Market Insider

Backing Up Teammates

Grains continue to sit around their highs as we get closer to the end of May and the plant 2016 season. The elevated levels relative to a few months ago continue to be based on managed money, as the focus is now shifting to La Nina approaching and El Nino officially ending this past week. Net long positions in the futures markets were helped by hedge funds, which continue to be at multi-year highs with much different balance sheets from a couple years ago. Soymeal has been the real all-star lately, helping pull up the other players (grains) when it looks like they were out late the night before (bearish fundamentals).

Those fundamentals include the driest of areas in Saskatchewan and Alberta finally getting some rain – now it is a question of how long it will satisfy fields until. While the phrase used in Alberta was “billion dollar rain,” the downside was the Peace region getting snowed on. Across the pond, conditions remain pretty solid for the European wheat crop while, thanks to very good spring weather and a low amount of winter losses, crops in the Black Sea are looking pretty deluxe. As such, consensus seems to be that Russia will harvest another 100 million tonnes of grain, oilseeds and pulses this year, including 62 to 64 million tonnes of wheat.

From a cash front, the PDQ grain pricing website, pdqinfo.ca, has indicated to us that net cash grain prices in Western Canada barely changed from last week. While wheat futures values dropped, basis improved to help new crop Hard Red Spring (HRS) wheat prices for the Canadian Prairies drop by only a few cents to an average of $6.41/bushel region-wide. New crop pulse prices have seen a bit of a bump with concerns over soil moisture with new crop yellow peas still in double digits (per bushel) and new crop large green lentils looking like they may get back to their winter highs of over 45 cents/lbs. However, keep in mind that recent forecasts for this year’s Indian monsoon season lasting from June-September is 109 per cent of the long-term average. New crop canola values got bumped up a cent thanks mainly to canola futures tracking its soybean partner in Chicago.

Agriculture and Agri-Food Canada (AAFC) believes that canola acres have been maxed out due to disease and insects building up over the course of consecutive years of no rotation. That being said, AAFC is channeling Statistics Canada by calling for 19.3 million acres this year, a significant drop from AAFC’s previous estimate of 20.86 million acres of the oilseed. With production now pegged at 15.4 million tonnes, consistent demand both locally and internationally will push ending stocks down to 700,000 MT, a 48 per cent decline from this current marketing years expected carryout. With that sort of supply-demand table, one could expect that canola prices should maintain its current $500/MT plus levels (barring a significant collapse of the soybean market).

Mostly, the main things the market is watching right now is weather and acres. With the generally drier conditions in Western Canada contrasting a price rally, like soybeans, how many canola acres have been added thanks to the rally of the past few weeks? In the United States (U.S.) benign weather conditions are holding in major growing regions across the Midwest and Northern Plains, but things in the south are a bit wetter than most farmers would like. Across the equator, similar wetness in Argentina is being watched as it affects harvest, but also the wheat planting that begins next month. Next door in Brazil, most eyes are on the north where it has been dry. Coming back to the core of where prices are today, hedge funds have been the farmer’s best teammate one could ask for, pushing the play forward against a tough opponent (the global supply situation).

To growth,

Brennan Turner
President & CEO | FarmLead.com