Opinion
Rounding out the middle of November, the markets seemed to pause a bit and then dropped lower as some farmer selling increased and likely the last of U.S. corn and soybeans fields were being harvested for 2014, as most places now have too much snow on the ground. While U.S. soybean crush volumes from October show that volumes were up, there is some suggestions that the new crop supply is starting to filter in, which is why the market’s reaction to the higher-than expected number was fairly mute on both canola and soybeans. What shouldn’t fall on deaf ears is that this time of year can be better for fertilizer prices as, according to the Alberta Agriculture Ministry, only once in the past 10 years have prices in the spring been lower. That being said, with the relatively slow and wet harvest of 2014, there are a lot of people wondering what to plant next year and what nutrients in the soil need replacing? Do you know?
Speaking of not knowing, the American Environmental Protection Agency decided recently that they’re holding off on deciding how much ethanol companies must blend for the U.S. fuel supply. The delay in finalizing the renewable fuel standard quota could create market uncertainty and, thus, volatility. This is because the amount of corn that doesn’t need to go to ethanol processors can obviously head to other sectors, namely feed. Basically, if the RFS was lowered, then there’s less corn demand, suggesting lower prices.
Staying in corn, Archer Daniels Midland Co. joined the party suing Syngenta over the sales of the MIR162, a corn variety not approved for import by China. The agri-giant joins the likes of Cargill, Trans Coastal Supply Co., and a group of US Midwestern farmers claiming that Sygnenta didn’t take the proper steps to ensure that the corn variety was eligible in the markets it was getting shipped to. Any results of these lawsuits could have fairly significant implications for future seed development and trade relations.
Ethanol prices have recently climbed to a premium above gasoline in the U.S., creating a conundrum for those refiners who usually get it at a 50 cent/gallon discount. At current corn prices, ethanol margins are roughly $0.90 per gallon. That being said, if demand from the blenders can hold, then it would support ethanol’s price, and we should expect to see sustained strength in corn demand. However, with more corn available than ever before (thanks to the record U.S. harvest), ethanol will be variable to watch in the short term.
While, yes, feed demand is strong, front-month soymeal contracts have a wide spread from deferred delivery, creating concern that premium will narrow as soybean crushers and processors are running at full tilt and rail problems are being worked through. Historically, circumstances are matching up to 1997-98, when a 70 million-tonne U.S. soybean harvest flooded the market and, although demand was strong for the Oct-Dec period, it filtered off in subsequent months. Given that Informa’s predicting another year of record U.S. soybean acreage in 2015 (88.3 million acres) and South America being a much larger player than it was 17 years ago, it’s hard get bullish right now going into 2015 for the oilseeds.
Wheat has been fairly resilient but we might see prices trade sideways over the course of winter as the record global crop seems be factored in. We’re bound to see some cyclical rebounds towards the spring but geopolitical risk (i.e. ISIL expanding its geographical control) could also create some selling opportunities over the snowmobiling and ice-fishing months. One interesting variable in the wheat market has been that despite less-than-stellar wheat grading, it’s still getting used for baking and milling purposes. As per the Canadian International Grains Institute, those hard red spring wheat grades coming in at three or better because of mildew issues are still making quality breads, although the noodle quality isn’t as great as years past because of poor colour. Ultimately, the world standard when it comes to wheat is based off things like protein and falling numbers and that’s where Canada may be headed over the next few years. This in mind, it’s more important to keep the focus on right now as there’s certainly crop left to market from this year’s harvest and the need to start a to-do list for the coming six to nine months.
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