The Strong(er) Game
Grains ended the month of November relatively quietly as market players tied up loose ends in their books to make things look decent. As it stands, oats was the big winner for the month, up 7.6 per cent with wheat markets being the worst-performing of the complex, down over 8.5 per cent in November. Corn was another big loser for month, down over four per cent while soybeans and canola went neck-and-neck down -0.45 per cent and -0.8 per cent respectively in November. From a currency perspective, the Canadian dollar lost about two per cent against the United States (U.S.) dollar (and down almost 13 per cent year-to-date), while the U.S. greenback has strengthened about 3.4 per cent. With other European currencies weakening in November (i.e. Eurodollar down four per cent in November, British Pound -2.4 per cent), international grain buyers are able to effectively strengthen their sourcing game, namely from Europe and Canada.
This is exactly why more analysts are suggesting that Canada could actually move into the number two position when it comes to the world’s largest wheat exporters, surpassing the U.S. but still behind Russia. U.S. wheat exports are about 16 per cent behind the pace needed to reach the 21.8 million tonnes the United States Department of Agriculture has forecasted, whereas Canada is likely to top the 20 million tonnes estimated (Russia’s wheat exports are pegged at 23.5 million tonnes). Moreover, French wheat has gotten more competitive with the depreciation of the Euro, so much so that 126,000 metric tonnes of French wheat has been contracted thus far this marketing year by Mexico, yes, the country right across the border from the U.S. That amount is now greater than the entire volume of French wheat that Mexico has bought in the last four years combined.
Questions continue to swirl around the Middle East and whether or not the recent downing of Russian fighter plane by Turkish forces will give some life to the wheat markets. Last year (the 2014/15 marketing year), Turkey was the biggest buyer of Russian wheat, purchasing 4.1 million tonnes, and this year they will already have picked up 1.6 million tonnes through October, making them the second largest buyer behind Egypt. However, rumors are now making the rounds that Moscow is now suspending wheat exports to Turkey. The market has not really reacted to this news yet mainly because there is a lot of other options that Turkey has (given the size of available supplies out there – anyone around the Black Sea region could be a good fit, or even possibly Canadian or Australia wheat given the cheap ocean freight).
It’s been confirmed that Argentinian corn, wheat, beef, and sunflower export taxes will be immediately scrapped the day that new President-elect Macri steps into office on December 10. This would be a sharp decline from the 23 per cent tax on wheat and 20 per cent additional cost on corn exports from the South American country, while the export tax on soybeans will drop by five points to 30 per cent. While farmgate prices in Argentina will likely increase in a few weeks, farmgate prices in Western Canada have improved with the stronger U.S. Dollar. As per the PDQ grain pricing website (www.pdqinfo.ca), cash prices for hard red spring wheat improved by an average of 1.6 per cent in the past week, with the best improvement seen in Alberta and Northwest Saskatchewan. While it is hard not ignore the escalation of the Bill 6 situation in Alberta, it is important to note that currency effects are helping improve cash wheat prices. That being said, this recent strength will likely be limited by the December trend of wheat prices falling back in the last half of the last month of the year.
Brennan Turner President & CEO | FarmLead.com