While at FarmTech in Edmonton, I had a chance to hear speakers talk about weather and markets.
Drew Lerner from World Weather Inc. is always popular. This year, he aptly named his presentation “Wild and Whacky Weather.” Lerner’s key message was that the weather across the Prairies and the U.S. is deeply influenced by the La Niña event currently in place.
“How long will it stay in place?” is the question. Some say it could linger into early summer; others are saying that it is already starting to dissipate and will be gone by the end of March.
Lerner said the key indicator to the length of La Niña is the ocean temperature in the Gulf of Alaska. If those temps remain cool, the La Niña will linger on — the dryness across the Prairies into the central U.S. will not improve. If the ocean temperatures start to warm up, that will weaken the La Niña which should mean a shift, bringing some moisture to the Prairies and U.S. regions over the spring and early summer. Lerner is concerned that the La Niña may fade, but not totally disappear. It could possibly re-emerge later in the summer, which would mean warm and dry.
World grain markets
From a world grain markets perspective I listened to two speakers, David Drozd and Greg Kostal.
Drozd and his team at AgChieve Corporation focus on charting and technical analysis.
Looking at wheat markets, Drozd said the average premium for Minneapolis spring wheat futures over the Kansas winter wheat futures is usually about $0.50/bushel. Currently that premium is sitting at $1.60/bushel over, and was as high as $2.70/bushel over in Nov./Dec. This was driven by the low-protein crop we grew this past year, and the trade needing to get their hands on the limited supply of higher protein wheat. This premium will not last — it has already started to fall back slowly. If you have high-protein wheat, sell it sooner than later to take advantage of the protein premiums being paid now. Drozd suggested a target sell price for No. 1 CWRS 13.5 per cent in the $7 to $7.50 range depending on where you are on the Prairies.
Feed barley prices have been flat. Drozd suggests it is time to sell. If the U.S. dollar continues to fall, it will be more economical to bring corn into southern Alberta, which will lower Canadian barley prices. Drozd thinks we are at the top of the feed barley market, barring short-lived severe winter weather price spikes.
With canola, Drozd sees resistance on the November 2018 futures at the $510/tonne level, and is suggesting targeting that level for your first new crop sales. With a larger carryout than first expected and more seeded acres planned for this spring because of the pulse market uncertainty with India, Drozd feels this is a target sell price.
Kostal focuses on fundamental market analysis. His FarmTech talk was titled, “Filtering Through Commodity Noise.” Once you peel the noise and news away, he said, the world supply of grains is growing faster than demand. The main reasons for this are back-to-back bumper crops in many parts of the globe over the past three years, aggressive ag expansion in the Former Soviet Union region over the past five years and improved seed genetics.
We’re heading into a very dry spring seeding season across most of North America, which could eliminate that world surplus fairly quickly.
Pulse markets, primarily driven by India, are in turmoil after India applied import tariffs back in November. India was carrying excess inventory (purchased last year in fear of a continued drought), so after a decent crop this past year India has more than enough stocks to get through this year and into next harvest. Domestic prices to Indian farmers were below support levels so the government needed to do something to increase farm prices in the year of an election. The government implemented import tariffs to slow or stop the flow of grains from outside, driving domestic prices for farmers higher.
Currently India is having some moisture issues in some of the larger pulse growing regions. If this persists, India will no doubt be back in the markets looking to buy to ensure supply.
Recent announcements of processing and protein extraction plants to be built on the Canadian Prairies will help shift our dependence away from Indian markets and into a local and hopefully higher-value, long-term market.
World demand has soybean crush growing at four per cent per year and there are only three main exporters in the world: the U.S., Argentina and Brazil.
Argentinian weather concerns can have a big market impact.
The Canadian wheat market has an excess of low protein wheat. The only way to get rid of the excess is to feed it or hold it and blend it away next year. With the U.S. dollar falling, more corn is coming into the feed markets, pressuring the price of other feed grains like wheat lower, so it isn’t likely we will get rid of the extra low protein wheat as feed.
A spring weather futures rally will be short lived if the cash price doesn’t rally to support the futures. With ample world supplies and no shortage of feed grain options here, it is unlikely that cash prices will keep pace with futures. At best it will be a short-lived rally like last year.