Under pressure

Grains are seeing more premium priced in as the complex continues to deal with cold weather and the situation

Grains are seeing more premium priced in as the complex continues to deal with cold weather and the situation in Eastern Europe escalating (AKA premiums for limited production and market access there are being built in). In the past three months since the Ukraine-Russian debacle really started, the Ukrainian currency has depreciated more than 50 per cent against the U.S. dollar. As such, farmers are less willing to sell old AND new crop as a hedge against the weakened currency, and rather wait until there’s some bounce back. On the flipside of this is the simple fact that with less cash on hand and financing being hard to come by (read: more expensive), planted acres could fall.

Accordingly, Agritel is estimating that the Ukrainian 2014/15 corn crop will be decreased 18 per cent from 2013/14 to 23.3 million tonnes while their wheat crop is seen falling 16.5 per cent year-over-year to 18.4 million tonnes. Next door in Russia, fellow farmers are finding same issues as their Ukrainian comrades due to the weakened Russian ruble. As a result, Agritel is again calling for smaller crops in Russia with the corn crop falling six per cent to 9.8 million tonnes of corn and wheat production falling eight per cent to 48.1 million tonnes.

While many U.S. and Canadian farmers are raring to get going in the field, there’s some concern about fertilizer availability. There’s increasing worry across the border from U.S. farmers that as they prepare for Plant 2014, the fertilizer they need to jumpstart their crops won’t be at their disposal. Like grain, fertilizer cargoes are falling victim to railroads carrying crude oil and other freight and, as such, storage sheds at crop input facilities are fairly bare just a few weeks from drills hitting the fields. Further compromising the situation for Canadian producers is the fact that an unplanned shutdown at the Agrium nitrogen fertilizer plant in Carseland, AB will remove about 100,000 tonne of urea and 20,000 tonnes of ammonia from the market. As such, the grain trade seems to be less concerned about acres getting planted (in the right conditions, anything’s possible!) but the inputs that will help that crop grow.

Further exacerbating the situation is freeze damage starting to hit southern U.S. crops like winter wheat just emerging from dormancy and freshly-planted corn. Accordingly, the U.S.D.A. Crop Progress report for the 3rdweek of April showed that corn and oats plantings are behind schedule, even when compared to last year’s late start. On the rating front, the U.S. winter wheat crop continues to decline with more of the crop leaving the good-to-excellent rating and heading into the poor-to-very poor section. Continued cold weather (i.e. frost events) will further compromise the yield potential of the crop. Nonetheless, Goldman Sachs is expecting grains prices to fall off by at least ten per cent by this time next year. The Wall Street bank says that while escalation in the Russian-Ukraine situation would force them to switch their outlook to more bullish at any time, they’re forecasting $5.75 per bushel for Chicago wheat, $4.00 corn, and $10.50 soybeans by April 2015. Despite threats of El Nino, Goldman thinks that a cooler, wetter summer in North America would support corn and soybean yields. Interestingly enough, managed money recently dropped its net long position for the first time since January, an indicator of sentiment that prices will not increase any further. We’ll see if weather and Eastern Europe pressures this though.

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 and 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).