Less buzz is being given to El Nino these days (except for commentary around pulse crop prices approaching new records, specifically on lentils), and instead, more analysts are calling it off in the coming months and looking instead to La Nina conditions forming. While La Nina events have followed El Nino events closely a few times in the 1950s and again in the 1983/84 crop year, most forecasters are saying a wet La Nina event would take place in 2017 in North America’s major ag producing regions. Looking short-term though, some cold weather appears to be coming down from the North Pole which means your favourite phrase, polar vortex is back (also known in Canada as slightly colder than normal weather). While this is likely a positive for an energy markets rebound, we all remember 2013 when grain movement was slower because of chillier weather. Furthermore, a harsh winter could negatively impact winter crops that don’t have adequate snow cover. The question I’m asking is - will a colder winter help be a catalyst for higher grain prices? Likely a few pops in the market shouldn’t be out of the realm of possibilities.
The Ukraine Ministry of Ag is reporting that 62 per cent (or 10.1 million acres) of fall-planted crops have emerged, of which 68 per cent is being categorized as in good or satisfactory condition, whereas 32 per cent is considered weak and thinned. Proportionally, 16.33 million acres of winter crops went in this year in Ukraine (down 10 per cent from last year), meaning 42 per cent of all winter crops are in good to satisfactory condition, while almost 20 per cent is considered weak or thinned. Next door, though the second week of November, Russia has exported 14.7 million tonnes of grain this marketing year, which is down 10 per cent from the same period a year ago. The export tonnage includes 11.2 million tonnes of wheat, almost halfway to the expected 23 million tonnes with still 6.5 months to go.
Some concerns have been made over the quality of the Russian wheat crop, with less higher milling spec available and it’s unknown if this is related to poorer weather or if it was an effect of crop input changes (i.e. fertilizer) with the ruble devaluation making it hard to buy the right stuff or the right amount of crop inputs. Could we see more out of the same from the crop that was planted this fall? Alas, a subtle reminder to readers is that most bad crops in the Former Soviet Union states are not a result of bad fall or winter weather, but rather because of adverse spring or summer weather. Should we see some more adverse weather in the region in a few months, the poorer conditions that the crop went into dormancy under will be the main factor in the degradation of the crop size.
With no real weather headlines this week except for snow finally hitting the ground in many places across Western Canada, the market has been relatively mute. As per the PDQ website (www.pdqinfo.ca) net cash wheat prices are slightly higher week-over-week with the biggest changes being seen in Manitoba, up over 1.5 per cent. On the futures board, hedge funds are currently sitting in a record short position on ags, suggesting that a saturation effect is in place and lower numbers might be hard to come by. However, short covering may be subdued as there is no real fundamental bullish catalyst out there right now (that the market hasn’t priced in at least) that is going to help accelerate a short-covering and push the market higher. Should weather questions start to get answer though, we could see an exodus of shorts and targets you’ve set getting hit.
Brennan Turner President & CEO | FarmLead.com