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Getting it together

Grain markets started 2015 out on a bad foot as the first trading day of the year on Friday, January 2nd

FarmLead

Grain markets started 2015 out on a bad foot as the first trading day of the year on Friday, January 2nd was all red but the complex rebounded in the following days thanks to weather concerns and managed money changing positions. Oats, corn, (Chicago) wheat, and soybeans continue to hover over some nice even numbers of $3, $4, $6, and $10 per bushel respectively. We certainly have the supply right now so now things become a question of where can demand pick up. China is the obvious first place to start but it’s tough love as there’s more global competition than there’s ever been before (translation: globalization is the new norm). One thing the markets are also preparing for is the January W.A.S.D.E. report from the U.S.D.A. on Monday, January 12th. Ahead of the report, this is the time of year where we see managed money review their quarterly and annual goals, leading to a rebalancing of their portfolios as various indexes get re-weighted from 2014.

The only thing that may bring things back from the dead are more geopolitical risk and a more aggressive El Nino than scientists are currently forecasting.  Sea temperatures are above average but have decreased recently, potentially lessening the chance of an event. That being said, an El Nino actually would lead to another big crop in South America but would likely adversely affect things in Southeast Asia and Australia, where things are already dry as evidenced by the raging “catastrophic” wild fires in the Land Down Undaa.  On the geopolitical side, Russia is still the main wild card but 2015 could spell some interesting times for the European Union as financial leaders there struggle to combat against deflation (this is a decline in prices of goods and services which can create a spiral of negative economic issues like higher unemployment and loan defaults, both corporately and personally). Currently, markets are watching the Greek elections where some minority challengers have suggested leaving the E.U. if they win power (a “Grexit”, if you will), and would wash their hands of the E.U. austerity loans.

In hindsight, back-to-back record production years pushed grain prices down to four-year lows by the end of September. That being said, the complex rebounded nicely in the calendar year’s fourth quarter (Q4) but they’re still at multi-year lows. For corn, things look fairly neutral right now with a large crop but US domestic and export demand remaining relatively strong, especially with China finally approving Syngenta’s Vipterra variety (although the Duracade variety still hasn’t been approved). The big question for the coarse grain in 2015 are acres as margins become tighter around the $4/bushel level that many companies are forecasting. Conversely, what doesn’t go into corn will likely get seeded with soybeans in the US but South American production is that scary cloud in the distance that will continue to put downside pressure on the oilseed complex if good weather persists. Some very bearish market analysts are already starting to call for $7 soybeans come Fall 2015. Canola may see some moves to the upside if more negative headlines appear regarding the E.U. pesticide ban and  its effect on rapeseed crops there. As for wheat, we can expect things to remain volatile over the next 6 months (mostly thanks to Russia), but because of the significant available supply, you shouldn’t expect 2012/13 prices in 2015.

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 now 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).