Market Insider

Keep it Relative

Commodity prices continue to feel the pain of larger supply situations and continued concerns for global economic growth, with a lot of eyes on China. All grain values are lower in the first few weeks of 2016, but with some notables being oats jumping back and forth over $2/bushel in Chicago and canola below rangebound around $480/MT in Winnipeg. Oil has also been a big loser, tanking to its lowest level since 2002 at $30/barrel. This in turn has pushed the Canadian dollar down to below 69 cents USD for the first time since early 2003 (notice the correlation between low points and the years?). That being said, are we at the lows yet? Commodities have started out this year worse than last year’s first few weeks, but you likely won’t find any economists admitting to that. It is hard to peg in another 10 per cent move in the Loonie (down to 63 cents), but a 10 per cent drop in oil would be just $3.10 and a 10 per cent drop in wheat would be just 50 cents. Puts it in perspective for you doesn’t it.

Speaking of perspective, the United States Department of Agriculture put out what is arguably their most significant W.A.S.D.E. report of the year on January 12, which gives final yield and production numbers for the 2015 United States (U.S.) crop, as well as forecasts for U.S. winter wheat acres. On the acreage front U.S. winter wheat area is estimated to have fallen by 7.2 per cent in 2016 to 36.61 million acres, with hard red and soft red wheat acreage at 26.5 million (-9 per cent year-over-year) and 6.72 million (-5 per cent from 2015). Projected U.S. ending stocks for wheat to end the 2015/16 marketing year is forecasted to come in at 941 million bushels (+25 per cent from the end of 2014/15), 1.8 Billion bushels of corn (+4.1 per cent from last year’s ending stocks), and 440 million bushels of soybeans (+130 per cent year-over-year!). From a global perspective, ending stocks are seen mostly flat for corn and wheat at 209 million and 489 million tonnes, respectively. For soybeans though, global inventories to end this marketing year are seen up 3.1 per cent from a year ago.

As mentioned, China may be experiencing slowing growth but Canadian canola shipments to the People’s Republic and other places continue to remain strong with 6.8 million tonnes of the oilseed shipped out of Canadian ports so far this marketing season through the end of 2015 (+9.7 per cent from the 6.2 million tonnes shipped over the same period a year ago). On that note, the vegetable oil supply situation remains relatively opportunistic, given that global inventories are expected to end 2015/16 down 12.2 per cent year-over-year at just 16.7 million tonnes remaining.

As per the PDQ grain pricing website (pdqinfo.ca), net cash wheat prices have suffered to start 2016, mirroring the drop on the futures boards. Basis levels have maintained, if not stronger in a few areas, thus providing opportunities look at locking in those levels. Should futures prices strengthen at all, or the Loonie regains some of its value, you’ll likely see basis fall back. With some colder temperatures slated to hit North America over the next few weeks, you see some strength on the futures board (mainly concerns of fall-seed crop winterkill). Alas, we are still a few months away from planting the crop, but minimizing your price risk exposure today on a 10 per cent block of your potential production is healthy, relative to the volatility we’re seeing today (and will likely continue to see over the coming months).

To growth,

Brennan Turner President & CEO | FarmLead.com