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Grain markets in the new year

A post-harvest review of market movements, and pre-pricing your 2019 crop

Some key changes pre-Christmas changed the tone of the grain markets. Dry weather in India started to impact pulse markets, pushing Canadian pulse values higher on concerns that India’s crop will not be sufficient to meet their needs. Buyers are trying to secure product before the situation gets worse and prices run even higher.

Australia’s drought is reducing their exportable stocks of wheat, and cold fall weather in the U.S. kept farmers from planting as many acres of winter wheat as they planned. Some of the U.S. winter wheat acres that were seeded didn’t germinate so the number of abandoned acres in the spring could be higher than normal. This should be supportive for values, but that will remain an unknown until spring when the crop comes out of dormancy.

China and the U.S. agreed to behave and play nice for 90 days, and China purchased 41.5 million bushels of U.S. soybeans. If China continues to buy more, this should support bean futures.

A Stats Canada report showed a small reduction in canola stocks due to early frost and poor harvest weather. This should help support canola futures values, but the Canadian dollar pushed higher against the U.S. dollar, offsetting potential gains in the U.S. bean futures market as the currency conversion ate up those value gains.

Feed grain markets remain steady. We’re seeing an upswing in cattle hitting the market as producers cull their herds, worrying about feed availability for the winter. Values have dropped, allowing feeders to be able to pencil a profit finishing these animals. That’s driving demand for feed grains and helping to keep feed grain prices attractive.

Malt barley values have improved since harvest as feed grain values have remained strong. Some maltsters are offering new crop contracts at very attractive prices, higher than average for this early in the year.

When to sell

Should you sell your grain now, or wait? What about pre-pricing for next year?

Market dynamics can and do change quickly. You need to be able to determine if a pricing change is going to be a short-lived event or a longer-term trend, based on what is making the markets react.

Weather events are hard to predict. A rain storm can change things dramatically, as can the lack of rain. If a drought persists beyond the point where the crop will be able to totally recover, you can be fairly certain that the markets will react on a longer-term basis. Production loss will tighten up world supplies. In that scenario, watching the markets closely as they push higher, putting in target price contracts or buying call options are likely your best strategies.

If markets are moving because of uncertainty caused by political interference such as U.S./China tariff disputes, take advantage of upward price swings while they’re available. A tweet from Trump or tariff increase is all it would take to send markets plummeting. In this scenario, take advantage of rallies sooner than later, and take any premiums the market will give you.

The season ahead

Decisions about pre-pricing next year’s crop come down to knowing your farm’s numbers, your cost of production and your break-even prices.

Be aware of world stocks and usage projections for the coming year so you can determine if there is a likelihood of some grains being in short supply. This will help you to decide when to start pre-pricing. If there is potential for prices to rise due to tight supplies, waiting or using pricing targets or options is a good strategy.

If it looks like supplies are ample to meet demand, consider pre-pricing some grain when values allow you to lock in profits based on your cost of production and break-even numbers.

If you’re pre-pricing this early in the year for next fall, basis levels are likely wider than normal because it is so far from the next harvest, and grain companies will not have made any pre-sales for next year yet.

Some grain companies offer you the option of doing a futures-only contract, so you can leave the basis unpriced for now. Other grain companies do not offer this at all, and some charge administration fees for futures-only contracts. Find out which companies are offering the best pricing options to meet your needs and strategy.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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