Hedging optimism

Wheat prices continue to fall as investors are starting to realize that just because U.S. winter wheat crop conditions aren’t great

Wheat prices continue to fall as investors are starting to realize that just because U.S. winter wheat crop conditions aren’t great, it doesn’t mean that there’s a global shortage of the cereal grain. On the flipside, some investors are thinking that an El Nino event later this year could be a positive for wheat prices. Nonetheless, where we’re at right now is that prices rose enough that buyers are now starting to look elsewhere for their needs. That being said, solid crop conditions in Europe is leading many market participants to think European wheat prices could fall further, relative to North American prices. More or less, while U.S. supplies might be declining, there’s still a lot of wheat nearby (didn’t you hear Western Canada produced a record crop & there’s still a lot available?).

C.N.G.O.I.C., one of China’s state agricultural think tanks, is expecting Chinese soybean production in 2014/15 to come in at 11.5 million tonnes, which would be down four per cent from 2013/14 (USDA is expecting 12 million tonnes to be produced) to add to the 69 million tonnes seen being imported (the U.S.D.A.’s forecast is for 72 million tonnes). As for domestic wheat production in 2014/15, C.N.G.O.I.C. sees their countrymen/women producing 122.6 million tonnes of the cereal (U.S.D.A. at 123 million) but imports are seen falling 57 per cent from 13/14 to three million tonnes (U.S.D.A. also at three million). Finally, for corn production, the Chinese ag think tank expects 222.1 million tonnes to be produced by the People’s Republic in 14/15 (U.S.D.A. at 220 million) while imports are seen falling 36 per cent to 3.5 million tonnes (U.S.D.A. at three million). Why are these numbers important? China only consumes more grain than anyone else in the world so it’s staying on top of what their in-house forecasts are is relative.

Switching gears, rains in the Canadian Prairies and northern U.S. states are helping lead to negative thoughts of late field and crop progress. I keep hearing though that when the window is open, guys are going full-tilt – as such, most seeding in the U.S. is almost caught up to the five-year average. With the later start again here in western Canada though, there are some thoughts that more cereals could again get planted (i.e. barley when acreage was suggested to be lower). An El Nino event could show its face by August, bringing warmer temperatures to the Asia-Pacific region and heavier rains in South America. While some analysts are suggesting a premium for wheat will be built in, I don’t think it’ll be huge but pulses could see some higher moves. More Specifically, an El Nino event would affect September/October/November Asian and Australian harvests (drier conditions for last stage of growth and harvesting crop) while slowing down the pace of seeding in South America during the same timeframe thanks to wetter weather.

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 beforestarting 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.co) or phone (1-855-332-7653).