Seasons of Change
Grains continued to be pressured by the Harvest 2016 season and continuous moderate weather in the United States (U.S.) continues to keep crop conditions and yield projections at elevated levels. Estimates on the U.S. corn crop ranges between 170 and 175 bushels per acre (bu/ac), suggesting around a 15 billion-bushel crop, while soybean yield estimates are sitting between 48.5 and 50.5 bu/ac, meaning four billion bushels produced. With combines rolling though, the landscape is changing out there and with yields coming in on the high end of the five-year averages, storage space has dropped a bit. With the entrance into September not only comes the changing to fall colours, but also the change of U.S. Presidents come early November. U.S. Presidential election debates will begin this month and while crop comes off in North America but starts to get planted again in South America, we are likely in store for more volatility this fall season.
The hot topic lately has been the September 1st date for the introduction of China’s new policy on canola imports of max 1 per cent dockage tolerance. Canadian Prime Minister Justin Trudeau and his team were able to convince their Chinese counterparts to move the date further back a few weeks to allow further discussion of “science” (when we all know it is just politics at play). Some companies are selling the Canadian oilseed into China already at those 1 per cent max dockage, making it tough for negotiations, but also supportive of canola prices has been palm oil. Asian 2016 production has been relatively disappointing, and combined with increased demand, inventories are starting to dip. This is lending support to soyoil prices (a substitute), which in turn is lending support to canola prices (which, when crushed, is another substitute). We have seen some analysis suggest that even with the aforementioned large U.S. soybean crop, the stocks-to-use ratio could be around 7 per cent. With lots of livestock in China to feed (among other places), there is certainly a case for oilseed prices to remain supported at or near today’s current levels.
While China mulls import policies, one thing they need to think about is the effectiveness of their domestic reserves auctions, where selling grain that is two to five years old and has been stored in poor conditions for prices near the market does not really work. As such, there is some who believe that the poor quality grain won’t be bought and imports could increase. This would intuitively support corn and soybean prices that seemingly have been sitting in a wet paper bag whose bottom is leaking. While China is thinking of imports, Russia is looking to get more of its wheat out, and has officially cancelled its wheat export tax for the 2016/17 season, coming at a time when Egypt is reinstating a zero-ergot tolerance (there is a lot of wheat in the world, and you are the largest wheat buyer so why not set the requirements?).
From a cash price standpoint in Western Canada, basis was flat or unchanged this week, but prices were pressured by futures values dropping. For hard red spring wheat, a decline week-over-week of 5.5 per cent pushed cash prices lower, with prices in Saskatchewan below $5.50 and those in Alberta and Manitoba (closer to port positions) above $5.50 for No. 1 13.5 per cent protein. Canola prices have dropped back below $10/bu, even for future movement as bearish pressures from what looks to be a large canola crop in Canada and an even bigger soybean crop in the U.S. trump any demand stories. For the pulse markets, bearish winds have also taken over, with the only $7/bu yellow pea bid available in Alberta (make sales when you can, not when you have to!). Knowing your grain’s quality and your cash flow needs for the next eight to ten months will be your best tools to have a better marketing plan this season. With those facts known, you will have a better understanding of when you will have to make sales, so you do not have do it then when you are pressured into something, but instead when you can (and likely at better values).
President & CEO | FarmLead.com