Market Insider

Winter is Coming

Grains passed the midway of December doing a bit better on the cash front than where they were a month ago. Some weather issues in Argentina and recent production reports are supporting the oilseeds complex, while most other grains are trading sideways. In Western Canada, average hard red spring wheat prices continue to fluctuate between $6.50 - $6.75 CAD per bushel with some spot demand at $7 handles to fill the last few railcars on unit trains (at least on the FarmLead Marketplace). These are a little higher than a week ago, mainly thanks to futures values up above a dime per bushel, but wider basis (thanks to the Canadian dollar) has offset half of those gains. For canola, cash prices in the Canadian Prairies are still sitting above $11/bushel in most places, but futures values did pull back about 20-30 cents CAD/bushels from last week’s highs. A wider basis is expected in canola as well as we head into the winter months, which could be compounded by the Canadian dollar sitting below 75 cents USD.  

There is a good chance it could stay there too! This week the United States (U.S.) Federal Reserve raised their key benchmark rate by 0.25 per cent or 25 basis points to 0.75 per cent, which is technically just their second increase in the past decade! Chairwoman Janet Yellen cited strength in the U.S. economy signs that inflation is increasing as the justification for the hike. The Feds said that they would likely raise interest rates another three times in 2017 but that President-Elect Donald Trump slashing taxes and increasing spending could force them to act sooner than planned to tackle inflation and therein, rising prices. What is good for the U.S. economy tends to be good for Canada, but with average Canadian household debt-to-income standing now at a record 167 per cent, any following by the Bank of Canada to increase interest rates here in the Great White North could put a lot of pressure on people. However, a lower dollar does support Canadian grain exports, especially since total exports are tracking about 3.6 per cent behind where they were a year ago, including canola exports down 7.6 per cent compared to last year and wheat exports trailing 18.7 per cent behind 2015/16’s pace by this point of the year.

Last Friday we got the United States Department of Agriculture (USDA) December World Agricultural Supple and Demand Estimates (WASDE) report, but it turned out to mostly be a dud. U.S. corn, wheat, and soybean production, demand, and carryout literally did not move, with 2016/17 ending stocks staying the same as November’s report at 2.403 billion, 1.143 billion, and 480 million bushels, respectively.  Similarly, South American corn and soybean production was barely changed from last month, which was a bit surprising for Argentina, given some of their weather issues. Accordingly, Argentinian corn and soybean production remains at 36.5 million and 57 million tonnes, respectively (other private estimates are as low as 34 million and 54 million tonnes). Next door in Brazil, soybean production seems stable at a massive 102 million tonnes, while corn’s output was increased by three million tonnes from last month’s estimate to 86.5 million tonnes. On the wheat front, the most noticeable change was the Aussie crop getting raised to a record 33 million tonnes and exports increased by 3.5 million tonnes month-over-month to 24 million tonnes. This would put Australia as the fourth largest wheat exporter in the world behind Russia (29 million tonnes), America (26.5 million tonnes), and the European Union (EU) (25 million tonnes), with Canada coming in fifth at 21.5 million tonnes.

The Russian Ag Ministry says that in the past decade and a half, Russian grain export capacity has exploded from just five million tonnes to 45 million this year. While production in the Black Sea country has increased by one-third or about 30 million tonnes in the past decade, touching roughly 115 million this year, the government is aiming for 130 million tonnes of grain output by 2030. While some think this is ridiculous, there are millions of unseeded acres around Russia that could make it happen (albeit I do agree that the timeline is a little aggressive). On that note, despite record global wheat production and carryout and even more winter wheat acres planted in Russia this year, more analysts are getting optimistic that wheat prices can continue to improve as acres elsewhere, namely the U.S. and Ukraine, fall. However, we still must work through this gluttony of wheat that is out there, which means more sideways trading is likely, or at least gains will be limited through the winter.

To growth,

Brennan Turner
President & CEO |