Canada Markets

USDA Paints Gloomy Picture for Global Grain Fundamentals

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The USDA's first look at 2014/15 global crop production holds few prospects for price improvement given a year-over-year growth in estimated ending stocks. Global wheat ending stocks are estimated to increase .5% from current 2013/14 estimates, global corn ending stocks by 7.9% and global soybean ending stocks by 22.8%. (DTN graphic by Scott R Kemper)

The USDA released its first estimates for the 2014/15 crop in today's report. In his article Let the Guessing Games Begin, fellow DTN analyst Todd Hultman warns that these are early days and "this year's grain game has barely begun."

If we go back to the May 2013 estimates of the 2013/14 global grain carryouts, we see that while the estimate for the global wheat carryout is very close to the current USDA estimate for the current crop year, the current estimate for the global corn carryout is 8.9% higher than the May 2013 estimate, while the current soybean estimate for the 2013/14 crop year is 10.6% below the May 2013 estimate. There are endless moving parts involved in the construction of these estimates, and they are just that -- estimates!

Today's release of supply and demand data for the 2014/15 crop year indicates a building of stocks for wheat, corn and soybeans, as shown in the attached chart. Wheat ending stocks are expected to grow a mere 890,000 mt to 187.42 million metric tonnes. This would reflect a small bump in the global stocks/use ratio to 26.92%, the highest in three years.

Global wheat production is expected to fall 2% while demand is expected to fall 1% due to less wheat feeding. Noted in the report is an expectation for lower acres along with a return to longer-term average yields in Canada, with Canada's all-wheat production estimated at 28.54 mmt, as compared to last year's record 37.5 mmt.

The global corn carryout is expected to increase 7.9% from the 2013/14 global carryout estimate to 181.73 mmt. This would indicate a move in the global stocks/use ratio from 17.8% to 18.8%. Both production and demand are expected to be at record highs, with ending stocks resulting in 15-year highs.

Canada is expected to reduce production from 14.2 to 12.5 mmt, while steady domestic demand and a 300,000 mt boost in exports to 1.5 mmt will result in a 700,000 mt reduction in carryout stocks to 2.05 mmt. Also of interest is an expected 15.9% reduction in production in Ukraine, which bears watching. Ukraine is estimated to have produced 30.9 mmt of corn in 2013, although the 2014 estimate is 26 mmt. Recent reports suggest that issues surrounding financing as well as the high cost of inputs which are impacted by the turmoil with Russia may impact seeded acres and the application of inputs, a concern echoed by the USDA in today's report.

The global soybean crop is also expected to contribute to a build-up in stocks over the upcoming crop year. The global soybean carryout is expected to grow 22.8% to 82.23 mmt based on increases in production in both the U.S. and Brazil, resulting in a significant jump in the ending stocks/use ratio from 24.8% to 29.3%. Of particular interest will be Chinese domestic demand, which was estimated to have increased 4.6% from 2012/13 to the 2013/14 crop year, while a further 5.3% increase has been penciled in for the upcoming 2014/15 crop year. The health of the Chinese economy is watched closely by the western world and any further slowing could impact the country's demand.

Right or wrong, the markets did not like these numbers, with new crop December Chicago wheat down 12 cents, December corn down 12 3/4 cents while November soybeans received a 2 1/4 cent boost, pulled higher by old-crop strength.

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