Market Insider

Second Half Advantage

Just like you should review what worked and what did not work at the end of every growing season, we are passing the halfway point of the calendar year and it is time to review the grain marketing plan. After a fairly soft winter of sideways trading (except in pulse crops), the grains complex started to build some bullish sentiment at the end of March with the United States Department of Agriculture (USDA) acreage estimates. This was followed by lost supply and subsequent demand substitution out of South America. Add in the bullish bias from funds piling into the commodity complex (mainly because no other asset class was performing), and we saw some great prices to take advantage of!

Let’s recap the cash front for Western Canada: the PDQ grain pricing website pdqinfo.ca tells us that things have taken a turn lower over the past month, mainly thanks to the good start to the growing season and the general pullback in futures markets. Hard red spring wheat prices have fallen about 10 per cent over the past month. CPS wheat prices have had it worse, down almost 18 per cent for movement through the end of 2016. Canola has not seen as tough as pullback, down over 8 per cent but for fall delivery at $10.35/bushel on average across the Prairies. Delivery in early 2017 is certainly a little better but still nearly a dollar below where it was a couple of weeks ago. If you have not caught the gist, bearish headwinds have hit Canadian cash markets full-on and without a sharp reversal of weather across the region, it is hard to say we have seen bottom yet.

Pulse crop prices have been able to stay relatively high despite the rest of the complex getting weak in the knees. However, Statistics Canada’s June 29 acreage report confirmed what we were expecting: more pulses and canola, and less cereals. Lentil acreage across Canada was pegged at a record 5.84 million (+48 per cent year-over-year, +97 per cent from the five-year average) while multiple buyers still think the number is closer to six million. Peas acres are seen up 16 per cent year-over-year to 4.3 million (+25 per cent vs the five-year average), while rye and mustard area also popped, up 36.5 per cent and 52 per cent, respectively. Where did these acres come from? Spring wheat acres are down 9.2 per cent from last year to 15.5 million, flax area is down 44 per cent year-over-year to 925,000 acres, while canola acres are down 2.2 per cent from 2015, but still above 20 million.

As for some other notable crops, canola is relatively unchanged year-over-year at 20 million acres (and 2 per cent below the five-year average), barley area dropped 2.2 per cent to 6.4 million acres (-4.6 per cent from the five-year average), corn acres increased by 1.7 per cent to 3.33 million acres (-0.8 per cent), fields planted to soybeans increased by 1 per cent to 5.47 million acres (+16 per cent), oats fell by 14.3 per cent to 2.86 million acres (-7.5 per cent), and durum increased by 4.8 per cent to 6.1 million acres (+26 per cent).

While you may not have been reading the FarmLead commentary since the beginning of the year, we suggested all the way back in winter that there would be maybe one or two rallies to take advantage of in the 2016 calendar year. This is mainly thanks to the gluttony of supply that still exists worldwide, as well as the cheap ocean freight available to easily switch point of origin. Further, crop ratings on both sides of the 49th parallel are pretty high.

Yes, there are pockets in every growing region that are not great looking, but the market looks at the aggregate, not just one or two fields. Trying to justify a higher market because either the market was higher once so it will eventually return or my area isn’t looking that great, is not logical. As such, coffee row or beer cloud tool shop rumours are no longer justification for why you think the market can go higher in the next six months. Ultimately, what is worse: not selling anything and the market going lower or making a small sale (a 10 per cent block – also known as managing risk) and the market going higher and still being able to sell more? If you did not learn your lesson on the way up the past two months, there is likely going to be another opportunity later in the winter, depending on how La Nina affects South America. At the end of the day, heading into the second half of the year, now is the perfect time to review your grain marketing plan, and if you do not have one, take advantage of today and get one (P.S. we have a phone number here at FarmLead.com – call us to discuss!).

Happy Canada Day and as always…

To growth,

Brennan Turner
President & CEO | FarmLead.com