With the bearish W.A.S.D.E. report from the U.S.D.A. last week out of the way, hedge funds extended their bearish positions in the futures market, betting grain prices will go lower. Specific to wheat, weighing on the complex (especially on Paris boards) was the state of Egypt’s grain buying practices, albeit the GASC was able to finally purchase some wheat in their 3rd tender in less than 10 days, but with a bit of a risk premium tagged on it, given the credit and ergot tolerance issues that have tamed offers by sellers lately. Staying in trading, the wheat export duty that Russia implemented a few months looks like it will be removed or moved to a near-zero level. Conversely, there’s likely less demand for the available Argentine wheat supply as there seemed to be more low-protein (sub-10 per cent) wheat taken off this harvest than anyone wanted. As such, Argentinian mills are currently paying about $200/MT USD for higher quality, or about double what they were paying last year for it in peso terms!
On the weather front, the US Climate Prediction Centre is tracking conditions that would suggest La Nina hitting the Northern Hemisphere in fall 2016 while El Nino-induced weather will disappear by spring or early summer. The former, AKA “The Girl” in Spanish, typically brings cooler, wet weather to Western Canada and drier conditions to the U.S. southwest, while wetter than normal conditions are usually seen in Australia, parts of Southeast Asia, and northern Brazil. Drew Lerner of World Weather Inc. says that the longer it takes for El Nino to dissipate, the likelier that we’ll see a drier spring in western areas of the Canadian Prairies. Conversely, Lerner suggested that when La Nina does make landfall, it will likely result in wetter conditions in Western Canada.
India’s wheat crop isn’t looking as bad as once feared according to the USDA’s attaché there, whereas there’s a bit of a spotlight on the dry conditions in Morocco, a major grower AND importer of durum. While I have to remind you that wheat is a weed and can weather many types of storms (pun intended), this is a bit of a positive for prices. This being said, we’ve been seeing new crop prices for durum trade on FarmLead.com around $8.50/bu CAD net back to the farmgate, dependent on location. AGT Foods is speculating that with the surge of disposable income in places like Africa and South Asia, durum is going to experience a renaissance over the next decade. However, the issues that will likely have to be overcome to make that happen are logistics and variety evolution to combat diseases, especially fusarium.
In interesting evolution in the South American market is that the Brazilian government is looking at investing in 2 major railroads for the purpose of grain exports, 1 from Mato Grosso (largest ag-producing region in Brazil) to the Amazon River and the other from southern Brazil to central Brazil. For the former, it would cost about $2.5 Billion USD (at today’s exchange rates) and would continue to accelerate the movement of grain to northern ports, as 20 per cent of all 2015 Brazilian grain exports went out of the north, up from just 5 per cent five years earlier. The latter proposed railroad would help ensure livestock producers in the south are getting the quality feedstucks for their animals, instead of trucking it over 500km.
To growth,
Brennan Turner
President and 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 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) or phone (1-855-332-7653).