The grains market continued to trade through the U.S. Thanksgiving week with a stronger U.S. dollar, amidst a little more geopolitical risk in the Middle East and more economic indicators suggesting a Federal Reserve interest rate move higher sometime soon. Some hotter temperatures in India (thanks El Nino) are leading to slower and/or smaller plantings of wheat and rapeseed crops there, suggesting that imports of cereals and veggie oils in 2016 is sure to be higher. Also pressuring markets was a new pro-business leader being elected as president in Argentina, a hopeful change for a country that’s been plagued by 20–30 per cent annual inflation since they defaulted as country 14 years ago.
Managed money continues to kill its long positions in the futures markets as we head into the winter months only soyoil and soybean futures holding a net long position as of November 15th (albeit barely). Oil prices continue to act like they’re consistently getting taken out back behind the wood pile and getting spanked, which is part of the reason soybean and canola prices remain pressured. Canola crush margins are about 50 per cent of what they were a year ago, which is why the smart move seems to be contracting canola to move grain in later months.
A couple more thoughts on Argentina: how does the government change affect grains? New Argentine President Macri is planning to immediately cancel all export taxes on wheat and corn, and kill the 35 per cent% export tax on soybeans through February. This is significant considering that it’s been estimated that Argentinian farmers are holding onto about 22 million tonnes of grain that they’ve been waiting to sell once the new government relaxes the export taxes. Further, add in that their harvest starts around February, it could turn out to be a constant rush of South American product flooding the market.
That being said, the U.S.D.A. is currently forecasting 5 million tonnes of wheat to be exported by Argentina this year, 16 million tonnes of corn, and 10.75M tonnes of soybeans, but with this new government, it may not be unrealistic to add 10 or 20 per cent to these numbers. The interesting thing moving forward though will be watching the soymeal market though as Argentina has been the #1 exporter of the feedstuff for a long time (almost 47M tonnes in 2015/16 forecasted by the USDA) but with it looking cheaper to export soybeans, the soymeal processing piece may become a smaller denominator in the scheme of things.
The usual reaction by now “What the heck is Brennan talking about Argentina so much for?” Fact: had it not been for their government export taxes Argentina could easily be the #2 or #3 exporter of corn AND soybeans. With government deregulation like the new Argentinian President is proposing, it can shift the tide of how business is done, in this, a more globalized grain industry. Simply put, with Argentina definitely increasing their exports, this means substitution of other things elsewhere. Further, it may take away more barley acres in the South American country (it’s been a safe crop to grow because it isn’t taxed). All in all, you may not cry over Argentina, but those losing market share to their new policies may.
To growth!
Brennan Turner
President & CEO
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 now mobile grain marketplace (app available for iOS & 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