Grains continue to trade sideways through the middle of March as the monthly W.A.S.D.E. report from the U.S.D.A. didn’t really bring any different fundamentals to the table. While a lot of the market is watching the ongoing drama in the American political system, most of the commodity complex has been able to follow oil up the last few sessions, but ags have been weighed down by the omni-present amount of supply of grains and oilseeds that still exist around the world. It’s important to stay patient as the market is very uncertain at this point going into Plant 2016. Do you know when and where you’ll get active in the grain trade if the market goes down further? What about up? Having a plan is better than no plan at all..
China imported 4.5 million tonnes of soybeans in February, up 6 per cent from February last year but down 20 per cent from the lower-than-expected January figure. With the South American harvest and export season underway (Brazil soybean harvest at 41 per cent complete, slightly ahead of the average pace), it’s expected that Chinese buyers will continue to buy, with C.O.F.C.O. pegging the 2015/16 final number at 83 million tonnes, just 500,000 MT higher than the 82.5 million tonnes the U.S.D.A. just increased their projection up to, and a 5 million-tonne improvement from 2014/15. Rounding out the complex, China imported 400,000 MT of veggie oils, an increase of 14.8 per cent year-over-year but down 32.6 per cent from January as the People’s Republic tries to dial down its reserves/stocks. On that note, the Chinese Ag Minister says that they are not focusing on increasing production any more after 12 straight years of bigger harvests.
Speaking of bigger harvests, thanks to 3 consecutive bumper wheat crops (technically this includes this year’s forecasted crop), the European Commission says that EU wheat inventories to end 2016/17 will stand an 8-year high. Other than bigger production, the reason for this hike is the tough competition in the export market (currency and cheap freight at play here) as EU soft wheat exports are expected to fall to 27 million tonnes, a 7.25 per cent decline from this year’s projected 29.11 million tonnes and a 19 per cent decline from 33.34 million tonnes in 2014/15. Also expected to drop are UK rapeseed acres, down 10 per cent year-over-year to 1.35M acres this year, the lowest since 2009, thanks to lower prices and the neonics ban ongoing in the EU. With 2 years of below-expected production, more groups like Commerzbank & ABARES are betting that rapeseed prices will be a bit more resilient than other grain and oilseeds (haven’t they been resilient thus far anyways?).
The multi-Trillion dollar question is whether the market goes up or the market goes down from here (if only it were that simple!). One way to help rationalize any potential market moves is by looking at previous years where the market was in a similar position. A mathematical approach by University of Illinois ag economists suggests that with the effects of El Nino waning, the transition to a La Nina event possible, and wet Midwest conditions this winter, the likelihood that we see a normal U.S. crop in 2016 is 66 per cent, and a 33 per cent chance a very poor crop is grown. With the jury still out on Western Canadian soil moisture, the worst thing you can do is going to into the 2016/17 crop year without plan. Hash out some numbers, talk to your banker, talk to other farmers, talk to us here at FarmLead.com, etc. etc. but sitting on your hands isn’t a good plan.
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 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).