Oil and gold dips affect grain price

Grains got an ugly start to the week as sharp declines in oil and gold pushed the commodity bears to growl loudly.

Brennan Taylor


FarmLead Breakfast Brief



Grains got an ugly start to the week as sharp declines in oil and gold pushed the commodity bears to growl loudly. Specifically, the drop in gold was something to watch as it dropped to levels not seen since 2011. Why is this significant? As Canada is a “commodity nation” with natural resources being a major slice of our GDP, a decline in the sector hurts not only the government’s bottom line but the individual pocketbook as well. Lower prices means lower margins, intuitively leading to curtails in new investment and employment.

The downturn over the past six months in commodities has pushed many investors to call for an end to the commodity bull run. They reason that government debt in emerging economies must be contained as investment dollars are bringing the return that they used to in these developing nations. There obviously are other factors to consider, such as the bird flu epidemic in China. With more people being infected daily, the pullback in demand for poultry and pork (via the dead hogs in and around Shanghai) is significant. For a market that buys about 64 per cent of the world’s soybean imports, the last time a virus hit China hard (swine flu in 2003) soybean imports dropped 21 per cent from the year previous.

Another factor you can never really count on is the weather. Frost damage to the U.S. winter wheat crop has dropped the quality of the crop, as well as the size of it. How much of the damage was accounted for in the USDA’s April 10 supply and demand estimates report is likely minimal. This being said, the government agency set U.S. winter wheat ending stocks (both soft and hard) up a net 14 million bushels to 464 million bushels collectively.

As we still wait for spring, I’ve heard of many new corn and soybean producers (read: first-timers) returning their seed as they are becoming less enthusiastic about planting the crop in a year where the growing season is shrinking by the day. Moreover, fertilizer retailers are concerned that with late planting and the expected wet conditions, a normal seven-week delivery period could drop to three weeks. Hopefully, people at Statistics Canada hopefully aren’t just sitting on their hands with regards to the April 24 seeding intentions report. With the poor, uncharacteristic weather hanging around, we’re hearing a lot of buzz of oilseed crops getting switched over to cereals, specifically non-board wheat varieties and non-malt barley. Whatever it comes down to, we hope we can get that crop off come in the fall (later seed = later harvest).

Brennan Turner is originally from Foam Lake, Sask., 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 riskfree, transparent online grain marketplace. 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).