U.S. government helps grains value find greener pastures

The boys and girls over at the U.S. Federal Reserve decided to keep the current “quantitative easing” bond-buying program, contrasting ...

The boys and girls over at the U.S. Federal Reserve decided to keep the current “quantitative easing” bond-buying program, contrasting the expectations that they were going to cut the $85 billion per month stimulus package by at least $10 billion. This stimulus will continue to devalue the U.S. dollar, ultimately making it cheaper for another country to buy the same amount of goods in their currency at a lower price. As such, the entire commodities sector was completely in the green last week. Gold? Yup that’s higher because it’s seen as a safe haven against the depreciating US currency. Oil? Yup that’s higher because it’s priced in USD everywhere.  Metals? Inherently higher. So, obviously, the grains complex also went in the green on the news.

As a result of the market getting another sugar rush, reasons for the taper delay are not only based on U.S. economic indicator but also global ones. Asian and European consumer demand is contrite, especially with the lack of wage growth there while U.S. monthly jobs being added and inflation figures are still under the Fed’s targets. Ultimately, with no end in sight to the bottom of the punchbowl, the market says, “Drink up!” (with the misconception this party could go on forever).

Drier areas in Brazil, including main producing region, Mato Grosso, is slowing the start of the soybean planting season down there as farmers are likely better off to wait a few weeks for some moisture to accumulate in the ground before drilling any seeds into it. Next door in Argentina, wheat acres planted and production estimates continue to fall as lack of rain fall there is limiting crop growth.

Heading over to Europe, Russia has averaged 40 mm of rain since Sept. 14, making things very, very wet for the comrades over there trying to push combines through the muck. Rain also keeps falling in Ukraine, which isn’t all that great for planting winter cereals and getting the current harvest getting done (the same feeling back in the Prairies with most areas getting some rain recently). Good rains continue to fall across most of Australia, helping relieve many areas with dry soil. The US Midwest also continues to receive precipitation, which ultimately points to good conditions for some winter wheat to get planted this year. If the Midwest continues to see more rainfall, we could see winter wheat acres jump up this year for our friends south of the 49th parallel. How’s that saying go? If you don’t stop dancing for rain, it’ll eventually come? Keep dancing if you’re looking for more then.

The AAFC came out recently and said they expect 30.7 million tonnes of wheat to be produced in Canada, in addition to the 14.8 million tonnes of canola expected to be taken off, which will help replenish depleted stocks. Some analysts here in Canada think we should see more than 32 million tonnes of wheat for the first time since 1991 and more than 16 million tonnes of canola.

All in all, big numbers coming off the fields around the world continue to push a sideways-to-bearish trade in the markets. Canola may be supported by a smaller U.S. soybean crop but record rapeseed production is expected this year. The bigger supply will likely offset any increased demand that comes from buyer looking to substitute away from more expensive soybeans.

Brennan Turner is originally from Foam Lake, Sask., 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 grain marketplace. 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