Another Kind of March Madness — This Week in the Markets

More chatter about new crop acres continues to help the grain market trade sideways as we move towards the second half of March. Domestic corn-for-ethanol and soybean crush demand remains fairly strong, as does canola crush here in Canada which is up 20 per cent year-over-year last week, but the strength of the U.S. dollar is hurting export potential. In fact, China recently sourced corn from Ukraine and high-protein wheat from Canada and Australia instead of our neighbours to the south. However, most analysts are focused on acreage estimates and weather forecasts for the northern hemisphere. The March Madness scene in the grains market will likely be a result of traders jumping on any headline or weather report that has to do with adverse planting conditions.

There’s growing concern that parts of Oklahoma and Texas could see a big wheat rust problem with both stripe and leaf rust being observed. According to one specialist, when stripe rust is observed before March (in the area), a large stripe rust epidemic is likely for the Southern Great Plains. While dry weather may stop the spread of disease, it could impact wheat crops and even moisture profiles for spring seeding. The portion of crops rated good-to-excellent (G/E) in Texas rose by one point from last week to 51 per cent, but the G/E proportion of the wheat crop in Oklahoma dropped by two points to 40 per cent. In Kansas, the largest wheat-producing state in the U.S., G/E ratings dropped by five points over the course of the week to 41 per cent.

Staying in the U.S., there’s chatter that U.S. producers will cut back on their purchase and application of pricey fertilizers this year. This could help lower fertilizer prices but might also result in an average corn yield below the trend line (which would help support corn prices). Keep in mind that Purdue University estimates that it’ll cost about $446 US/acre to grow corn this year (on average soil), compared to just $228 US/acre for soybeans.

Between weather, crop input costs, and current fall 2015 grain prices, we should expect U.S. corn acres to be between 88 – 89 million acres and U.S. soybean area between 84.5 – 86 million acres. Here in Canada, consensus indicates greater emphasis on pulse crops, flax, and barley, while wheat acres will be relatively the same as last year and canola around the 20 million acre mark.

If you think crop input costs are high here in North America, then consider the Black Sea where currency devaluations have made said costs about 30% higher year-over-year. For this reason, I’m expecting less production than most analysts are calling for in the region. This is mind, the Russian Hydrometcentre (weather forecaster) is saying that Russian winter wheat crops are in worse conditions than they were last year but match average characteristics from the last five years. We’ll likely get a Russian Ag Ministry official winterkill rate soon but analytical firm SovEcon is expecting the number to be around 11-12%. Next door in Ukraine, the Ag Ministry says that spring seeded acres is less than half of what was a year ago at this time.

Chuck Penner, of LeftField Commodity Research, in his monthly perspective for Alberta Pulse Growers makes some good points that because of Turkish and Indian pulse harvests helping replenish overseas supplies before August, we may see prices soften for peas and lentils. Chuck rationalized that seasonality plays a factor in that prices decrease in the summer months for the crops that Canada dominates. It’s about risk management at this point in the year, not greed. At what price levels are you profitable? I’m a big advocate of scale selling – breaking your production (and potential production) into 15%-25% blocks and writing down price points that you’ll sell at both the upside and the downside (there’s risk both ways!)

If you follow any American farmers on Twitter, you’ll know that U.S. producers are hitting the fields already in the Midwest. While wet weather has slowed seeding progress in the Southeast (not a single acre of rice or corn planted in Louisiana), it’s go time in the eastern and western corn belts and even some guys in the Northern Plains are ripping up dirt already! This in mind, the most recent National Oceanic and Atmospheric Administration outlook report says that things will continue to stay dry out on the U.S. west coast in 2015, with some of this arid weather possibly heading east into the Northern Plains and even the western Great Lakes area (some of this drier weather would be welcomed by areas of eastern Saskatchewan and western Manitoba).

Though some areas are still getting a little snowfall, we’re seeing an early snow melt this March. Seeing the black stuff re-appear after a winter is giving an itch to most to get out there and turn that dirt over. Don’t go mad just yet though – spend some time in the shop and get everything ready to go. Being proactive pays.

 

Brennan Turner

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, he spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available for iOS & Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email ([email protected]) or phone (1-855-332-7653). @FarmLead

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