In this column we’ll look at some macro issues that can and likely will influence grain markets in 2015 and beyond.
- Bumper crops in the U.S.
- An average crop on top of a bumper crop last year in Western Canada.
- Normal to above average production in the EU, but quality problems this year.
- Russia/Ukraine production down due to acres not farmed in conflict region. Concerns over winter crop damage and question about how many acres will be seeded next spring with rising inflation and a falling Ruble.
- South American crops look like bumper crops, with current growing conditions.
World economic situation
- China’s economic growth has been in a slow down for the past three years, down from what some were calling unsustainable highs.
- India’s growth has been slowly climbing. India’s economy is destined to surpass China’s.
- Japan’s economic growth has been flat or down for the last 10 years.
- Russia’s economy is in turmoil with rising inflation and a crumbling currency.
World geopolitical situation
Russia/Ukraine tensions seem to be at a stalemate but the cold of winter may be keeping things under wraps. Disruptions in grain or fertilizer exports from this region could impact world prices for these commodities. To date, shipments from these regions are at or above normal yearly levels, but any escalation of tension as we head into spring could have adverse effects on access to world fertilizer supply and price. Russia has increased interest rates from 10 to 17 per cent to help shore up a deflating Ruble.
The U.S. dollar is on the rise. If this persists it would pressure grain prices lower. A lower Canadian dollar will help support our grain prices but makes buying inputs and machinery more expensive.
The Chinese Yuan is drifting lower, reducing China’s ability to buy, which is part of the reason for China’s economic slowdown.
The Japanese Yen remains slow. The Japanese government has devalued it in an effort to re-stimulate the economy, with limited success.
The dramatic fall of the Russian Rubel is causing inflation and concerns of rising food.
Fertilizer prices are currently ranging from two to 10 per cent higher than a year ago. Prices are expected to remain level to down slightly through the winter with no real expectation of a big spring increase, as grain prices remain at five-year lows.
Winter transportation delays could be a wild card again this year. Russia is the world’s largest producer of fertilizer products, so if there is a disruption in shipping this spring, we could potentially face supply shortages and price hikes.
Oil prices, fuel prices
Oil prices have hit dramatic lows. This can have a negative economic impact on the world economy. The price of oil is dropping but diesel fuel has not followed suit. The ever-growing volumes of commodities moving by rail and the logistics problems from last winter have pushed the demand for truck freight to all time highs.
However we freight it, diesel is the fuel of demand so I don’t see prices dropping anytime soon. However recent industry reports claim that there should be a price adjustment of $0.10 to $0.20 per litre for to diesel in the New Year, so watch closely and be prepared to top up your tanks.
How will tumbling oil prices impact economies in the oil producing regions of the world? How might this benefit the major consuming countries? If they can spend less on fuel needs will they spend more on other consumables and or food stuffs? With grain prices at four- to five-year lows this would be a good time to stockpile if they are able to afford to do so.
El Niño seems to be well on its way to putting an end to the drought that has plagued the west coast region of the U.S. the past two to three years. The U.S. central and midwest are experiencing a very dry and cold winter which brings fears of potential winter kill.
South America is experiencing good growing conditions with timely rains and warm weather as they head into their traditional rainy season.
Winter conditions across the EU and FSU region are dry and cold, so potential winter kill is a concern there as well.
So what do we make of all of this information? Many variables and unknowns may influence grain prices, and there is no clear picture as to what may happen. The best thing you can do is stick to your marketing plan. Get your numbers in place, do your projections and determine your break-even prices for the coming year, then set your pricing goals.