Market Insider

Facts and Rumours

Grain markets have enjoyed a bullish push over the past few weeks as bearish Plant 2016 headlines have been trumped by bullish South American production headlines. Soybeans have been the leader of this running of the bulls, thanks to persistent rains in Argentina that are suggesting up to 10 per cent of the crop there could be lost. With less soybean production in Argentina, this means less soymeal production for the country, which in turn suggests some of the global demand could switch to the United States (U.S.), a consistent supplier. More acutely though, this current rally from November lows for soybeans is mostly attributed to technical momentum shifts and strong buying by hedge funds getting longer (albeit the fundamentals of some lower-than-expected ending stocks and U.S. acreage are hard to ignore as well). Looking deeper, with the known fact that corn planting is ahead of pace in the U.S., there are rumours building as to how many acres this current rally has been able to buy for soybeans.

 On a cash front, Western Canadian grain prices have also had a fairly volatile week, tracking both by the futures market and the Canadian dollar climbing to the 79 cents U.S dollar handle. Specifically for wheat, prices have bumped up, on average, 30 cents per bushel week-over-week across Western Canada as it tracks the rest of the outside bullish rally. Further, concerns over soil moisture in the western half of the Canadian Prairies is adding some fuel, as is the likelihood that we will see less acres put in across the region this year. Most of the change in canola has been in the futures values with cash prices up about a quarter since last week, as it tracks its oilseed brethren to that coveted psychological level of $500 per metric tonne on the Winnipeg ICE futures board. Yellow peas saw the biggest hit week-over-week with the higher Canadian dollar and large expected increase in acres, cash prices for the pulse crop pulled back significantly week-over-week back into the $11 mark. 

A recent Bloomberg survey has 11 analysts pegging the 2016/17 European Union (E.U.) wheat crop at 154.9 million tonnes, a drop of 3.4 per cent from last year’s monster, but the third straight year of production over 150 million tonnes. A couple notables from the survey include France’s durum harvest increasing 5.2 per cent year-over-year to 1.9 million tonnes, the United Kingdom (U.K.) wheat harvest dipping 5.8 per cent to 15.3 million tonnes, and the German wheat crop falling 1.8 per cent from last year to 26 million tonnes. This would align better with expectations from Stratégie Grains of a lower carryout thanks to a stronger E.U. wheat export program. We continue to look further east though into the Black Sea, specifically Ukraine, for places where a smaller wheat crop may allow for more export competitiveness from places other than the Black Sea (and its depressed currencies).

Brazilian producers waiting to see their second crop safrinha corn poke out of the ground are also experiencing some drier conditions. Weather Trends 360 is forecasting that La Nina will likely hit North America by August, as it’s already showing up in South America. Australia’s Bureau of Meteorology has pegged the possibility of a La Nina event in 2016 at 50 per cent. While Weather Trends 360 is calling this the start of “a two year drought cycle across the Americas,” we may have to temper expectations with the asterisk that these guys also called for a wet spring in the U.S. Midwest, which does not appear to be on the horizon anytime soon. That being said, this recent rally on fund-buying and South American headlines could be masking any gains resulting from Plant 2016 concerns. Since there is still a fair amount of supply in the pipeline, and the demand numbers have increased drastically, we look to the current rally as an opportunity to “sell on the rumour, and profit on the fact.”

To growth,

Brennan Turner
President & CEO |