A New Game

The start of December was initially characterized by higher wheat and oilseed prices increasing as export and production headlines

The start of December was initially characterized by higher wheat and oilseed prices increasing as export and production headlines controlled the post-U.S. Thanksgiving trade. However, the game turned upside down as Statistics Canada’s November Canadian production estimates released on Dec. 4 came in way over market expectations. Specifically, while the trade was estimating about a 17 million-tonne canola crop, StatsCan said the number was actually almost 18 million tonnes (17.96 to be exact), which represents a 30 per cent increase from the 2012 output. As for total wheat production, the market was expecting around 33.8 million tonnes but again the government researchers said the number is 37.53 million tonnes, a significant 38 per cent increase in output from last year. For some of the secondary markets, durum production is seen up 41 per cent year-over-year to 6.5 million tonnes, barley output is up 28 per cent to 10.2 million tonnes, oats numbers are up 38 per cent to 3.89 million tonnes, lentils production is up 22 per cent to 1.88 million tonnes, and field peas output is pegged at 3.85 million tonnes, a 15 per cent increase.

All production aside, 5.1 million tonnes of wheat and 2.3 million tonnes of canola were exported as of November 24th (or week 16 of the marketing year). This is significantly higher than the five-year averages of 3.9 million tonnes and 1.8 million tonnes, respectively. Over the same time frame, 105,700 tonnes of wheat were shipped out to terminal elevators by producer car, a 63.6 per cent increase over the same 16 weeks in 2012 (64,600 tonnes). The argument is being made that if the Canadian government believes there should be more competition in telecommunications (i.e. cellphone providers) while each company sharing infrastructure, then why not create another railroad company that utilizes C.P.’s and C.N.’s tracks? Backing this idea would be a system of railroad traffic control, much the same as they do for airplane traffic. Just a thought.

The Argentinian Ministry of Agriculture finally came out with their own revised wheat production estimate of 8.2 million tonnes. Ultimately, with the government limiting wheat exports (also do the same for corn), they’re completely at fault for why Argentina’s wheat production has fallen from an average of 15 million tonnes a year (15.5 million in 2011/12) to the numbers we see today. Changing the policy is a hard reality for the government to face if they want to remain a worldwide leader in wheat production.

Things may remain depressed for corn prices between the American ethanol mandate being lowered and China rejecting almost 200,000 tonnes of U.S. corn in the last three weeks because the cargoes contained non-approved G.M.O. varieties. Further, if the new U.S. Farm Bill doesn’t include provision for direct payments (AKA minimum revenue guarantees), U.S. corn farmers may be more inclined to plant soybeans, wheat, or something else entirely. It comes as no surprise then with less corn potentially going in and Uralkali (Russia) grabbing more of the Chinese potash market, PotashCorp is cutting 18 per cent of its workforce, including almost 600 jobs in Canada. The company says until the market improves, many mines will operate at lower levels or close temporarily. If you haven’t noticed, these market notes I write are within a global perspective because today’s game is more globally-interconnected than ever before. As a result, unfortunately, families tied into the PotashCorp business are feeling the effects.

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and now mobile grain marketplace (app available for iOS and Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).

— FarmLead Breakfast Brief