Market Insider

Now and Then

Grain markets heading into the American Thanksgiving weekend had plenty to be grateful for as continued demand, some weather premiums, and updated biofuel mandates supported the complex. Specifically, on Wednesday, November 23rd, the United States (U.S.) Environmental Protection Agency (EPA) raised the biofuel quota to 19.3 billion gallons, including 15 billion gallons of ethanol, both new records. The larger-than-expected numbers and the fact that it was released late in the day right before the U.S. Thanksgiving holiday caught the market completely off-guard (unlike the United States Department of Agriculture (USDA), the EPA does not have a set-in-stone schedule of when they will report. As such, soyoil went limit up and hit its highest level since July 2014, while palm oil in Malaysia touched a four year high. With the thought that vegetable oil carryout could now be tighter, January canola nearly touched $530/MT, highs not seen since mid-June and accordingly, we took advantage of continued opportunities to make more block sales now versus speculating on even further regulation of weather premiums.

What the new regulation has done is basically reset the goalposts of trading ranges, but only by about a few percentage points higher, as various forecasting models account for the new demand and the expectations that carry-out will be a bit tighter. Thus far in the 2016/17 marketing year, 2.68 million tonnes of canola have been used by Canadian crushers, up 15 per cent year-over-year, as capacity use is nearly reaching the limit! Across the border in the U.S., soybean crush numbers continue to surprise, but are still tracking only slightly ahead of the USDA’s full marketing-year estimate. Competing with domestic American soybean crush will be China, as crush margins are the best they have been in two years and almost double year-over-year. This means that China will continue to be in the driver’s seat for soybean demand, but where it comes from – North or South America – is the bigger question.

Soybean planting in Brazil is pretty much complete, but there are some concerns over moisture (or lack thereof) now that the crop is in the ground. Conversely, in neighbouring Argentina, almost 1/3 of the soybean crop has been planted but total acres expected to get planted continues to get downgraded as heavy rains are hitting the western province (causing flooding), while things are too dry to plant in the south. While eyes are mostly focused on those South American growing conditions, Informa Economics has already come out with their estimates for 2017 acres, calling for 88.6 million going to soybeans (+6 per cent from 2016), 90.8 million acres of corn (-4 per cent year-over-year), and winter wheat acres of 33.8 million (-7.5 per cent). While American winter wheat acres are going to be lower in 2017/18 (some say the lowest in 50 years), there is a lot of it and similar acreage is expected in places like the European Union (EU), Russia, and Canada next year.

From a cash perspective, Western Canada grain prices all moved higher week-over-week, except for durum, which pulled back below $9.00/bushel in many places because farmers made sales and the market was continuing to find product to meet demand. Conversely, hard red spring and Canada Prairie Spring Red (CPSR) wheat prices climbed up a bit, but with both basis and futures values climbing by about a dime each per bushel for a net gain of 10 – 15 cents/bushel across the Canadian Prairies. Canola jumped up on the aforementioned news and is finding a new home above $11/bushel in many areas and likely above $500/MT on the futures markets. Canadian cash markets will continue to be affected by currency effects (especially considering what is going on across the border) and many banks are forecasting the Canadian dollar to soften a bit in 2017, possibly down to 70 cents USD. This is due to oil prices potentially staying low (assuming now OPEC production gets cut), the U.S. economy and U.S. dollar remaining strong, and U.S. interest rates increasing, which, right now, looks almost a lock.

To growth,

Brennan Turner
President & CEO |