Market Insider

What's the Plan?

Grains continue to trade sideways through the second week of March as the monthly W.A.S.D.E. report from the United States Department of Agriculture (USDA) didn’t really bring any different fundamentals to the table. While the market is watching the ongoing drama in the American political system, most of the commodity complex has been able to follow oil up the last few sessions, but agriculture has been weighed down by the omni-present amount of supply of grains and oilseeds that still exist around the world. It is important to stay patient as the market is very uncertain at this point going into plant 2016. Do you know when and where you will get active in the grain trade if the market goes down further? What about up? Having any time of plan is better than no plan at all.

While you are figuring out your plan, the market’s plan will be to focus on the pace of South American exports, the March 31st United States (U.S.) stocks and planting intentions report, and the weather conditions (namely the switch from El Nino to La Nina and when it could happen). The USDA may be factoring in the stormy weather that is expected to hit northwest and central regions of India (the main wheat growing areas) as they dropped their output estimate for the world’s second largest grower to 86.5M tonnes (local government and the United Nations (UN) are forecasting a +93M tonne crop). In the U.S., concerns over dryness in the Southern Plains’ winter wheat crop continue to grow, but with heavy rains forecasted for the Delta and lower Midwest this week, the drier areas would benefit from even getting a look from the outside areas of the storm. Nonetheless, with six straight closes higher for wheat markets on the futures boards so far to start this month, more analysts are thinking that wheat may have finally turned a corner.

Let’s not jump to a bullish stance just yet though. Thanks to three consecutive bumper wheat crops (technically this includes this year’s forecasted crop), the European Commission says that European Union (EU) wheat inventories to end 2016/17 will stand an eight year high. Other than bigger production, the reason for this hike is the tough competition in the export market (currency and cheap freight at play here) as EU soft wheat exports are expected to fall to 27 million tonnes, a 7.25 per cent decline from this year’s projected 29.11 million tonnes and a 19 per cent decline from 33.34 million tonnes in 2014/15. Also expected to drop are UK rapeseed acres, down 10 per cent year-over-year to 1.35M acres this year, the lowest since 2009, thanks to lower prices and the neonics ban ongoing in the EU. With two years of below-expected production, more groups like Commerzbank and ABARES are betting that rapeseed prices will be a bit more resilient than other grain and oilseeds (haven’t they been resilient thus far anyway)?

As per the pdqingfo.ca website, cash canola prices have been able to rebound from their lows last week joining Canada Prairie Spring Red (CPSR) and Canada Western Red Spring (CWRS) wheat spot prices on the bounce back higher. The move has coincided with the uptake in the futures since the beginning of March, but wheat basis levels dropped about a nickel or two (depending on the area) thanks to the appreciating Canadian dollar (up over 75 cents now!). Durum prices continue to get pulled back to more competitive levels with the rest of the global market as it’s been another unhealthy week, dropping 2.2 per cent over that time frame. With the jury still out on western Canadian soil moisture, the worst thing you can do is going to into the 2016/17 crop year without a plan. Hash out some numbers, talk to your banker, talk to other farmers, talk to us here at FarmLead.com, etc. etc. but sitting on your hands isn’t a good strategy.

To growth,

Brennan Turner