it is marginally vulnerable to competition from lower priced corn and DDG.

Townsend sees Black Sea countries producing more wheat. Russia’s crop will likely rise from last year’s 16 million tonnes to 54 million, Ukraine might rise four million to 19.5 million and Kazakhstan should increase five million to 15 million tonnes.

Ukraine will likely want to sell its wheat supply early to make room for its corn crop, which is expected to increase by 16 percent this year.

“They are moving to more corn acres. They like it because it is easier to hedge, sell and move, with more markets,” he said.

He said world corn supply could rise 12.5 percent over 2012-13, wheat might be up 6.1 percent and soybeans up 6.6 percent.

“Farmers have responded to the incentive of price and they are producing more,” he said.

American legislators are unlikely to increase mandated uses for ethanol, so what had been a growing U.S. domestic market will edge lower, freeing up corn for use in the feed market.

“That rising trend (of ethanol use) has levelled off,” he said.

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