As we head into the last week of January, commodity prices started to finally rebound a bit, led by Brent and WTI crude oil jumping 11% and 6% from where they closed last Friday! This helped net-resource-exporting currencies like the Russian ruble, Australian dollar, and the Canadian dollar gain some ground to end the week in the green, with the Loonie up almost 3% for the week!
Oil spent most of the week in the gutter, though Iran is now likely adding another 500,000 barrels/day to the international trade market. This is a welcome sign to emerging markets like China, who, this week, stated that their GDP officially grew at 6.9%. While this is their lowest annual growth print in 25 years, that’s still a pretty decent number!
The reality is that there is a constant gap between the speculative financial markets and what’s happening in the real economy (ever notice the difference between your local cash grain price and the futures price?). From a grain and oilseeds perspective, China is substituting more palm oil purchases with soybeans because, by crushing it, they’re also able to keep up feeding the demand of the ever-expanding Chinese pork industry (pun intended!).
Here in North America, the U.S. market only crushed 157.7 million bushels of soybeans in December, 4.6% behind last December’s number. It’s more than likely the USDA will have to cut their crush forecast in the February WASDE report as a result. The lower value of currencies in South America — and even to an extent, here in Canada — are making purchases outside of the U.S. more attractive (especially with record cheap ocean freight).
Despite the plethora of options, soybean oil tracked oil prices higher, up 3% this week, while canola ended the week down 0.75% in Winnipeg due to the Canadian dollar’s appreciation. One bullish indicator may be the International Grains Council (IGC) putting out a forecast for the 2016 European Union rapeseed crop of 21.3 million tonnes, slightly lower than last year’s crop. The IGC made a special point to note Poland, the E.U.’s third-largest rapeseed grower, was experiences issues with the crop related to dry soil beds this fall that resulted in late re-seeding. Moreoever, Oil World is expecting Ukraine rapeseed production to fall to a 9-year low of 1.2 million tonnes.
European winter wheat crops are doing alright as the recent cold spell they’ve experienced has stunted growth after an unusually warm start to winter. While it got extremely cold in Poland and some winterkill will result because of a lack of snow cover, there may be more pest and disease issues in Britain due to early winter rains.
In France, things continue to look good so it’s unlikely that we’ll see too much deviation from the condition ratings of the soft wheat crop when reporting resumes in February (it went in as 98% good-to-excellent). Heading east, Russia’s weather monitoring agency says that 89% of winter crops in the nation are in good-to-satisfactory condition, which equates to about 40 million acres of winter seed crops that are doing well (comparably, 4.5 million acres, or 11% of winter acres, are in a thinned or weak condition).
Alas, Soceiete Generale has put a new buy call on new crop corn and wheat, blaming La Nina threats in 2016 for their new bullish stance. A La Nina weather event would bring drier weather to North America and parts of southern and western South America. And if it hits landfall by late 2016, as suggested by SocGen, drought conditions would affect crops in southern Brazil, Argentina, and Chile. In the near-term, colder weather is forecasted for the next few weeks across North America, which could support prices a bit with concerns over winterkill on fall-seeded crops.
On that note, corn improved by almost 2% this week (likely helped by ethanol rising by 3.2% for the week) while wheat climbed slightly by about 0.5%. We saw cash wheat prices in Western Canada fall due to basis levels dropping (confirming our call to lock the basis in as the right one). However, durum levels have improved a bit, which is why we’re seeing some targets get hit on the FarmLead Marketplace above $9/bushel.
Speaking of seeding, Informa Economics updated its forecast for 2016 U.S. acres and shocked the market by suggesting American farmers will plant a record amount of soybeans with 85.23 million acres getting seeded. This is a pretty solid increase from the USDA’s current forecast of 82 million acres and even the previous record set 2 years ago at 83.3 million acres. The question that I have to ask though is with the November 2016 soybeans contract still sitting below $9/bushel USD, do those margins pencil out?
As for corn, the firm dropped their forecast a little to 88.86 million acres, above last year’s 88 million acres but behind the USDA’s forecast for 90.5 million acres and well below the 97.3 million acres planted in 2012 (record is 113 million acres, set in 1932). Informa also pegged spring wheat acres slightly lower than a year ago, which is a bit of a contrast to the USDA’s lower winter wheat acre call, which suggested more spring wheat may be sowed this year.
What will for sure see more acres this year around the world is pulse crops. We’ve started to see new crop lentil bids fall back a bit this week but yellow peas and green peas bids continue to improve across Western Canada. Why the acceleration? Questions continue to be asked about India and Pakistan’s rabi crops, which aren’t necessarily amazing, especially with the currency effects at play helping import prices a bit.
This past November, Australia almost doubled its previous 1-month record of chickpea exports, exporting over 465,000 tonnes (keep in mind that chickpea output in the Land Down Undaa is up 42% from last year to almost one million tonnes). Canadian pea shipments totalled 1.31 million tonnes (45% of Ag Canada’s total expectation) while France shipped out 153,400 MT of peas through December, more than 3 times what they exported over the same period a year ago! For lentils, Canadian exports have hit 1.36 million tonnes through the first 4 months of the 2015/16 marketing year, pretty much double the average page of the last 5 years.
Overall, there are multiple variables that sway the market to and fro, but right now the most important factors are currencies and weather. For your individual grain marketing plan, it ultimately comes down to how much price exposure to do you want to have, relative to that movement period (more or less, limiting the amount of times you find yourself saying, “I wish I would have sold something”). A great example may be asking yourself, what happens to my pulse crop marketing plan if India gets better rains in their monsoon season (June-August) this year? Are you willing to gain some ground today on your price risk exposure?