March was important for grains
The two most important grain market announcements of March came in the last few days of the month.
In fact, we expect that they will stand as two of the two most important announcements of the year. First, China’s National Development and Reform Commission (NDRC) announced that they have adopted a revised support program for corn farmers. Three days later the USDA released their March Planting Intentions, a report based on their survey of tens of thousands of farmers.
Important details were lacking in the NDRC announcement, and actual planted acres in the U.S. can differ significantly from these original intentions, but that did not prevent the market from making some major corrections.
Before we focus more closely on those two items, we want to highlight some important items from the first four weeks of the month:
1. Currencies, more specifically a strong dollar and weak currencies in most grain exporting countries, were a dominant feature in 2015. That phenomenon gave a windfall to many foreign farmers and pushed the dollar-denominated world grain markets to multi-year lows. Early this year that trend reversed, with currencies in Canada, Russia, Australia and Brazil all making significant gains against the dollar.
In fact, the dollar index had its biggest quarterly decline in over five years. Unfortunately, for U.S. farmers, increasingly bearish fundamentals prevented any meaningful recovery from those currency-assisted breaks.
2. South America continues to enjoy good weather and excellent logistics. With minor exceptions, most growing areas of South America experienced favorable weather and yields are now coming in at or above trend line. The elimination of most taxes and export restrictions in Argentina have spurred excellent farmer selling in that country.
In Brazil, farmers have benefitted from strong prices and from significant investments by the grain handling industry. The result has been a lengthy string of record exports and crush in both countries. We fully expect this trend to continue.
3. Two of the most important countries in the world wheat market continue to struggle. The grain procurement, handling and marketing systems in both Egypt and India have been accused of corruption and mismanagement. Egypt has brought in an official from the UN to help them settle their internal dispute over ergot fungal tolerances. In India the government insists that their crop is over 93 million metric tons (MMT), while private estimates are as low as 80 MMT.
The former number would keep them self-sufficient while the latter would make them an importer of over 5MMT. We expect the USDA to come in very close to the middle of the range and to show India as a small net importer, under 2 MMT.
4. We cannot mention corruption in government without mentioning Brazil. The current schedule is for Brazil’s lower House to vote on the impeachment of President Dilma Rousseff on April 17. There is a growing consensus that she will be voted out. So far domestic and international markets have treated a regime change there as a positive development, with the Real now 17% above its January low. We think that perception will continue until such times that the new President starts to make mistakes.