Grain prices are in that seasonal rut thanks to Harvest 2014 selling pressure and favourable planting conditions as South America starts its seeding season. On the speculation side, hedge funds are starting to increase their optimism that grain and oilseed prices will begin to rise. That being said, in the last four decades, an ounce of gold has never been worth so much corn! As such, it’s suggested when this sort of relative value drops to historical levels, a correction is due. Further, another significant correlation is that the feeder cattle-to-corn ratio is at a record high (should we all get back into owning livestock?) Despite the U.S.D.A. already forecasting record global consumption levels of 970.7 million tonnes, there’s obvious hope out there that corn worth $3.30 per bushel will spur even more demand. End all, be all? I wouldn’t expect corn to go down much further, but given record supplies available, it’s hard to see a significant correction, at least in the six-nine month term.
The market consensus seems to be that wheat will be the first market to bottom, followed by soybeans and then finally corn. Pulse prices have improved dramatically, especially if you have a higher quality available! Premium spreads aren’t just widening in the pulses though – it’s the same dynamic in the cereals market as we get a better understanding of exactly is coming off. For example, in North Dakota, 15 per cent protein wheat is earning three dollars per bushel more than 13 per cent protein wheat. That being said, with feed supplies clearly becoming plentiful as more damaged/sub-par cereals come off, if you’re looking to make some bin space, it may be worthwhile to sell some of that lower protein stuff that you’re taking off right now (there are plenty of pricing opportunities on the FarmLead.com Marketplace – give us a call. In the oilseed market, canola prices have declined with the soybean drop but we have been seeing some solid prices in the pulse crop game. You might see some basis levels improve towards the end of 2014 but that will likely depend on rail service again.
Interestingly enough, C.N. Railroad is crying foul over the penalties that the Canadian government imposes if the railways don’t move the required 536,250 metric tonnes of grain (or 5,000 railcars) each week. C.N. could be fined up to $100,000 CDN for not meeting the mandate but say that it’s not their fault as since Harvest 2014 has been delayed, there’s simply not that much grain for them to move. There may be an argument for decreasing the volumes below 500,000, but you also have to remember that the revenues that major North American railroad earned hauling crude oil went from $25.8 Million in 2008 to $2.15 Billion last year in 2013! Given the chance, it’s clear rail companies would move more oil than grain (shareholders > customers), which is why the government will have to continue to play a role in making sure the grain gets moved, whether here in Western Canada or across the border in northern U.S. states’ Baaken-stronghold!
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, His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (email@example.com) or phone (1-855-332-7653).