Commodity prices continue to feel the pain of larger supply situations and continues concerns for global economic growth, with a lot of eyes on China. All grain values are lower in the first few weeks of 2016 but with some notables being oats below $2/bushel in Chicago and canola below $475/MT in Winnipeg. Oil has also been a big loser, tanking to its lowest level since 2002 at $31/barrel, which in turn, has pushed the Canadian Loonie down to below 70 cents USD for the first time since early 2003 (notice the correlation between low points and the years?). That being said, are we at the lows? Commodities have started out the year worse than last year’s first few weeks but you likely won’t find any economists admitting to that but it’s hard to peg in another 10 per cent move in the Loonie (down to 63 cents), but a 10 per cent drop in oil would be just $3.10 and a 10 per cent drop in wheat would be just 50 cents. Puts it in perspective for you doesn’t it.
Speaking of perspective, the U.S.D.A. put out what is arguably their most significant W.A.S.D.E. report of the year on January 12th, which gives final yield and production numbers for the 2015 US crop, as well as forecasts for US winter wheat acres. On the acreage front U.S. winter wheat area is estimated to have fallen by 7.2 per cent in 2016 to 36.61 million acres, with hard red and soft red wheat acreage at 26.5 million (-9 per cent year-over-year) and 6.72 million (-5 per cent from 2015). Projected U.S. ending stocks for wheat to end the 2015/16 marketing year is forecasted to come in at 941 million bushels (+25 per cent from the end of 2014/15), 1.8 Billion bushels of corn (+4.1 per cent from last year’s ending stocks), and 440 million bushels of soybeans (+130 per cent year-over-year!). From a global perspective, ending stocks are seen mostly flat for corn and wheat at 209 million and 489 million tonnes respectively. For soybeans though, global inventories to end this marketing year are seen up 3.1 per cent from a year ago.
As mentioned, China may be experiencing slowing growth but Canadian canola shipments to the People’s Republic and other places continue to remain strong with 6.8 million tonnes of the oilseed shipped out of Canadian ports so far this marketing season through the end of 2015 (+9.7 per cent from the 6.2 million tonnes shipped over the same period a year ago). On that note, the veggie oil supply situation remains relatively opportunistic, given that global inventories are expected to end 2015/16 down 12.2 per cent year-over-year at just 16.7 million tonnes remaining.
Alas, with the rains finally falling in the right places in Brazil, research institute CEPEA says that the Brazilian Real is creating incentive for the 2nd/safrinha corn crop to yield 54.5 million tonnes (close to last year’s record crop, assuming similar acres and a slight decrease in average yields). With the opportunities to lock in a great domestic price, according to ag institute IMEA, Brazilian farmers in the Mato Grosso state have already forward sold 53.5 per cent of their possible production as of the end of December. This equates to almost 5 times the 11.5 per cent of potential output that was priced at the same time a year ago. That being said, we continue to see solid basis opportunities on new crop wheat in Western Canada. As you’re pondering whether or not you should lock 10-20 per cent in, relative to the past 2 or 3 years, what basis levels have you been able to lock in?
To growth,
Brennan Turner
President and CEO =N:E=||n_738v2 FarmLead.com
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 mobile grain marketplace (app available) that has moved almost 150,000 MT in the last 2.5 years. 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