Never Never Thoughts
Grain markets continue to trade within their ranges, following the lead of other commodities (mainly oil) and some ongoing geopolitical action. Egypt’s markets were able to finally get back into the procurement game after more than a few million dollars’ worth of discrepancies on ergot tolerances. Speaking of changing tolerances, the Chinese government is reportedly changing their tolerance of maximum dockage in imported canola from 2 per cent down to 1 per cent. The move is likely a result of China trying to empty out its own gluttonous reserves versus just importing more, intuitively putting pressure on both futures and cash prices in Western Canada. The fact is that China has not been able to properly liquidate its stocks and those who said they will never stop importing are now seeing the self-subsidization of their own auctions via a change in import policy.
On that note, we have started to see cash grain prices in Western Canada start to pull back not just in canola, but also other crops on account of a seasonal downswing in the market and because of general farmer selling ahead of road bans (and to likely get some cash flow before Plant 2016 starts).
As per the Ppdqinfo.ca website, we have seen both futures and basis values fall in canola in the last two weeks. For wheat we have seen futures relatively unchanged, while basis has improved a few cents, especially in the spot and nearby delivery market. Where the wheat basis has fallen off though is in new crop wheat prices.
From a weather standpoint, prospects for the South American soybean crop continue to increase with continued nonthreatening weather and the currency helping to maintain the prop up of domestic prices. More wheat bulls are looking to Europe for the condition of the winter crop there, with concerns for winter hardiness the loudest in Ukraine, Poland, and parts of Germany, Romania, and Russia. Specifically, when it comes to the Black Sea region, recent temperatures have been more April-like than mid-to-late February, pulling more than a few fields out of dormancy about a month early. In my opinion, this headline continues to be best possible catalyst to a bump in wheat prices (Ukraine’s wheat crop will likely be at least 30 per cent smaller this year), but it will be tough for us to see more than 10 per cent gains.
In North America, soil moisture across the majority of row cropland in the United States is adequate but the dryness does start to creep in around the northern states in the western half of the Canadian Prairies. How may this affect markets when El Nino turns into La Nina? When long-term forecasters are making the call for a shift from one phenomenon to the other, this happens over a few months, not weeks. Accordingly, it is hard for me to think La Nina will affect too many 2016 crops north of the equator but, as my grandfather (a lifetime farmer) always said, “Never say never, especially when It comes to Mother Nature.” The question I would challenge him with today though is how much of the farm (our grain sales) should we bet on that theory?
President & CEO | FarmLead.com