Overflowing Canada grain bins compound global glut

Global Glut

A bumper crop in Canada will help global wheat output jump by 5.8% to 692.6 million tons, the most ever, in the 12 months that began July 1, the International Grains Council said on Sept. 26, boosting its forecast from a month earlier by 2 million tons. The council predicted corn production will rise 9.3% to a record 943.2 million tons.

The prospect of ample world supplies has kept hedge funds and other large speculators betting on a drop in wheat prices for the past nine months. Their net-short position on Sept. 27 was 35,000 futures and options contracts, while corn holdings were the most-bearish since the data began in 2006, at 126,345 contracts, according to the most-recent report from the Commodity Futures Trading Commission. Data was suspended this month because of a partial U.S. government shutdown.

Wheat futures in Chicago will drop to $6.35 in the fourth quarter as output grows in Argentina, Australia and the Black Sea region, Rabobank analysts including Luke Chandler said in an Oct. 2 report. On Sept. 30, Damien Courvalin, a Goldman analyst, forecast $6.50 in three months. Corn, after touching a record $8.49 a bushel last year, may drop below $4 within 12 months, Citigroup said on Oct. 3. The grain was at $4.4275 today.

Canola Forecast

Canola probably will average C$470 in the 12 months through July, said Neil Townsend, the head of market research for Winnipeg-based CWB, formerly the Canadian Wheat Board. Prices averaged C$600 a year earlier.

Global food costs tracked by the United Nations dropped for a fifth straight month in September, led by a 25% plunge in cereal prices, the agency said Oct. 3. The “favorable supply outlook” will mean lower prices next year, the IMF said Oct. 8.

Grain supplies in Canada also may wait longer than normal on farms or in storage because there isn’t enough shipping capacity by a rail industry that transports about 95% of the nation’s crops, said Wade Sobkowich, executive director of the Winnipeg-based Western Grain Elevator Association, which represents grain-handlers including Cargill and Glencore Xstrata Plc’s Viterra unit. Companies may need twice as many rail cars as normal to move all the grain this year, he said.

On Ground

Most of the export-terminal capacity is sold out through November and some buyers are booking deliveries into April to make sure they’re not waiting for supply, Richardson’s Watchorn said. Three elevators that have exceeded their capacity are storing a total of 96,000 tons on the ground in the first week of October, according to the Canadian Grain Commission in Winnipeg.

Bast, the Manitoba farmer, said he spent C$150,000 this year to add 10,000 bushels of storage capacity, an 11% increase, including new silos and a grain dryer. That only gives him enough room to store about 60% of his crop, which means the rest will have to be sold at low prices or into someone else’s bins.

“If the terminals are plugged and can’t take more grain, then everything has to sit at a standstill,” Bast said. “Everything is full at the farm right now, and we’ve got some more that’s got to come off the field yet.”

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