Going Sideways — This Week in the Grain Market


Grain markets ended the month of January on the downtrend thanks to more geopolitical (aka President Trump) risk after reaching new highs the week before on continued weather concerns out of South America. Oats was again the main winner, up 2.55% for the week while wheat wasn’t farm behind, gaining 2.15%. With the Canadian Loonie up 0.8% since last Friday, canola lost 0.95% while soybeans were down 2.15%. Caught in the middle was corn, up 0.55% which erased some of its earlier gas to end relatively sideways.

Ag Resource is suggesting Brazil’s soybean exports for the month of January was a record 1.95 million tonnes and almost 5 times the 395,000 traded in January 2016! Given the pace of exports and ship lineups (almost double the amount compared to a year ago), AgResource is expecting February exports to come in at 4.5 million tonnes, another record and more than double that of February 2016. With this sort of pace, the attention is quickly switching gears from weather concerns to demand concerns for U.S. product and if things will start going sideways for American exports.

Speaking of North American grain exports, Canadian wheat exports are down roughly 19% compared to this time a year ago, whereas American wheat shipments are up almost 30% year-over-year! Logistics and currency are taking the brunt of the blame for the difference, but the delayed harvest in Canada and concerns about quality created room for other countries (i.e. the U.S., Black Sea, and/or E.U. options).

In the political arena, while Donald Trump continues to make headlines, it’s the transition of the new Agricultural Secretary Sonny Perdue that we’re watching closest right now. The former Georgia Governor wants to make American agriculture great again but there’s doubt as to what faction of the industry will thrive the most, corporate ag or individual ag. Apparently, the transition for the ag secretary has been “like drinking through a firehose” as issues like trade and Big Ag mergers (and are they good?) are all being caught up on as quickly as possible.

While there’s hope that Mr. Perdue can be a “moderating influence” on President Trump, the “America First” rhetoric doesn’t seem to be benefiting trade relationships and it wouldn’t be unlike China to unleash a import tariff of some sort on America (if it were to happen on soybeans, expect Chicago prices to fall sharply). Overall, with the Trans-Pacific Partnership off the table, more bilateral trade agreements seem to be the pursuit of many countries, including both the U.S. Canada.

On the competition front, on the heels of a record 11 million tonnes, Australian barley exports are expected to explode this year as the USDA’s attache in the Land Down Undaa expects 7.4 million tonnes to be shipped off of Aussie shores, an increase of 37% from last year & the largest in the last 50+ years. Further, it sounds like more of the crop is making malt quality, putting it in direct competition with Canadian and American options, which are seeing prices stagnate in the $4s CAD / bushel and $2s USD / bushel in each respective country.

On that note, as per Statistics Canada’s stocks report out this week, there was a heck of a lot more feed grains available in Canada as of the end of the December 2016. Per the report, total wheat stocks grew vnearly 17% from December 2015 to more than 25 million tonnes while canola stocks dipped 9.6% to their lowest in the last 4 years to 12.16 million tonnes (still +7% from the 5-year average though). Some of the other notable numbers came from durum (+63% over last year to 6.9M tonnes), rye (+93% to 278,000), flax (-21% from December 2015 to 595,000), and lentils (+49% to 1.76 million tonnes).

Staying in Canada, in its first forecast of the 2017/18, Canada’s Ag Ministry, AAFC, is expecting wheat production in Canada to hit 29 million tonnes, technically down 2.6 million tonnes from last year’s surprise but still the 4th-largest crop in the past 20 years. The biggest hit will be seen in durum though with production dropping 25% to 5.8 million tonnes as acreage is expected to fall 15%, whereas spring wheat acres are expected to bump up 6%.

While we all know soybean acres will be up (meaning another record year of production), oats acres are also expected to be higher thanks to higher prices and decent movement. Canola will be the big one to watch though as the AAFC is expecting 21 million acres to get seeded, meaning a record crop is very possible. While demand has been strong, expectations are that at least 2 million tonnes will be carried forward by the end of the 2017/18 crop, and with increased competition from increased palm oil and soy oil supplies, prices are likely to go sideways to lower as we get closer to getting another year’s crop in the ground.

Commerzbank is agreement, pegging a November 2017 soybean futures contract price of $9.50 USD / bushel. On the flip side, the firm points out that there’s no signs of major winter wheat crop damage in the Black Sea thanks to sufficient snow cover. That being said, they think that “unlimited build-up of stocks cannot be expected” and so are expected wheat prices to clime about 10% this year (in line with our thinking here at FarmLead).

Ultimately though, the optimism this time of year was clear as new ideas and a fresh start is on the horizon. One consistent thing is that people need to forget about last year’s weather and using it as a reason to change too much. That being said, the pricing opportunities available right now are clearly there, especially for things like soybeans and canola, as compared to where we were a year ago.

Using just last year as a benchmark for pricing is not a solid gameplan because the supply and demand tables have changed for each crop. Accordingly, while new crop prices for things like pulses are down from this time a year ago, these are still more than profitable levels for most people. Take this into consideration as you get into your 2017/18 marketing plan.

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