Market Insider

Still Lots Out There

At the end of September grains were looking a bit higher where they ended the month of August, mainly thanks to some weather premiums getting priced into the market. Intermittent rains have not helped Harvest 2016 move along as fast as many would like in Western Canada and concerns are building about quality of crops hammered by rains in major United States (U.S.) growing states. Also affecting grain markets a bit towards the end of the month was the Organization of the Petroleum Exporting Countries (OPEC) agreeing to cap its oil production, signifying a move back towards more market managed inventories. However, the oil bears still believe that the market is way oversupplied and that the market will soon correct itself once it realizes there is still lots of oil in storage and even more being produced (i.e. Russia is expected to produce a record 11.1 million barrels a day in September, up 400,000 from August).

Speaking of Russia, it is suggested that up to 115 million tonnes of grain will be taken off this year there, but sales have slowed recently with just nine million tonnes of wheat shipped out from July-September, mainly thanks to the hiccups that Egypt’s ergot policy has created for trade. Further slowing sales has been export prices for Russian wheat falling to their lowest level in the past six years (currently $172 USD/MT FOB Black Sea port or the equivalent of about $6.05 CDN/bushel), leading to farmers holding onto their grain versus selling it. However, with Egypt finally reverting its ergot policy back to a 0.05 per cent tolerance, expectations are that Russia’s wheat exports could jump to 4.5 million tonnes in October, just as farmers are finishing up their fall seeding for the 2017/18 crop.

Switching continents, it is not moisture that is an issue in Australia, but colder temperatures that are proving to be a bigger threat to the wheat crop in the land down under. Specifically, temperatures are touching as low as -4 degree Celsius in the Western half of the country, while rains are most damaging in the east. As such, not only is there the possibility of something less than a record wheat crop but also memories of 2010 are coming back when late rains caused a lot of poor quality. On that note, these same rains could have a negative effect on the pulses crop, mainly chickpeas. At least one million tonnes of the hummus ingredient will get harvested in the Australia (although some have pegged the crop as big as 1.5 million tonnes), which would put significant pressure on both chickpea and yellow pea prices (albeit we have seen a lot of weakness in the latter, but some good bids for chickpeas are worth locking some profit in on).

On the cash price front in Western Canada, the tells us that both a futures and basis improvement in the past week helped push up hard red spring wheat prices, climbing back closer to $6/bushel for movement before end of 2016. This is mostly to do with quality concerns as the percentage of crop meeting #1 or #2 grades is getting smaller the longer the unharvested acres remain uncut. A similar theme is being seen in the durum market as well, with prices up about 3 per cent week-over-week as $8 handles are being chased. We still continue to think the smart risk management approach is to try and lock up any terrible junk you may have (i.e. +10ppm vomi), while holding on to the higher quality bins.

Canola was mostly flat this week with deferred delivery prices taking a bit of a deep. Canola prices do continue to be supported by good Asian vegetable oil demand, something we will continue to monitor. Ultimately, we are doing better than we were a month ago, but with the United States Department of Agriculture (USDA) stocks report likely showing U.S. grain inventories at 15-year highs and lots of grain elsewhere around the world, we can only logically expect higher quality wheats to start seeing a little more upside in the next couple weeks (but not a huge amount).

To growth,

Brennan Turner
President & CEO |