Burdensome stocks weigh heavily on crop markets

China’s expanding trade restrictions are a serious situation that deserves the spotlight but growers must also understand there are additional reasons for the drop in crop prices in recent months.

The market was not “buying acres” this spring, focusing instead on the prospect of large stocks-to-use ratios.

That fact gets lost as every few days China tightens the screws to pressure Ottawa to release Huawei executive Meng Wanzhou, held in this country on an extradition request from the United States. The list of affected agricultural products gets larger and the number of Canadians held in Chinese jails increases.

The ICE Futures November canola futures contract fell 9.97 percent in the three months from Feb. 4 to May 1.

You might think a lot of that is related to the China situation but note that Chicago November soybean futures fell 9.84 percent and December soy oil futures fell 9.72 percent in the same period.

In other words, canola, soybeans and soy oil all fell about the same amount.

The weakness was not limited to oilseeds.

Minneapolis December spring wheat also fell almost 10 percent in those three months and corn had suffered a seven percent drop until recent worries about delayed seeding in the U.S. Midwest began to support that market.

The market looks at reports of ample stocks and trade disruptions and sees no reason to bid up prices.

The United States Department of Agriculture forecast shows the domestic supply of soybeans relative to demand at year end is about 22.5 percent, well up from last year’s 10 percent and 7.5 percent two years ago.

Put another way, the U.S. will have 82 days of soybean supply compared to 36.5 days last year and about 27 days two years ago.

The U.S. soybean stocks-to-use ratio is the highest in several decades.

The stocks-to-use ratio of global soybeans is even more ample at 31 percent, also a record high.

The Agriculture Canada April outlook for principal field crops forecasts 2018-19 year-end canola stocks at 3.5 million tonnes, up from 2.5 million last year. The China trade situation has worsened since the Agriculture Canada report was produced so the export goal of 9.8 million tonnes might have to be revised down again if there is no resolution with China. That would also lift the ending stocks forecast. Currently, the ending stocks forecast of 3.5 million tonnes would be a stocks-to-use ratio of 18 percent, up from 12 percent last year.

To the end of week 39 of the crop year, which is 75 percent of the crop year, canola exports stood at 72 percent of the Agriculture Canada target so they are running a little behind the pace needed to reach the target.

In addition to the large oilseed stocks, the market is looking at Midwest weather forecasts that show cool, wet weather that could delay corn seeding enough to cause farmers to switch to shorter- season soybeans.

The same considerations helped December corn futures recover from the low close of about US$3.77 per bushel on April 25 to $3.87 on May 2.

The U.S. corn stocks-to-use ratio at about 14 percent is more favourable than soybeans and is only two to four points higher than a few years ago when prices were much more attractive.

However, the wheat stocks picture is more gloomy, which helps explain the weak wheat price.

The USDA estimates domestic year end all-wheat stocks-to-use at about 52 percent, down only slightly from last year when it topped 55 percent and set a modern era high.

Focusing on just U.S. hard red spring wheat stocks-to-use, the ratio is about 60 percent, a level not seen since the low price years of the late 1980s and early 1990s.

The American commodity futures exchanges focus a lot on this burdensome U.S. supply and demand situation.

Also weighing on wheat is the good condition of this year’s winter wheat crop.

The Wheat Quality Council annual tour last week estimated Kansas yield at 47.2 bushels per acre, up from a weather stressed 38 bu. last year.

Seeded area is down from last year, but with the stronger yield potential the crop could be larger than a year ago.

Using the council’s estimated yield, production in Kansas would be 306.5 million bu. this year, up from 277.4 million last year.

The condition of wheat in neighbouring Oklahoma and Nebraska is even better than in Kansas.

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