Contested conversations

Japan’s largest supermarket chain, Aeon, is getting into the business of farming

FarmLead

Ahead of the U.S.D.A.’s October W.A.S.D.E. report on Friday, October 10th, the grains market remained relatively pressured to the downside thanks to bigger-than-expected yields coming off of U.S. corn and soybean fields. On the flipside of harvest, Russian producers have planted a large majority of their winter wheat crop already, but given last year’s delayed seeding pace due to heavy fall rains, things are roughly at an average pace. While some may argue that planting into dry soils isn’t really condoned, Russia isn’t the Amazon rainforest so it’s not too big a deal in my opinion that they didn’t get the same precipitation as last year. On the export side of things, while Russia exported 4.6 million tonnes of grain in August, they only shipped out 3.8 million tonnes in September, including 2.8 million tonnes of wheat. The slowdown has been partially caused by a depreciation of the Russian rouble and lower prices offered to farmers. With Russia out of the global wheat trade, E.U. and North American players have started to get more competitive in Middle Eastern markets but should prices rise, you can bet they’ll start talking and be back in the game.

The U.N.’s Food and Agriculture Organization expects world stocks of coarse grains (i.e. barley, corn, and sorghum) to reach 257.4 million tonnes by the end of the 2014/15 marketing year, the highest they’ve been since 1986-87. The rise is mostly attributed to increased global corn production, and combined with wheat stocks pegged by the F.A.O. at 192.4 million tonnes, it’s the main reason the U.N. says food prices have dropped to their lowest since August 2010. With six straight months of decline of the UN’s food price index, “it’s the longest period of continuous decline…since the late 1990s.” Speaking of prices, Japan’s largest supermarket chain, Aeon, is getting into the business of farming with plan’s to become the country’s largest rice grower in order to provide a cheaper product. The Japanese government is creating a business environment for large corporations to rent farmland from producers. In fact, “the government wants 80per cent of farmland to be cultivated by large-scale farms to make it competitive” with other free trade countries and revitalize the economy. Can you imagine if Safeway, Sobeys, or Costco got into the farming game? I can’t.

While we thought things were improving when it came to rail logistics, more data coming out shows that the railroad companies went for the easy-to-access grain first! C.P. and C.N are suggesting that farmers aren’t delivering to the elevators in less-regular movement corridors such as northern or southwestern areas of Saskatchewan. However, it’s more than likely that in some of these areas, full 100-car loads aren’t available so the companies are less inclined to make these areas a priority. Why would they do this? Probably the best example is the recent rhetoric being put out by railroads about focusing on efficiency and profitability (which is in question with yet another rail derailment this past week by Wadena, SK). When you’re using the same amount of locomotives to get less grain in an area farther out from final destinations, this will certainly affect the bottom line. Ultimately, it’s still not a perfect marriage. More conversations need to be had between the various levels of the value chain to figure out what’s not working, why it’s not working, and how to fix it.

To growth,

Brennan Turner

President, 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 for iOS and Android). 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).