Grain market ebb and flow expected to continue in 2018
I would characterize the major grain, cereals and oilseeds markets over the past two to three years as embroiled in an ebb and flow battle of big supply versus big demand.
Global agricultural production has seen record large production for at least the last three years. At the same time, demand for food and feed ingredients is equally powerful, which in many cases has surprised all agricultural players on how quickly product is consumed worldwide.
As we turn to 2018, keep in mind that market conditions are in a constant state of change due to a multitude of reasons and when market circumstances are shifting, we must fine tune our plans.
And so is the perpetual motion of a big supply versus big demand environment, we don’t necessarily have a sustained bull or bear market. Rather, we have a few weeks or months where market focus may be on large crops, with prices trending generally lower. Then, a realization the global community is chewing through the large supply at a more rapid rate than believed, and price tends to generally trend upward for a few weeks or months. In essence, we have seen a broader, longer-term sideways trend to grain markets, punctuated at times by some wild swings, though remaining within each commodity’s respective ranges. There is no clear signal yet that this condition is about to change.
As we turn to 2018, keep in mind that market conditions are in a constant state of change due to a multitude of reasons and when market circumstances are shifting, we must tune our plans.
This is a uniquely Western Canada situation where elevator spring wheat price discovery is less mindful of trends in futures prices and more focused on protein premiums/discounts. I do not view the Canadian wheat market as short of protein. Rather, it is net short market-ready protein.
The wheat market’s primary task has been to cobble together usable blends of quality spring wheat approximating a target protein of near 13.5 per cent. Note, though, that near the end of 2017, bids for higher protein wheat were valued because of blend value to achieve the target protein requirement.
In order to see price appreciation of the lower end of the protein spectrum, we need to see some generalized price rally across global wheat markets, likely requiring 2018 crop adversity as a measure where a rising tide can lift all boats. Weather events, government actions and moisture concerns across the United States Plains and Western Canada are all factors that could move the wheat market in early 2018.
Prairie cash feed barley pricing has worked its way higher through the fall season. Despite U.S. corn price weakness, Lethbridge cash feed barley bids are holding rather firmly. Rising cattle numbers entering southern Alberta feedlots and an advance into wintery conditions appears to have elevated feed demand for barley.
Our feed market will likely remain firm, but I am concerned that a fading U.S. corn market may become increasingly competitive for the feed-user dollar. Near the end of 2017, fundamental news that might lift oppressively bearish attitudes in the corn market remained lacking.
Following a November peak, canola and soybean pricing retreated, still part of the big supply and demand price formula. Expect another turn up during the canola market’s seasonally supportive March-May period.
Demand will at times need to be inspired by a cheaper relative valuation to other oilseeds because sustaining crush margin mediocrity and a $50 a tonne premium to soybeans is not realistic at all times. Nonetheless, China’s insatiable appetite for oilseeds (soybeans and canola) will continue to provide support for prices through the year ahead.
Emerging world vegetable oil price trends will be important to influencing canola valuation.
The big news here is India’s decision to drop a 50 per cent pea import tariff bomb on imports. Prairie cash bids for yellow peas took a sudden turn lower in late 2017 as the ensuing confusion triggered cardiac arrest throughout the pulse trade here and internationally.
The Indian food policy is unpredictable, driven by those who support high stocks and low prices for the benefit of consumers and those in favour of higher prices for the benefit of farmers. In this instance, this policy decision has been made with the benefit of farmers in mind.
The trade situation is obviously not good. But longer term, the situation may not be as dire as it appears at this time.
North America produced 1.35 million tonnes fewer peas in 2017, meaning fewer to sell, and in time, there will be a recalibration of demand outlets to encourage an important move away from Canada being as heavily dependent on India as a buyer. Watch for increased demand for milling peas and protein extraction industries.
Always be prepared to make marketing plans as markets shift. As we look towards 2018, crop adversity could strengthen wheat prices, while Chinese demand is expected to provide 2018 support for oilseeds. In pulses, a recalibration of demand outlets should smooth out Indian trade disruption.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.