Market Insider

Right Timing?

Grain prices have been seesawing as the market continues to digest some updated weather reports and keeps a watchful eye on central banking decisions, namely the United States (U.S.) Federal Reserve. The Fed went out and raised rates to 0.25 per cent on Wednesday, December 16th, the first time the U.S. central banking authority had done so since 2006! They further provided guidance that U.S. interest rates will creep up to 1.75 per cent by the end of 2016. Is this the right move? Other than Mexico, everyone else has lowered their interest rates (including the Bank of Canada who has suggested that they are not opposed to negative interest rates. From a data standpoint, the U.S. is not necessarily doing amazing – the Fed suggests that their economy is in its strongest expansionary cycle in the post-World War II era. Conversely, a number of statistics suggest otherwise, mainly that of the labour participation rate (the percentage of Americans employed and/or looking for work is its lowestsince the late 1970s) and industrial production and factory activity is trending lower. Overall, the interest rate increase strengthens the U.S. dollar, which in turn makes commodities more expensive for other international buyers, and with commodity prices already low, the timing is not necessarily great for commodity suppliers (unfortunately , that includes farmers).

However, as I have previously mentioned, the currency effect from the U.S. interest rate increase is notable within Canada as well.Case in point, the value of the Canadian Loonie has fallen almost 16 per cent in the past year to below 72 cents U.S. (granted, a lot of this can be attributed to the massive decline in oil prices as well). It is no surprise then that we have seen canola prices tick higher with the Canadian dollar being worth less, up almost 12 per cent from a year ago. Conversely, everything else is lower on the futures boards, thanks to bigger harvests around the world: soybeans lower by 13 per cent, corn down 14.5 per cent, Chicago wheat dropped over 26 per cent, and oats being the biggest loser, down almost 30 per cent. That being said, futures and cash markets are usually two completely different numbers. With this in mind, the decline of the Canadian Loonie has helped in the exportability of Canadian crops and their values are intuitively increasing. On the ground this means the cash improvement has mostly been seen in basis levels ticking higher, relative to a year or even two years ago (this should not be ignored). Accordingly, cash wheat prices on the website suggest that this past week’s central banking catalyzing action left western Canadian values mostly unchanged with the decline in wheat futures offset by the decline in the Loonie.

The United States Department of Agriculture (USDA) came out with their first forecast for the 2016 U.S. crop last Friday, pegging corn acres at 90.5 million acres, up 2.4 per cent year-over-year (and the first increase in three years), which would produce the second largest U.S. crop ever at 13.9 billion bushels. For soybeans, the USDA is expecting the third largest soybean crop of 3.785 billion bushels, coming off 82 million acres of planted area (-1.4 percent year over year). The U.S. 2016 wheat crop was projected at 2.06 billion bushels, coming off 53 million acres, a decline of –six per cent from 2015 and the lowest US acreage since 1970. Overall, this equates to a forecasted average price in 2016 of $4.50 per bushel for Chicago wheat, $3.60 per bushel for corn, and $8.65 per bushel for soybeans, all lower than the 2015 averages.

On the weather front, we continue to watch the wetness in southern Brazil but also some drier conditions creeping into major-soybean producing regions in Mato Grosso that has led to about 10 per cent of acres getting replanted. Russian winter crop conditions going into dormancy are close to their long-term averages, while the French winter wheat crop is seen heading into the dormancy phase in its best condition ever (a third consecutive record wheat crop could be brewing there). However, with the milder winter experienced thus far in North America, concerns and questions abound as to whether or not Mother Nature is timing things up for a drier year here.

Merry Christmas and Happy New Year, and always,

To growth,

Brennan Turner President & CEO |