Ag Market Update
As we rounded out October and the snowflakes begin to appear, the positive thing to consider is that markets on seemingly on their way up. Harvest lows have been achieved in most crops not affected too badly by late growing-season rains (i.e. durum and lentils). The clear evidence for this is that managed money continue to bet on higher prices for agricultural commodities as hedge funds have raised their net long in the sector by over 100,000 contracts in the last month. The change has been mostly attributed to the relinquishing of short bets in the market, seeing positions reduced by over 110,000 contracts! Canola continues to favour well with the canola trade as crush margins are still positive and a lower Canadian dollar makes it easier on the export side of things. The depreciated Loonie also probably playing a factor as to why basis levels are improving at your local elevators (for the same amount of foreign currency previously, an international buyer can now buyer Canadian product). Also, North American grain is finding its way into new markets – case in point is American corn as, even though China’s been rejecting Syngenta’s unapproved MIR 162 variety, new market share is being found in in Latin America and the Middle East.
While the U.S. harvest progresses, other bullish catalysts surround seeding – specifically the U.S. winter wheat, Black Sea winter wheat, and Brazilian soybeans. In the U.S., the portion of winter wheat seeded rated good-to-excellent came in at 59 per cent, well below pre-report expectations of 68 per cent. In Russia, the condition of the winter wheat crop is well below the last five-year average but one should keep in mind that the area has had three continuous years of bumper crops. And finally, in Brazil, seeding conditions are starting to finally improve after a lack of moisture available to help the crop get a head start on the growing season.
Another overlying macro effect that may be in the back of the market’s mind is the general downturn we’ve seen over the past year or so in the overall commodity sector. More market analysts are suggesting a peak has already been reached in the commodity super cycle (usually lasts 20-30 years). Here in Canada, those effects are more pronounced as the Great White North is commodity-rich, export-driven economy. According to a recent MacLean’s article, “the 15-year commodity boom – which gave Canada its Teflon-like strength during the deep global recession and helped make us the envy of the world – has run its course.” The effects are being felt elsewhere possibly though as it looks like C.O.F.C.O., the Chinese state grain-buying agency will take a hit of almost $168 million due to soybean prices tanking over the first nine months of 2014. Not to say that commodity prices can’t bounce back, but when economic growth starts to slow in emerging markets, those same markets don’t demand the same amount of commodities/goods/services to fuel their growth. That being said, we continue to be advocates of “pencil farming” at this time of year: re-evaluate monthly/quarterly expenses and what sort of monthly/quarterly sales and at what prices you should be making. Obviously I’m here to help find some new opportunities.
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 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 (firstname.lastname@example.org) or phone (1-855-332-7653).