The United States Department of Agriculture forecast of American and global grain production last week confirmed this summer’s downward trend in grain prices.
USDA forecasted record U.S. corn production, near record soybean production and it increased its American wheat production estimate by 1.74 million tonnes. It also boosted its global wheat production forecast by 10 million tonnes.
It expects the trend of soybean production increases in Brazil and Argentina will resume after last season’s problems with weather and rust disease.
Almost everywhere, crops are developing nicely. Even India, which experienced a dry spell in key northwestern areas in July, has seen monsoon rains return, limiting damage.
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USDA expects grain and oilseed stocks that have been declining for several years will start to rebuild.
While the forecast for a 78.29 million tonne U.S. soybean crop was less than private analysts expected, the bump up in soy prices was short-lived as forecasts of favourable weather pressured the market lower again early this week.
This sets the stage for a continuation of disappointing grain futures prices for several more months.
The potential for the trend to change will depend on four things:
- Crops in Western Canada and to a lesser extent the U.S. are behind normal. Frost could limit yields and change quality premiums if a lot of grain is downgraded to feed.
- The second issue is demand, particularly from China. The USDA is forecasting strong demand. It expects China will import 23 million tonnes of soybeans this year, up from 16.9 million last year and beating the record of 21.4 million set in 2002-03.
In wheat, it expects China to buy eight million tonnes, up from 3.5 million tonnes last year.
However, China still is adjusting to the new economic measures Beijing imposed this spring to cool the overheated economy, and its import demand is uncertain.
Also, after years of decline, China’s wheat crop this year has improved. USDA increased its China wheat estimate by three million tonnes from its July forecast. Despite this, the wheat import forecast stayed the same.
- The third factor is U.S. fall weather. There is much better moisture in winter wheat areas this year. Last year at this time, the key producing states of Kansas, Nebraska and Oklahoma were all in drought. Summer rain this year has improved the situation in all three states, meaning more wheat acres might be seeded.
- The fourth factor is Brazilian weather and disease pressure. Problems last season knocked production to 52.6 million, well down from early forecasts of 61 million tonnes.
This year, USDA expects a whopping 66 million tonnes thanks to a 10 percent increase in acreage and a return to yields similar to two years ago.
A factor that might play into whether that number is met is the potential El Nino that may develop this winter.
The U.S. government’s Climate Prediction Center said earlier this month that there is a 50-50 chance of an El Nino developing this winter. That’s up from an 80-20 percent chance against El Nino in the July report.
El Nino episodes are associated with above-normal precipitation from November through February in soybean areas of Argentina and Brazil. If an El Nino develops, it bodes well for South American production.
