New Prices and Processes
Grain prices to start the month of March saw a healthy rebound as markets bounced from February lows after some policy rumours, logistics issues in South America, and North American acreage estimates for the 2017/18 crop. Hard red spring, Canada Prairie Spring (CPS), and durum wheat prices in Western Canada all climbed this week on concerns over winterkill issues with recent nice weather and some healthy overseas buying. While the coveted $7 CAD/bushel has not been seen in most places, the revival is a healthy reminder of buyers looking for quality (more on this later). Pulse crop bids have more or less disappeared as we continue to wait to see what happens with India’s import policies, but canola prices saw a healthy jump, thanks to the Canadian dollar dropping below 75 cents United States Dollar (USD) and American biofuel prospects supporting general demand for oilseeds. While $12 CAD/bushel have been see in some parts of Alberta and Manitoba for deferred delivery and even if your area has not seen this, the new prices that we thought might be gone for the year are actionable (translation: make a sale).
As mentioned, wheat prices have rebounded a little bit, as currency effects are making origination options more competitive. Case in point, Egypt’s state-grain buying agency, the General Authority for Supply Commodities (GASC) bought 535,000 MT of wheat recently and 120,000 of it came from France (first time they bought from Egypt this year!). Thus far, 5.14 million tonnes of wheat have been bought by the GASC in the 2016/17 season, which would be 22 per cent higher than the 4.2 million tonnes locked up by this time last year. The demand is welcome as the market needs to work through a lot of grain and it helps that next year we will see a smaller global output, with the United Nation’s (UN) Food and Agriculture Organization (FAO) calling for a 744.5 million-tonne crop, and the first drop in production in five years. However, everyone else is more bearish, calling for world production around 730 million-735 million tonnes with acres down in North America, especially in Canada where it is likely we see more non-wheat cereals like oats getting planted because of disease issues becoming more commonplace lately.
While there was pretty decent quality that came out of the hard red spring wheat harvest in America this year, the bumper U.S. winter wheat harvest did not turn out so great, creating a lot of additional supplies for the feed market. While there is likely to be a smaller carryout of U.S. hard red spring wheat and more winter wheat, the latter has to compete with all that corn (not just domestically, but pretty much everywhere in the world). The question to be asked is whether or not we see millers start to lower their standards as to what they are willing to accept for protein. Such is the case in the durum market where we are seeing more international buyers willing to take of the lower quality product for, intuitively, a lower price. More increasingly, traditional Canadian durum buyers are willing to take on No. 3 Canadian durum product (AKA No. 1 U.S. durum), which in turn is putting pressure on higher quality prices since less people are willing to pay for it.
In India, there is speculation that the government’s import tax on wheat could hike back up to 25 per cent in the next couple of weeks as they continue to slow down shipments coming in ahead of the rabi winter crop harvest. The Indian government is currently forecasting at 96.6 million-tonne wheat harvest this year, but the United States Department of Agriculture (USDA) is only expecting 87 million to come off this year.
On the pulses crop front, we have seen more than a few grain buyers go no bid until there is more clarity on the Indian fumigation and import needs. Bids will likely return, but as the Saskatchewan Pulse Growers pointed out this week, 90 per cent of Canadian yellow peas go to three countries and 86 per cent of small red lentils go to five different nations. If there is a hiccup in the trade with any of the partners, things can get ugly fairly quick (such as now). More concretely, the Canadian government and international industry players have less than a month to spin some magic to maintain the market worth more than $1 billion annually to Canada. Yes exports will continue to ship to India, but the price point and process are likely to be very different than what we have seen the last few years.
President & CEO | FarmLead.com