Market Insider

Prices Pressured by Competition

Grain markets through the middle of March started to turn a bit lower as bullish headlines have thinned out and the United States (U.S.) Federal Reserve raising interest rates, albeit the U.S. dollar pulled back a bit on bearish comments from the Federal Reserve and the likelihood of only two more rate increases in 2017 (the market was expecting more). This helped the Canadian dollar climb back above the 75 cents USD value, which somewhat limited weekly losses on the cash front in Western Canada. As per canola values were down week-over-week, following the rest of the oilseed complex with mid-$10/bushel CAD available for new crop and low-to-mid $11/bushel still around for nearby movement. On the wheat front, hard red spring wheat cash values continue to linger in the $6/bushel, trading more sideways than anything, while durum and Canada Prairie Spring (CPS) continue to swing around the $7 and $5 handles, respectively. Overall, we have seen hedge fund money start to get less bullish on the grain markets with less things to speculate on.

Case in point, Canadian durum prices continue to be pressured by competition abroad and subdued demand for higher quality as the market continues to pay higher premiums that farmers have been hoping for. Compounding things is the Mexican durum crop starting to get harvested in May (and it looks pretty decent right now) and Europe’s crop, two months later, meaning more supply becoming available. Thus far in the 2016/17 marketing year, Canadian durum exports are down 15 per cent year-over-year and wheat exports are down 20 per cent. Comparably, some traders continue to think of Russia as “wheat powerhouse,” shipping out 619,000 MT of wheat in the first week of March, but just 145,000 MT of corn. Conversely, Ukraine shipped out nearly 600,000 MT of corn but only 129,000 MT of wheat during the same period. It is also worth noting that Indonesia bought 100,000 MT of Black Sea wheat (11.5 per cent protein) at a July 2017 delivered price of $197 USD/MT (~$262.50 CAD/MT or $7.15 CAD/bushel).

Indonesia and other Southeast Asian countries has been mostly supplied by Australia, American, or Canadian wheat in the past, but given the cheaper option, this Black Sea purchase is not likely the last, especially since the conditions in the region are good enough that expectations are pretty high for production right now. With very good soil moisture conditions, it is not as favourable as when the winter crop emerged last year, but things are looking pretty decent. In the U.S. Southern Plains, bulls are discounting the rains forecasted next week and that some of the colder temperatures could damage crops that have already come out of dormancy after the warm weather the past few weeks. Further, temperatures in U.S. winter wheat areas ahead of the rains is expected to be above normal, suggesting even further degradation of soil moisture conditions. The contrasting fundamentals are pushing up trading ranges in the wheat markets (and accordingly, volatility) at a time when the crop quality is more than uncertain, given the extreme weather conditions.

Finally, there are some though who think that there will not be as many U.S. corn acres lost to soybeans this year, but rather those acres will come from wheat. Corn tends to get planted earlier than soybeans, so if conditions are right, we could definitely see more corn get drilled in this spring across America. Nevertheless, a lot can happen in the next six to eight weeks of planting time for most of North America and the usual volatility in the market will ensue, but what actually gets planted in the ground will remain uncertain until then. While we start to get ready for Plant 2017 in North America, harvest in Brazil and planting of the second crop continues, while Argentinian producers are preparing for the start of their soybean harvest. For those farmers, they are hoping Mother Nature provides drier weather than what we have seen this year and for sure drier than last year’s really wet harvest that drove speculation (and grain prices) a lot higher.

To growth,

Brenna Turner
President & CEO |