Market Insider

Don’t Cry For Me Argentina

The grains markets continued to trade through the United States (U.S.) Thanksgiving week with a stronger U.S. dollar, amidst a little more geopolitical risk in the Middle East. Some hotter temperatures in India (thanks El Nino!) are leading to slower and/or smaller plantings of wheat and rapeseed crops there, suggesting that imports of cereals and veggie oils in 2016 are sure to be higher. Managed money continues to kill its long positions in the futures markets as we head into the winter months. Oil prices continue to be pressured by large stocks and slower demand, which is part of the reason soybean and canola prices remain pressured. Canola crush margins are about 50 per cent of what they were a year ago, which is why the smart move seems to be contracting canola to move grain in later months.

Also pressuring markets was a new pro-business leader being elected as President in Argentina, a hopeful change for a country that’s been plagued by 20 per cent to 30 per cent annual inflation since they defaulted as country 14 years ago. There’s rumours that new Argentine President Macri is planning to immediately cancel all export taxes on wheat and corn, and kill the 35 per cent export tax on soybeans through February. This is significant considering that it’s been estimated that Argentinian farmers are holding onto about 22 million tonnes of grain that they’ve been waiting to sell once the new government relaxes the export taxes. Further, add in that their harvest starts around February, it could turn out to be a constant rush of South American product flooding the market. That being said, the United States Department of Agriculture is currently forecasting five million tonnes of wheat to be exported by Argentina this year, 16 million tonnes of corn, and 10.75 million tonnes of soybeans. However, with this new government, it may not be unrealistic to add 10 or 20 per cent to these numbers. Simply put, with Argentina definitely increasing their exports, this means substitution of other things elsewhere. Further, it may take away more barley acres in the South American country (it’s been a safe crop to grow because it isn’t taxed).

World money managers continue to think that there is more downside in commodity prices yet as the global economy continues to slow. Per the Bloomberg Commodity Index, raw material prices are trading near their lowest level since 1999. As China slows, supplies of commodities are bountiful, and the U.S. Federal Reserve may hike interest rates soon, which would make the U.S. dollar stronger and commodities even more expensive for emerging markets where the most significant demand growth is coming from.

As per the PDQ grain pricing website, we’ve seen wheat prices across Western Canada fall about two per cent from last week, with the change being equally split between a lower basis and lower cash price. The biggest swing was seen in western Saskatchewan and southern Alberta, down an average of 3.3 per cent from last week with basis going negative. The biggest headlines that the wheat market will be watching before the end of 2016 will be relations between Russia and the Middle East and weather headlines in various places, including Africa and Southeast Asia where El Nino affects may help drive import demand higher.

To growth!

Brennan Turner President & CEO |