Grains were generally able to hold on to some of their gains into the third week of March as weather become the most-watched risk factor with a side-eye from investors on the March 31st US stocks and prospective acreage report. A lot of the market’s focus on weather was related to wheat as warmer temperatures from Kiev to Kansas is pushing fall-seeded crops out of dormancy much earlier than usual. Without colder temperatures returning over the next few weeks, or significant rain drowning out the crop, this is considered a plus for yields (obviously if that does happen, then it’s bad for yields…but good for prices!)
The Climate Prediction Centre continues to echo its call from last month that they see El Nino dissipating in the Northern hemisphere by late spring or early summer, with a 50 per cent chance of La Nina making landfall by fall of 2016. As we’re ending a second year of an El Nino event, the data is somewhat mixed with US corn and soybean yields and output lower in 1973 and 1983 (after the first year of an El Nino event in 1972 and 1982, respectively), while yields were much higher in 1998 at the end of the last major El Nino event. Some models suggest we’re more likely to see lower yields given the wet fall and winter (and even some wetter conditions in the U.S. southeast).
Canola has pulled off its 2016 lows despite the Loonie being higher (touching 75.5 cents at time of this writing!), the negative Chinese import situation still on the table, and Canadian exports actually falling (Before its terrible 47,700 MT shipped in the first week of March, canola exports were running about 20 per cent above their average). The most logical reason for the improvement is that market players were likely doing some bargain buying, grabbing paper that they felt was trading below its implicit value. The basis behind this is the lower veggie oil and canola/rapeseed ending stocks seen globally, so even with an average crop, available stocks will still be marginally lower year-over-year. That being said, more farmers are thinking about new crop and while I’m not outlawing $11.00/bushel, it likely won’t show up without a weather rally around seeding time and/or continuous drier weather in May/June.
While any thoughts of challenging seeding weather will most certainly give the market a pop (it always does!), as we’ve been saying, the pop will likely last only a few weeks, if that, once the effect of that weather becomes apparent. From a grain sales standpoint, we call this “Selling on the rumour, profiting on the fact”. With this sort of uncertainty in the market, how much of your potential production are you willing to bet on that weather rally? Of course, we need to grow a crop first but what about what’s left in the bin? Again, keep in mind that any weather rallies will likely be pulled back into where the market thinks is an acceptable price equilibrium between supply, demand, and weather risk.
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 180,000 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 (firstname.lastname@example.org) or phone (1-855-332-7653)