- Northern Hemisphere winter crops breaking dormancy will influence wheat markets
- Debate on spring acreage allocations will soon begin
- Various geopolitical issues are likely to drive volatility in offshore grain and oilseed values from time to time
What could bring market volatility in the coming months? Offshore markets continue to grasp for fresh direction amid a world which remains awash with grain.
As several crops are planted and harvested across the globe over the next few months, here are five potential sources of market volatility on the horizon.
1. The northern hemisphere winter wheat crop
This crop is already breaking dormancy in the southern plains of the United States given above normal temperatures that will progressively move north.
The weather outlook for the southern U.S. plains hard red winter wheat region is mostly dry in the next few days with a return of rain to Texas on the weekend and early next week. Temperatures are forecasted to be back in the 20s C as far north as Kansas late this week. As pleasant as that sounds, it's a little unnerving for winter wheat crops to come out of dormancy this early in the season and may become a problem later if temperatures were to suddenly drop back to freezing - although there's no sign of that at this time.
The results of the fight for acres between a number crops will influence the view that markets take regarding how the supply side might change in the year ahead.
Offshore markets will continue to monitor the development of this crop closely.
2. Northern Hemisphere spring crop plantings
The results of the fight for acres between a number crops, including spring wheat, corn, soybeans, canola, pulses, will influence the view that markets take regarding how the supply side might change in the year ahead. Large volumes of wheat (92 per cent), corn (81 per cent) and soybean (66 per cent) production originate from the Northern Hemisphere. Current opinion suggests a decline in corn and wheat acres in favour of oilseeds.
3. South American soybeans
The volume of, and the velocity with which South American soybeans come into offshore oilseed markets is likely to have a major bearing on the global oilseed complex in the coming months. 54 per cent of world soybean crop is produced in the Southern Hemisphere, coming online as early as March.
With harvest going well in Brazil and no significant weather threats in this week's forecast, this is typically the time of year when we see Brazil's export business on soybeans increase, while U.S. exports begin to decrease.
So far, however, freight on board soybean prices are roughly equal between the two countries and Brazil's soybean prices are holding sideways, well above their January low. This is a bit odd for harvest time price behaviour and helps to explain why March soybeans are able to maintain a gradual uptrend, so far. But Brazil's probable record crop is nearly 20 per cent harvested now, so there's plenty of export competition on the horizon.
4. Volatility in offshore grains
Looking offshore, a number of geopolitical issues seem almost certain to continue to drive volatility in offshore grain and oilseed values from time to time. These events are almost certain to continue to bring volatility to global currency markets and, in turn, further push around offshore grain and oilseed values in Canadian dollar terms.
5. India uncertainty affecting Canada pulse exports
India this week announced it will not extend a long-standing exemption allowing Canadian pulse imports (notably peas/lentils) to skip fumigation prior to shipment from export origin (that is, Canada's west coast). Production of pulses has been a boon to Canadian farmers the past two years, but this sudden policy change from a key importing nation has introduced uncertainty into the pulse trade.
Details on each point are intricate, and we can only watch and evaluate in real time. We can never assume, but I am balancing realism and optimism on the premise that each country needs the other - Canada is supplier; India is a user - suggesting that one would think a compromising agreement shall be struck met in due course ahead of the March 31 deadline. That's our hope anyways.
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