Grain prices ended the month of February a little mixed as corn, soybean, and canola prices all got support in the last half of the month through harvest and logistical concerns out of South American. Lower oil prices have helped keep gains in check for those crops related to the biofuels industry, although strong domestic consumption thanks to lower prices at the bumps is supporting ethanol a bit.
That being said, ethanol-makers are leaning more on RINs (basically paper ethanol credits) as the RIN value reduces the effective price of ethanol, in turn supporting blending. However, with the EPA set to announce ethanol targets for 2014, 2015, and 2016 all at once in the coming weeks, but we do continue to see decreased production at ethanol plants as U.S. stocks are at their highest since April 2012. Lower oil prices, coupled with lower grain prices are slowing down all biodiesel production as evidenced by ADM, who has shifted its North Dakota oilseed processing facility completely away from biodiesel “temporarily”.
Data from Port Metro Vancouver shows that grain shipments out of the West Coast harbour in 2014 jumped almost 22 per cent from the previous year, bolstered by canola shipments climbing 31% year-over-year to 6.1 million tonnes and wheat sailings increasing 18 per cent to 8.9 million tonnes. Containerized grain movement was also up year-over-year with pulses moved in containers up 6 per cent to 2.67 million tonnes and containerized cereals growing by 25 per cent to 393,000 tonnes. In terms of destinations, nearly 15 per cent of the wheat moved through the Port of Vancouver (1.4 million tonnes) was headed for Japan. Comparably, China accounted for almost 50 per cent of the canola movement, or about three million tonnes.
A recent Reuters poll of 12 traders and analysts is showing that Canadian farmers will plant 23.9 million acres of total wheat acres this year, the second-largest area of the cereal planted in Canada in the last six years. This also includes a nine per cent increase year-over-year in durum acres to 5.2 million acres. Comparably, canola acres are seen falling two per cent year-over-year to 19.9 million acres (StatsCan at 20.33 million, AAFC at 20.76 million). Louis Dreyfus has suggested Canadian canola 2015/16 ending stocks could fall below one million tonnes (AAFC pegs it at 1.4M tonnes). Other notables from the poll include lentil acres growing to 3.5 million acres (3.1 million last year), land planted with peas up to 3.9 million acres (3.8 million last year), flax acres the same at 1.6 million (although I think they’re low on this one), and barley acreage growing to 6.3 million (5.9 million last year). More Canadian maltsters are also suggesting that global production and ending stocks are on the decline and that the Canadian share of the global export market is getting smaller as new players are emerging.
Clearly it’s a more globalized ag trade game that we’re in than 10 years ago, let alone 25. With lentil prices fairly attractive (namely small reds), you can expect not only more acres here in Canada, but also in other countries like Australia and Turkey. Same thing on the durum side as it’s been suggested that Mexico will harvest more durum this year than the U.S. will! Other market buzz is that the Bank of Canada could drop interest rates again in March or April, which could help push the Loonie well below 80 cents, possibly towards the 75 cent-level that some bearish analysts have been predicting. This would intuitively help Canadian grain exports more competitive with those from other countries who have also seen their currencies depreciate significantly, including, but not limited to, Australia, Ukraine, and Russia.
In a swift/savvy trading maneuver, less than 1 week after Egypt declined to purchase US-origin wheat (which pushed the futures lower), the GASC bought up 290K tonnes of American wheat yesterday, helped in part by more competition as more than double the offers were tendered. While the amount topped total combined 2013/14 and 2014/15 US wheat purchases by the GASC, delivered prices as low as $271.11/MT helped make things more competitive with EU-origin product. That being said, northeastern Ukraine and southern Russia have been badly affected by severe frosts in mid-January when crops had limited snow cover, significantly raising the level of winterkill in these regions. Our call continues to be that wheat prices will continue the marginal sideways trading until the Black Sea region announces more winter crop conditions, and possibly more export limitations.
The International Grains Council recently decreased their expectations for the E.U.’s rapeseed crop to 21.2 million tonnes (-11.7 per cent from last year’s record crop). In turn, the price ratio between wheat and canola is starting to swing in favour of more canola acres this spring. That being said, while the U.S. and South American crops are putting significant bearish pressure on the global oilseed complex, canola has been saved by the sinking Loonie. Speaking of South America, soybean prices rose over the last week of February thanks to a truck drivers’ protest against high diesel prices headed into its second week.
With over 100 highways and roads to ports and other delivery terminals blocked , diesel itself was not getting transported, which in turn lead to concerns that with a lack of available fuel, farm equipment won’t get turned on & the corn and soybean harvest could effectively stop cold turkey. The government stepped in though, fining some truck drivers thousands of dollars for every hour their rig stays idled on the road. Overall, with movement of commodities slowing down in Brazil, major soybean and corn buyers are likely switching their procurement strategy to more reliable markets. (i.e. the U.S.).