Uncertainty abounds

Weather is creating a fairly volatile trading in the grain markets.

With weather creating a fairly volatile trading in the grain markets, compounding the situation is economic uncertainty in Europe and China. Wheat prices are being resilient as drier conditions in Western Canada, Europe, & even Argentina continue to provide fodder for bulls to be loud, but the U.S. winter wheat harvest is picking up pace with combines going full tilt in the Southern Plains. With a stronger U.S. dollar because of the aforementioned economic concerns, canola continues to enjoy some solid prices, but I’m not quite so certain we’re at a top yet as we still have some more critical days in the growing season to get through yet.

Most recent crop progress reports show that the quality of corn and soybean fields haven’t fallen as much as the market is thinking, which is why any rallies have been reigned in, with corn holding above the $4/bushel handling while soybeans straddles $10. More rain is expected in the eastern cornbelt this week, making most of the American West Coast and a lot of Western Canada extremely jealous. The cost of hay and other feed rations continue to increase in the latter, as dry conditions continue to point towards the big “d” word (Drought). (P.S. you can list hay on the FarmLead Marketplace!) Conversely, a wet May and damp June has created some of the best pasture conditions in years for livestock producers in the US Southern Plains, especially Texas. There’s some speculation that more Canadian animals could be sent to the US, since the pastures (and grass) are literally way greener than on the Canadian side of the border. Ultimately, the U.S. herd size is expanding while the Canadian is likely shrinking, leveling out some of the supply and demand of feed grains. That being said, I have to play the reminder card that substitution effects will start to play out if feed grain costs stay high (i.e. switching out barley and wheat for other rations), even as more livestock head to the U.S. (you still gotta feed the animals you have!).

Greece is on the ropes as their status as a member of the European Union is in jeopardy, depending on whether or not they can get a deal done before missing more payments on their debt to various creditors  to a deal. What’s really grabbing the attention of global markets is China, where stock market losses in the last few days have been substantial – literally $3.25 Trillion USD in value was lost on the various Chinese exchanges in a matter of 36 hours. That number is more than 20 times greater than any value lost from Greece not paying off its debt in time. With equity markets tanking, Chinese regulators are looking to shore up their financial system but questions abound regarding whether or not the People’s Republic will be able to rebound from such significant loss of wealth. How does this relate to the agricultural markets? China’s double digit growth over the past 15-20 years has correlated quite well with increased commodity demand, specifically for soybeans, meat, and dairy on the farm side of things. While the argument can definitely be made that food demand is relative inelastic (no response in price to big fundamental changes), there’s no certainty that we won’t see any short-term effects on the import levels of the world’s largest consumer of foodstuffs.

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).