Ag Market Update
Grain prices continued to slide on the futures boards thru the middle of January as the complex continues to sort the supply and demand tables, the former being more plentiful at this point in time. Canola is the hypocrite of the complex, staying elevated around $450 per metric tonne ($10.20 per bushel) thanks to a suppressed Canadian Loonie but moving basis levels are the biggest thing that are creating opportunities to make sales if you still have some of the oilseed in the bin. Grain markets are feeling the effects of a strong U.S. strong dollar, while other currencies are suffering thanks to the lower oil prices and geopolitical risk negatively affecting economies. This is why prices for grain in other countries are higher than a year ago when priced in their own currency. Thus, with strong export markets suggesting world demand is available, the picture of less global wheat acres in 2015/16 isn’t entirely accurate despite them being lower in the U.S.
Speaking of exports, Canadian grain movement continues to look positive though as marketing-year-to- date (thru January 15), total exports have been 18.33 million tonnes, or 13.6 per cent higher over the same period last year. Comparably though, Russian grain exports over the same period totaled 21.6 million tonnes, including 16.85 million tonnes of wheat. We’ve only seen a bit of the same ridiculous cold temperatures we did last year, but it looks like the railroads do have a better handle on movement thus far, despite getting fined by the government ($100,000 for C.N., $50,000 for C.P.) for not meeting weekly mandates. On the domestic side of the demand table, low grain prices increase buying opportunities for the enduser and feed markets. However, on the ethanol side of things, stocks are starting to build as refiners are refusing to blend it. Accordingly, ethanol plants are forecasted to start losing money from January through the summer when oil prices are expected to rebound and U.S. corn stocks are marginally lower.
Drew Lerner of World Weather says that more recent data suggests the likelihood of an El Nino weather event happening in early 2015 is declining by the day. This is why “we’ve already seen a couple shots of cold that have been fairly potent” and will probably “continue to see as we move forward through the balance of winter”, according to the Kansas City-based meteorologist. That being said however, Mr. Lerner does say that what happens six months from now could be completely opposite of what is being predicted today as the weather industry doesn’t actually “understand what drives El Nino”. I can respect a statement like that as it’s reinforcement of the ideology that you have to play the game that it’s front of you, not the one you’re hoping for. Manage price risk proactively by understanding your production costs and weighing a few different price and yield scenarios (i.e. Gameplan A, B, C, etc.) allows you to analyze a few different pictures at the same time.
Brennan Turner is originally from Foam Lake, SK. 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. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (firstname.lastname@example.org) or phone (1-855-332-7653).