Wheat and corn prices have picked up lately, thanks to some sub-zero temperatures over the past few weeks and a depreciating U.S. dollar. The Greenback has rebounded a bit (supportive of canola prices) but traders have looked to cover their short positions (especially in wheat, which was sitting at record short levels). Accordingly, wheat made daily gains of in the four-to-seven per cent levels for three straight sessions. Corn sort of followed the wheat market higher but pulled back with evidence that the number of acres seeded continues to remain ahead of schedule. Conversely, soybeans haven't followed that the trend higher as most of the market still believes there are lots of American, Brazilian, & especially Argentinian beans out there. Other bullish headlines include more acres getting re-planted because of cold weather and significant rainfall in the U.S. southern plains affecting winter wheat crops. Ultimately, the negative weather is catching a lot of headlines, but the good news is most early agronomy reports in Western Canada are that only the earliest of crops may be affected.
Russia recently got rid of their wheat export tax, opening up the gates for what looks like an additional two million tonnes of wheat getting shipped out before the end of the crop year. On that note, the Russian Ag Ministry noted that Mother Russia's wheat exports, since the export tax was implemented on February 1st until now, were down 60 per cent from the same period last year at just 1.61M tonnes. Nonetheless, exports for the marketing-year-to-date are up 16 per cent ear-over-year at 20.08 million tonnes, with most market analysts expecting that final number to be somewhere closer to 21.5 million. Could we see the Russian wheat export tax come back? Possibly, especially if spring seeding remains behind schedule and the forecast for dry weather over the next two-to-five weeks is realized, which is not a make-or-break time I the crop's development, but would adversely affect growth.
The A.A.F.C. came out with their expectations for production and Canadian grain ending stocks, and the big item of note was their expectation for canola inventories to fall to 500,000 MT by the end of 2015/16, compared to this year's carryout of 1.4 million tonnes. The half-million level would be the lowest since 1997/98 when we were harvesting almost half of what we do now, but the difference is demand has grown with our yields! These numbers come off the A.A.F.C.'s forecast of 19.4 million acres getting seed this year, which would produce 14.93 million tonnes. The agency did increase its price forecast to $450-$490 over the next year, still below the $500/MT price we said in May 2014 that we wouldn't see for another year, maybe two. We could see it sometime during 2015/16 if less acres go in, more fields have to be re-planted, or we have serious production issues this year, but my feeling is we won't see a $500/MT handle before the end of 2015.
Overall, continued improvements in crop progress will put pressure on any continuation of rallies, meaning selling opportunities will likely be short-lived. The best commodity news that I've seen in the last week came from the consumer side: bacon prices are down 25 per cent from last year – maybe time for a Costco run!
To growth,
Brennan Turner
President, FarmLead.com
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, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and now 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 (b.turner@farmlead.com) or phone (1-855-332-7653).