The Markets This Week: Russian Bans, Chinese Demands and Toppy Durum

Photo Courtesy of
Photo Courtesy of

Grains started the month of August with a little oomph as the tension between Russian and the rest of the Western world continues to build. Moscow is building up its military resources on the eastern Ukrainian border, signed a five-year oil deal with Iran, announced a one-year ban on the import of various agricultural products including fruit, vegetables, meat, fish, milk and dairy products, and nuts from the U.S., E.U., Australia, Canada, and Norway. (Sidenote: there is also a proposed airspace ban for E.U. and U.S. airlines being tabled by the Kremlin). This is fairly significant as ag imports in 2013 from the E.U. totalled $15.8 billion and $1.3 billion from the U.S. For Canada, the pork sector looks to be the one taking the biggest hit as from January to May, Canadian pork exports to Russia equaled $207 million, an increase of 103 per cent of the same period in 2013.

While Russia was the second largest buyer of American chicken last year, they are now playing political chicken with the Americans. The ban on agricultural trade could send food prices inside Russia higher, given the fact that they import about one-third of their food consumption needs and are the largest food importer in the world. The benefactors will likely be Latin & South America (especially the Brazilian meat sector), as well as other former Soviet Union states like Kazakhstan & Belarus. Moving forward, both new and old trade partners watch Russia earnestly as the situation continues to unfold.

Heading east, since the beginning of the year, China has imported 41.7 million tonnes of soybeans (including a record 7.47 million tonnes in July), an increase of 20% year-over-year. Why do China’s soybean imports continue to grow? Simply because of the cost of buying imported soybeans and crushing them is churning out a much bigger profit than buying domestically (the cost of soybeans on the Dalian commodity exchange is currently about $19.60/bushel). Nonetheless, rapeseed imports by China grew by 44 per cent year-over-year in the first nine months of the 2013/14 marketing year to 3.84 million tonnes. China National Grains and Oils Information Centre is estimating that China will import 4.5 million tonnes of rapeseed this year (USDA is at four million tonnes) as demand for livestock feed (i.e. canola meal) is growing.

Maturing Soybeans2Although crop ratings remain above the average, August is a crucial month for soybeans for crop development. Further, there are some reports of corn tip back occurring in a few major U.S. corn growing regions, which could downgrade average yield and total production numbers (tip back is where the corn ear does not fill all the way to the end). Thus, while axles are getting greased up for harvest, the next two-to-four weeks will be a crucial period to watch for.

Wheat prices started to see a bit of a rally thanks to some drier conditions in the northern U.S. states, quality concerns in Europe, and the situation in Ukraine. However, prices have seen come back to late July levels thanks to non-geopolitical catalysts, like crop development here in Western Canada looking generally positive, with yields for spring wheat, canola, & durum reported to be all above their five-year averages. As your crop starts to come off, it’s important to keep focused on the realities. There’s still a lot of grain coming off in a lot of places so when there are some bounces in the market (i.e. durum looks “toppy” right now), make sales when you can, not when have to.

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