Just average?

This week's FarmLead looks at devastating effects of the La Nina drought.

Crop conditions continue to look really good across North America, despite the doom and gloom of hot temperatures hitting major growing regions through most of June. One of the main arguments for the latter is the continued calls for a devastating La Nina drought this summer. One of the best in the weather game (in our opinion), Drew Lerner from World Weather Inc. says that commercial forecasters are beating the “drought drum” too loudly and this talk is overblown. Yes, the N.O.A.A.’s extended forecast continues to show some warmer-than-average temperatures, but they’re also calling for average precipitation across the U.S.

Eastern Ontario remains dry whereas the large majority of crops in Saskatchewan and 80 per cent of the crops in Alberta are rated in good-to-excellent condition. There are other pockets of dryness in the corn belt, namely northern Indiana, south central and northeast Iowa, and parts of Nebraska, albeit rains continue to get forecasted and fall on these areas in a timely manner. From a historical perspective, whenever there are major weather premiums getting priced into the market (like we’re seeing now), increased volatility comes with it. While there are definitely still many unknowns at this point in the growing season, given the good start to the crop, the demand factor is likely the only candle keeping the light on for the rally these past few months.

The wind that could blow that candle out though could easily be the June 30th U.S.D.A. acreage update. It’s been suggested that up to 2 million acres could be dropped from the forecasted corn number but this still means more than 90 million acres got planted, and likely a 14 billion bushel crop in the U.S.. On the soybeans side of things, up to 3 million more acres have been suggested, meaning more than 85 million acres for the oilseed, which, at current demand levels and trendline yields, means a 2016/17 U.S. carryout back above 300 million bushels. This would intuitively put pressure on canola prices, and this could explain some of the Canadian oilseed’s decline in recent weeks. Will we see $12/bushel on the futures board in Winnipeg? With the aforementioned rains and great start, my optimism has waned a bit.

These fundamentals in mind, especially regarding how the crops are looking today, we believe it’s important to be proactive in terms of potentially pricing out remaining crop that’s in the bin and that which is being grown. Putting something on the books to move so you have both bin space and cash available ahead of harvest is a smart move (unless you’re in a position that you don’t need to, of course!). It’s worthwhile to recall years past or even this past spring, where you rushed to move product at the last minute, and likely settled for a less-than-optimal price versus the better option a few weeks or a few months earlier. Simply put, manage price risk accordingly, making sales in blocks of 10-20 per cent (of what’s in the bins or of potential production) in a disciplined manner (not on emotion), and make sales when you can, not when you have to. As it stands today, “average” won’t likely describe the 2016 crop.

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 mobile grain marketplace (app available) that has moved almost 250,000 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).

 

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