January 12, 2016, was the day that the United States Department of Agriculture came out with a number of reports covering intended seeded acres for U.S. winter wheat, 2015 production reports for both domestic and world grains and quarterly stocks and ending stocks reviews for U.S. and world grains. In the world of grain marketing this is by far the most important day for anyone in the U.S. grain trade.
For weeks in advance of this report being made public traders and speculators make their best guesses and position themselves in the markets to try to be on the right side of the potential market swing that could come based on the numbers released in these reports.
This year’s reports had very few surprises. The numbers were relatively close to what the trade was anticipating so they were said to be neutral to slightly bullish (supportive) for grain futures. World wheat stocks were the only ones reported to be larger than expected, which was seen as bearish for the wheat markets.
Meaning for the markets
For the near term the markets are going to be focused on supply and demand based on those numbers. Right now, overall, world supplies are ample to meet demand for the foreseeable future.
Add to that low world oil prices and the economic stressors out there in the world such as: China continuing to struggle to revitalize its economy; parts of India and Africa in the midst of another potential dry/drought year; South America looking at better than average second crops about to be harvested; big supplies of grain still in the bins from last year; uncertainties and tensions building in the Middle East and Baltic regions. You have many possible outcomes that could and will affect world grain prices.
The recent devaluation of currencies in some countries like China and Argentina will have a definite impact on China’s ability to buy grains and Argentina’s ability to sell grains into the world market place.
China, the No. 1 buyer and importer of grains in the world, will have less buying power with a lower currency. That will force sellers to reduce their asking prices when selling to China or end up holding more inventory than they would like to if the No. 1 buyer can’t afford to buy anymore.
Argentina, as a major net exporter will be able to be more aggressive selling its grains into a competitive world market place because of their devalued Peso. This will force other sellers to match those competitive prices if they wish to sell, driving futures values lower. Overall, currency devaluation is not usually a positive for grain markets or futures values.
How long will currency devaluation go on? Which countries might be next to attempt this strategy? Good questions that, sorry, I don’t have answers for.
Add in the weather
El Niño is still very dominant. It could be at its peak, but it’s expected to have a major influence on world weather until early or mid-summer 2016.
Over the past three months we have seen an intensification of world weather events that are evidence that El Niño’s influence is alive and well. Heavy rains have moved into California with stronger storms expected through February. Parts of South America have seen torrential rains and flooding. Recent weather havoc on the U.S. East Coast along with deadly storms in the southern U.S., heavy snow in the Pacific Northwest, drought and fire in Australia and massive flooding in Northern Europe and South America are all blamed on the strong El Niño event happening in the waters of the south-central Pacific Ocean.
This could mean that here on the Prairies we’ll have another early spring and a summer that is warmer and dryer than usual. The key will be if and when the El Niño effect starts to wear off. If it is early spring then the chance for summer rains are a lot better. If El Niño persists until mid- or late summer we could be facing another dry growing season.
If El Niño persists and some of the dryer regions around the globe stay dry, we could be headed for some big production problems that could send world grain markets higher yet again.
World supplies are adequate to meet demand for the next six months to a year but beyond that is the big unknown exists.
If El Niño fades and overall world grain production is average or better, prices will be pressured lower as world supplies continue to build.
Many variables could come into play over the next month to a year that could affect world grain markets and prices. The hard part is keeping track of it all so you can better plan when you should be selling your grain. It’s your business to know what is affecting your business.