Rising competition CWB official says growers should consider 2013-14 future contracts
Two numbers jumped out at Neil Townsend among the thousands contained in the U.S. Department of Agriculture’s latest World Agricultural Supply and Demand Estimates report.
He was struck by the 2013-14 world corn production forecast of 966 million tonnes and world wheat production of 701 million tonnes.
“Those are big numbers and they are very, very negative towards prices,” said the director of CWB Market Research.
The projected corn crop would shatter the previous record by 83 million tonnes. The wheat crop would also be a record.
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Townsend said farmers have a tendency to disregard such bearish outlooks, but this is one occasion where they should put some faith in the forecast.
“These numbers are highly, highly possible, particularly the corn one,” he said.
Townsend said the probability of the world corn crop exceeding 900 million tonnes is “close to 100 percent.” The previous high was 883 million tonnes two years ago.
“I’ve been saying all spring that 2013-14 futures offer great value and that (growers) should be hedging. I’d probably still say that today,” he said.
“I think there’s still opportunities to price right now (to avoid further price drops).”
Corn production is expected to rise in many key exporting regions of the world. The biggest rebound will be in the United States, where growers are expected to harvest 85 million tonnes more corn than last year.
Wheat production is predicted to drop slightly in the U.S. but rise in Argentina, Australia, Canada, the European Union, Russia, Kazakhstan and Ukraine.
“That’s seven of the eight major exporters they’re forecasting more wheat for and about (59) million more tonnes,” said Townsend.
“That wheat has got to go somewhere. It goes out into the world market, and that’s what really, truly devastates the world price.”
He said Canadian farmers focus too much on their own backyard, looking at the North American wheat supply outlook for pricing guidance.
The reality is that Canada relies heavily on servicing markets all around the globe and there is going to be plenty of competition for those sales this year, he added.
“What the USDA did today was show a pretty scary global wheat situation,” he said.
Townsend said most wheat is “margin sold,” which means grain companies don’t care what the price is as long as they are moving the commodity through their facilities and making a certain margin per tonne.
A lot of farmers around the world don’t have the same level of grain storage as Canadian growers, so they will be in a hurry to move their crop, which means lower prices.
Even the mighty oilseed complex could be in trouble. The USDA forecasts a record world soybean crop of 285.5 million tonnes and a 12.5 million tonne increase in 2013-14 ending stocks, which would be the first time in four years stocks would build by that magnitude.
“It’s more of a mood thing,” said Townsend.
“It’s like flipping a switch, where suddenly we’re not tight, and that should be a little worrisome for canola and soybean producers in Western Canada.”
