Market Insider

Busted Targets

Stepping into the month of April, we got the first official crop progress report from the United States Department of Agriculture (USDA), while 40 per cent of Glencore’s agribusiness unit (Viterra) got bought by the Canada Pension Plan for $2.5 billion. According to Price and Data Quotes pricing website (, hard red spring wheat was down only about 0.5 per cent from last week, as an increase of about a dime in the basis helped offset a futures drop of more than 1 per cent. Headlines continue to pop up about the size of the Moroccan wheat harvest, being half the size of last year’s crop with only 3.7 million tonnes likely coming off as result of acres down 40 per cent to their lowest levels in 15 years and dry conditions. This, and the Great Lakes back open for shipping, has helped old crop durum prices pick up a bit from last week. Conversely, a widening of basis due to farmer selling offset the positive gains that canola was able to make on the futures board. Week-over-week, we have seen 11-12 cents per bushel added to cash grain price of the oilseed, allowing for some solid targets to get picked off ahead of the drills busting up dirt. 

Ever since last week’s March 31st Quarterly Stocks & Prospective Plantings Report by the USDA, corn and soybeans have been flip-flopping, with soybeans getting pulled higher on less acres and support from palm oil prices. Despite some profit taking in the later, canola has maintained near-January levels as the Canadian dollar has had a two cent trading range over the past week, swaying between 75.5 and 77.5 cents US dollar. Next week’s monthly W.A.S.D.E. report from the USDA on Tuesday, April 12th will likely show lower global veggie oil stocks, as a reflection of strong international use and lower palm oil production in Asia. This would intuitively help canola maintain their current levels, but hard to see the levels push much higher any time soon without a rally from seeding issues.

Across the 49th parallel there is still time for U.S. farmers to switch their planned acres from corn to soybeans. Some analysts think that up to two million of the 93.6 million acres forecasted by the USDA last week could revert back to the oilseed. However, with the December corn-to-November soybean price ratio in Chicago hovering around 2.5, it’s still up in the air (anything below the 2.5 level suggests more corn will get planted, anything above suggests more soybeans). Across the U.S. major wheat states like Kansas and South Dakota are seen building up their corn acreage (+16 per cent to 4.8 million acres and +6 per cent to 5.7 million acres, respectively).

The International Grains Council says that despite generally favourable growing conditions pretty much everywhere but South Africa, world wheat production will fall about 5 per cent from this past year’s record crop of 734 million tonnes to just 713 million tonnes in 2016/17. Even with headlines of dry conditions in Eastern Australia, Western Canada, and the U.S. Southern Plains / Midwest, it’s far from a blown out drought anywhere (even as you look out into your own fields). Case in point is the U.S. crop, as the USDA’s crop progress report showed winter wheat conditions above expectations with 59 per cent of the crop rated good-to-excellent, well above last year’s 44 per cent G/E rating. I will admit though, while rains continue to be in the forecast for the Midwest and Southern Plains, the full amount of precipitation is failing to truly materialize, causing some yield question marks. Nonetheless, the market plays the game that is in front of them, which has continued to push wheat lower and lower on better-than-expected conditions today.

Alas, while I might have gotten more teddy-like since my grizzled days as a pro hockey player, I am not always bearish (pardon the puns). Recent estimates suggest that the wheat crop out of Eastern Europe will be smaller than last year due to weather. We have been making this call since the start of winter that a smaller crop out of the region is likely the best bull catalyst for wheat in 2016. Ukraine looks to fare the worst as with only 12.4 million of the 14.8 million seeded acres of winter wheat area actually getting harvested, likely resulting in a 35 per cent decline in output from last year to 17-17.5 million tonnes. In Romania, wheat production is seen falling in a best case scenario, 4.5 per cent year-over-year to 7.5 million tonnes thanks to acreage down 12 per cent year over year (an 11-year low). Other major producers like Poland, Kazakhstan, Bulgaria, and Hungary are all seeing their winter wheat acreage down from 2015, while even Russia’s production will be more normalized, down 8 per cent to 57 million tonnes from last year’s monster 62 million. While there is some time to go before the crop is off, given the majority of the wheat crop out of Eastern Europe was planted in the fall, it’s unlikely that any of these production targets will get busted (on the high side that is).

To growth,

Brennan Turner
President & CEO |