Directional Volatility — This Week in the Markets

Fira, Santorini island (Thira), Greece. | Photo by Mstyslav Chernov, CC 3.0

June 30 was a big day in 1867: the eve before the birth of this great nation. This year, nearly 150 years later, it marked the end of the trading month, the end of the trading quarter, the final day for Greece to accept new financial austerity measures or make a €1.6 Billion loan payment (they did neither), and both Statistics Canada and the United States Department of Agriculture released reports around seeded acres. With so many variables playing into the trade, weather continues to drive the direction of the market but also is creating the most volatility!

More dry weather in Western Canada and wet stuff in the U.S. Midwest has kept pushing markets to new highs and quality and yield potential for corn and soybeans are coming into question every time another inch falls on the U.S. Midwest. After record volume of trading activity on Tuesday following all of the report releases, the markets calmed down through the rest of the week as most players seemed to go into holiday mode for Canada and Independence Day celebrations (For the record, we here at FarmLead believe that having a national holiday in the middle of the week should be illegal – it’s such a tease!).

June cornThe market got really bullish on soybeans and corn on June 30 thanks to lower good-to-excellent ratings for the two row crops and numbers that came in below expectations in the stocks and acreage report. According to the USDA, 88.9 million acres of corn are going into American soil this year, slightly below the March forecast of 89.2 million acres, and stocks were slightly lower as well. As for soybeans, 85.1 million acres were planted this year (84.6 million acres forecasted back in March), and stocks also came in well below expectations at 625 million bushels, as of June 1. With these new numbers in mind, more and more market analysts are piling on to a year-end average price of $4 corn and $10 soybeans. On the wheat front, June 1st stocks came in well above expectations at 753 million bushels but spring wheat acres added basically offset any winter wheat acres that were taken off the balance sheet by the USDA.

StatsCan June acreage estimates versus March intentions and 2014 (click to enlarge)

StatsCan June acreage estimates versus March intentions and 2014 (click to enlarge)

Statistics Canada came out with their own numbers that showed total wheat acres almost 4% higher than last year but in line with the five-year average. One clear increase was durum acres pegged at 5.75 million acres (up 33% above 2014 and 21% above the five-year average). On canola, StatsCan says 19.84 million acres of Canadian soil was seeded to the oilseed, 2.5% below the average since 2010 but relatively unchanged from last year.

RelatedGrain Market Spikes Following June 30th Reports from USDA and StatsCan

Rounding out the forecasts, oats acres were forecasted at 3.4 million (+12.8% from 2014 and +21.6% from the five-year average), barley at 6.5 million (-3.9%, +10.7%), flax at 1.69 million (+61%, +8.7%), peas at 3.705 million (+9.5%, -2.4%), lentils at 3.87 million (+35.7%, +24%), canaryseed at 330,000 acres (+10.7%, +20%), chickpeas at 125,000 (-28.4%, -26.5%), and mustard acres at 325,000 (-18.7%, -35%).

More soybeans are also getting planted in Canada this year according to Statistics Canada, who forecasted it at 5.42 million (+23.6%, -2.5%), whereas corn acres were seen falling 1.9% year-over-year to 3.25 million (+5.7% from the 5-year average). From a comparative standpoint, a lot of people are pointing to the most recent dry year in memory — 2002 — when Canadian wheat exports were more than halved from the previous year.

So what does it all mean? I for one have to take some of these acreage numbers with a grain of salt. What the government agencies say was planted and what actually gets harvested could be two very different numbers this year. Average yields will be surely down in the western half of Western Canada (the Canadian Wheat Board recently dropped their canola output forecast to 12.6-13 million tonnes), but will some of that be made up in the east? Further, the jury is still a bit out on what a wet May & June will have done to American fields and if lower, expect those 2015/16 carryout numbers to keep dropping. Also, there’s more diverging opinions on the weather’s affect on crops in the European Union, as heat this week is said to have hurt things but some analysts believe the warm weather was too late in the growing season to be of any real significance.

Fira, Santorini island (Thira), Greece. | Photo by Mstyslav Chernov, CC 3.0

Fira, Santorini Island (Thira), Greece. | Photo by Mstyslav Chernov, CC 3.0

Ultimately, we first have to get through this weekend’s Greek referendum on whether or not to accept the E.U.’s terms, although the government is calling on their people to vote it down despite imposing maximum ATM withdrawals of €60/day (Greece literally is pockets-out, shirt-ripped, flat-out broke.). With geopolitical risk and weather a significant focus to start the month of July, volatility will continue to be the key phrase word you keep hearing over the next 7-10 days.

How will this affect your marketing strategy? You can stay on the sidelines and wait for the waters to calm, or make a block sale (10-20%) when prices are near the highs of the previous 2-3 weeks. Specifically on feed grains, you probably won’t see better values right now as a substitution effect will start playing out where different products get put into livestock rations (i.e. U.S. corn getting shipped up across the border as we speak). With the unsteady trends the market is providing, making sales when you can, & not when you have to, specifically from a cashflow standpoint through September/October, should guide your decision making.

 

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

Trending

Wheat prices jump into August — This week in the grain markets

This week, winter wheat prices touched a three-year high, but it didn’t last. Chicago SRW wheat prices for September 2018 gained 5 per cent or about 26 cents US/bushel to close at $5.56. While the December 2018 contract was up 5.4 percent — or nearly 30 cents — to finish a tad under $5.80. In…Read more »

Related

Leave a Reply

 

This site uses Akismet to reduce spam. Learn how your comment data is processed.