Market Insider

Artifical Support

Towards the end of October, markets continue to chase the highs seen in June, but have not been able to get there yet. We are starting to see a little more volume in the complex as recent data suggests fresh speculative money has entered the market, mirroring what we saw last spring when every hedge fund manager and their mother got a little more active in grain and oilseeds. Managed money is looking for profitable opportunities and corn and soybeans are the most liquid/easiest ag markets to get in and out of quickly. With this in mind and much like the market fell abruptly in June, prices for the likes of corn and soybeans feel a little artificially high, and that trickles into other markets like canola and wheat. With the United States (U.S.) election right around the corner, volatility is omnipresent and I am not discounting the chance of a lot more upside, but I do manage risk and understand the likelihood of this happening drops with every cent per bushel that moves higher.

On that note, tell us that as futures values have risen for canola, basis has remained flat or fallen a bit, for a net gain of 20 cents CAD/bushel in the past week. This means average prices across Western Canada are above $11/bushel until next spring, wherein 2017 crop values drop back below this psychologically-significant level. Durum prices had a slow week compared to last, up about 1 per cent or about a dime per bushel with average prices in Western Canada getting closer to an $8.50/bushel level. For hard red spring wheat, average Canadian Prairie values are sitting close to $6.50 for movement in the next 3-5 months, up about a nickel per bushel week-over-week. However, the Canadian dollar dropping below 75 cents USD has led wheat basis to widen a bit (it has not on canola because futures values have risen more). Quality issues in the Canadian pulse crops are supporting lentils and chickpea prices right now, but the recent rebound does not support a bullish trend (Australian and India crops are coming!).

Keeping this global perspective in mind, Malaysian palm oil futures are trading at their highest levels since March 2013, soybean oil futures are trading at their highest levels since 2014, but canola is only trading at its highest since late June (albeit not above the highs reached that month, as previously mentioned). On the bullish side of fundamentals, Malaysian palm oil stocks are down 41 per cent year-over-year and a slow rebound in production, a bunch of canola remains uncombined in Western Canada, less soybean acres are getting seeded in Argentina, and we may see some weather premium priced into the South American crop. On the bearish side, palm oil inventories have a seasonal trend of build up around this time of year, in addition to the record U.S. soybean harvest coming off that is satisfying a lot of international demand right now. With this in mind, Brazil and Argentina still have up to 12 million tonnes of soybeans they can move before new supplies come off in 1Q2017. 

For wheat, the Russian Ruble has rallied 19 per cent against the U.S. dollar in 2016, creating lower expectations that they will reach 30 million tonnes of wheat exports. Comparatively, American wheat exports are expected to jump about 26 per cent year-over-year to 26.5 million tonnes, according to the United States Department of Agriculture (USDA). This would bump them up to being responsible for 15 per cent of global wheat exports, up from 12 per cent and the highest in the past three years, but still a significant difference from the 29 per cent it owned a decade ago and more than 50 per cent in the 1970s. Ultimately, North American prices are still overpriced to compete with the likes of Black Sea winter wheat of 12 per cent protein, but the lower levels are creating more opportunities to ship into African and Southeast Asian markets. Sure, better farming practices have supported the likes of Russia and Ukraine to become production kings, but their Wheat King titles are a bit artificial since it is not the same type of quality that we are shipping out of Western Canada or Northern U.S. states.

To growth,

Brennan Turner
President & CEO |