El Nino affecting weather

This week's FarmLead discusses changes to the market due to weather.

Grains continue to trade a bit sideways to higher as buyers went out into the market to find some supply with “let’s bring some stuff in” because pulling back a bit. The oilseed complex is being supported by solid US soybean sales and oil prices heading higher this morning. With some firming basis across the border in the U.S., end-users may rather wait for supplies to come to them this winter, versus going out and chasing it. The only real exciting attention being seen is in the pulse markets as laird (large green) lentils recently hit 50 cents/lbs, with small reds eclipsing the 43 cents/lbs mark.

While we finished up harvest in North America, our fellow farmers on the other side of the equator are just getting going. Drier conditions have slowed seeding but because soybean prices are pretty solid right now thanks to a devalued Brazilian Real, over 80 million acres are forecasted to be planted, putting 2015/16 production over 100 million tonnes. From a trading standpoint, and as the USDA sees it, “stronger competition may lead to farm less dynamic demand” of US supply. What does this all mean for canola? Well, near the end of October, canola was currently sitting at an 11 per cent premium above soybean prices (or $~37.50 USD/MT or $48.50 CAD/MT). Canola and soybeans will continue to trek together and if you see soybeans move lower, canola, at least on the futures board, will likely do the same. Where you may see the biggest change though is on the basis side of things.

U.S. government weather forecasters are calling the beginning of El Nino effects on North American weather with the northern half expected to see drier/milder winter conditions, while the south is getting wet.

The rains will be helpful for U.S. winter wheat areas, which continue to be dry, albeit not as bad as the past couple of years. Canada, (clearly part of that northern half of North America) is possibly going to see one of its warmest winters on record, according to AccuWeather. Comparably, in some parts of Russia, a lack of rain for many weeks is leading to ground so hard that it’s breaking farm equipment. With less winter wheat acres than originally planned going into the ground in both Ukraine and Russia, a mild winter and good spring rains will be needed to save the crop. That being said, one could look to a poor fall and a harsh winter in 2010 that pushed Russia’s wheat production down to just 41.5 million tonnes (they took off more than 60 million tonnes this year). Accordingly, wheat prices rallied in mid-late 2011 almost 50 per cent but keep in mind, there is still a large global supply available, compared to those years.

More obvious, the biggest news affecting Canadian growers recently was the Liberal party winning a majority government. While there doesn’t look like to be too many changes that affect the ag industry under another Trudeau government, there are some programs (i.e. Growing Forward 2) that are set to expire, but a big concern is where transportation standards and infrastructure are at and if the conversation will continue despite there not being any issues today. Net-net, while attention is necessary for the change to a Liberal majority, unnecessarily negative commentary would be unjust as they shouldn’t make the Canadian agriculture industry any worse or better off (relatively) than it is today.

To growth,

Brennan Turner

President and CEO =N:E=||n_676v3 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 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).