Market Insider

Speculators’ Paradise

Grain markets are ending 2016 with a divergent fact: cereals and coarse grains all dropped year-over-year, whereas oilseeds climbed higher. This is because while we have seen record production of wheat and corn and demand growth has not kept up proportionally, which contrasts the oilseed and vegetable oils market that continues to see strong demand. At this time of the year, we are past knowing how big the Northern Hemisphere Harvest produced, but we are waiting to see what South America is able to produce, namely corn and soybean crops. Ultimately, more money flow into commodities is helping amplify speculation and rallies, but there is still record supplies left around the world.

When we started 2016, we saw what turned out to be the best basis opportunities of the year, which was since the Canadian dollar at the time was at the lowest point it has been since 2005. At the time, we were strongly recommending to lock in the basis levels and proved to be the very profitable call. We also correctly called that oilseed prices would remain suppressed, thanks to overwhelming supplies. However, what was not expected was the extent that speculation drove soybean prices back up from April to mid-June. In that same outlook we gave on January 1st of this year, we suggested that canola prices could hit $500 CAD/MT before the start of plant 2016, but was expecting it to be driven more by vegetable oil prices, not managed money getting longer and longer on beans because of flooding concerns in Argentina. By mid-June, we saw highs of almost $12 United States dollars per bushel (U.S/bu) for soybeans, $430 USD short tonne on soymeal, and corn touching $4.60. However, once Northern Hemisphere planting concerns became unfounded and more soybeans than was being speculated actually got harvested in Argentina, the market dropped like a baby giraffe out of the womb.

By the time the smoke had cleared, most prices had dropped about 20-25 per cent in a matter of two to four weeks. This included feed grains too, as the highs of early springs were erased quickly with values dropping almost $2/bushel for both wheat and barley before rebounding a bit to today’s price ranges with $4 and $3 handles for each type of feedstuff, respectively. Given the amount of supplies of feed quality grains that are available in Western Canada, prices are likely to remain rangebound. More directly put, we are not expecting 2015/16 prices to be available at all in 2016/17.

Switching gears, we correctly called that peas and lentils would be the money crops of 2016, but we knew as the buzz of acreage increases intuitively increased, the record levels seen in spring 2016 would not be seen again. This was guaranteed by India receiving some above-average rains, supported by the additional acreage planted there in both the kharif and rabi crop seasons.

From a cash grain perspective, most western Canadian grain prices have moved lower year-over-year thanks to the build-up in supplies and the Canadian dollar being in a better position than it was this time a year ago. Getting more specific though, markets were little changed since last week, with canola prices still offering $11 CAD per bushel sale opportunities, but the spread against new crop prices continues to be quite wide. For hard red spring wheat values, many farmers are still waiting for $7 levels to show up, but with Southern Hemisphere supplies hitting the market, they may have to wait a little longer. For the most part, the market has quieted down a little bit, given the holidays are here and so waiting for some upswing early in the New Year is not a bad idea, but have a plan to move stuff before you are rushed to do something in March and kicking yourself (again) for holding on to things too long.

To growth and see you in 2017,

Brennan Turner
President & CEO |