Market Insider

Playing the Numbers

Grain prices entered November above where they have been for the past couple of months thanks to some weather premiums and short covering in the futures market. From a harvest standpoint, combines continue to roll at a good pace in America but significant challenges remain in Western Canada, namely central and northern Alberta. While the supply variable is being cemented with North American crop coming off, on the flip-side of the price-equilibrium equation, strong demand continues to assist the markets as well. We know that United States (U.S.) wheat exports are up 28 per cent compared to this time a year ago, corn is up 30 per cent, and soybean shipments are up 11 per cent year-over-year. Thus, this begs the question, can the markets’ numbers go higher?

We have seen a healthy run the past couple of weeks, both on the futures board and in the cash markets. As per, canola prices are still up about 10 per cent from where they were a month ago, but were lower this week on selling pressure and some good weather in the harvest that the market is anticipating more crop to come off. On hard red spring wheat, we have seen some $7/bushel targets get hit in Alberta and Manitoba with elevator specials, but the market seems to be stuck around that $6.50/bushel level for the next few months as the spread between spot and deferred movement has narrowed a bit. CPS wheat is not much different but trended lower this week, with levels still relatively below what feed wheat is trading at ($4.50 - $5 per bushel). Durum values continue to inch up above $8.50 and into $9 per bushel in some places. Overall, higher quality wheat and canola prices have climbed a healthy amount in the past six weeks or so, validating our call to hold (but now looking to sell a block).

On that note, what direction are we going in? For oilseeds, while soybean futures continue to lead this current rally (up nearly $1/bushel on the Chicago board in the past month), cash basis across the U.S. has been widening as a result of farmer selling/general harvest pressure. We have started to see some similar dynamics in the canola market but if you tell me you are waiting for a specific price for your next 10,000 bushel block sale, I would compare that to putting a $110,000 bet on a single number on the roulette wheel and hoping it hits. In my opinion, the market is either assuming the crop will get taken off eventually or it is already accounting for worst-case scenarios (otherwise, we would be much higher). If the former is true, then we will likely push higher in the next three to four weeks (albeit slowly) but that is pure speculation at this point, especially for canola prices.

On that note, there have been many comparisons to 2014 this fall as similar harvest problems helped soybeans rally $1.30/bushel in the last quarter of the calendar year, durum prices were in double digits, and canola sprang up $50/MT on the Winnipeg ICE board. This in mind, we have already jumped more than $50/MT in Winnipeg. Add in that there is a record soybean crop in the U.S. and Brazilian soybean acres seeded is ahead of schedule with conditions looking decent, the potential to the upside has more pressure piling on top of it versus the force coming from below to push it higher. For wheat, we know that the U.S. durum and hard red spring wheat crop this year were excellent (average 61 lbs/bu weight, 14.2 per cent protein, 77 per cent HVK). Apart from quality being relatively high, disease issues are not a significant issue in the U.S. wheat crop, whereas vomitoxin and fusarium continue to be looked for by all wheat buyers (on or otherwise), which is keeping Canadian prices subdued for now. All the above in mind, rallies take time to build up but will often correct violently. Make sales when you can, not when you have to and stop focusing on one specific number.

To growth, 

Brennan Turner
President & CEO |