Market Insider

Balancing it Out

Grains this past week turned its attention to more demand and weather headlines as North American harvest pressures are starting to subside with the large majority of the crop now in the bin. The planting pace down in Brazil of soybeans continues to accelerate, with some of the previously drier regions finally getting rains (albeit they will continue to need good showers moving forward to make the proposed 100-million tonne soybean crop!). Most analysts believe that the Australian wheat crop is going to come in somewhere between the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) estimate of 24 million tonnes and the United States Department of Agriculture’s (USDA) call for 27 million, suggesting that El Nino rhetoric being prophesized will have little effect on the crop in the Land Down Undda. On that note, little rain is on the horizon for Black Sea crops, but some good showers are in the long-term forecast for the United States (U.S.) southern plains and things are sort of being balanced out in that regard.

We saw a good pop early in the week for wheat with futures markets making a one-day four per cent positive move as less-than-expected precipitation hit the Southern Plains last weekend, whereas areas of Ukraine and Russia are expecting cooler temperatures and limited amounts of rainfall. Earlier this week, the Russian Ag Ministry says that 35.55 million acres of winter crops are now seeded (91 per cent of the expected total), but emergence is rumoured to be spotty and this is still more than a few passes behind the more than 40 million acres that had been seeded by this time last year. Looking back, 2010 was the most recent year that Russian winter wheat crops experienced poor seeding conditions in the fall, a harsh winter, followed by a drier spring. This all led to a crop of just 41.5 million tonnes (they took off more than 60 million this year) and prices into fall 2011 rallied almost 50 per cent.

Here in Canada, with the crop in the bin, the attention seems to solely be on grain marketing. According to the PDQ website (pdqinfo.ca), wheat basis levels dropped into negative territory this week as buyers are pulling back on purchasing after record deliveries in September and despite the Canadian Loonie hovering below 76 cents. Producers who were able to lock in basis levels that were more than a dollar above the Minneapolis price are sure to be able to take advantage of higher winter and spring prices that most analysts are forecasting (including yours truly –although, do not expect that aforementioned 50 per cent move in the next six to nine months, let alone half of that). Overall, some good demand data points are helping support grain prices from the gluttony of the supply that is out there, which is why we are seeing more than a sideways trade than anything right now.

Finally, this is the first installment of my new weekly column for the Alberta Wheat Commission and I am excited to be able to provide a forum to chat about the markets and how I look at proactively managing the risk of grain pricing versus speculation. That being said, like the title of this first column suggests, I believe in balancing it out and reading my commentary, and at least two other market commentaries will give you a good, diversified perspective of where the grain markets are headed and how your grain marketing strategy should play out.

To growth,

Brennan Turner President & CEO | FarmLead.com