The grain market continues to be afflicted by downward harvest selling pressure as great yields are reported almost everywhere across the Canadian Prairies. We can expect corn and soybean prices to follow suit in the coming weeks as the American corn and soybean harvest hits full tilt. The yield numbers are still up in the air for the two predominant U.S. crops so there will be opportunities that wheat, canola, and other cereals may follow any rallies Heavy yields reported across Canadian Prairies higher. These should be taken advantage of though as those rallies are unlikely to sustain themselves. Be on the ready for these opportunities.
One thing that may help is the demand side is the U.S. Federal Reserve and federal government continuing to be indecisive about monetary stimulus and the debt ceiling. Their lack of inaction is causing the U.S. dollar to fall, making it cheaper for international buyers to buy the same amount of grain than compared to, for example, a month ago. With so much wheat production coming off this year around the world, it definitely can be considered a buyer’s market. Between Europe, the Black Sea region, and North America, there’s a lot of export-ready grain available and Canada will likely be able to take a significant piece of that pie, unless the railroads can’t keep up with shipments out to port locations. Most recently, Canada Western Red Spring wheat with 12 per cent protein was available at British Columbia ports for $283 per metric tonne, about $30 less than that of U.S. hard red winter wheat with the same protein at the Gulf of Mexico.
Who may pick this grain up? CNGOIC, China’s equivalent to the USDA, says that the Asian supernation will need to import 7.5 million tonnes of wheat this year after poor harvesting conditions in May and June affected their crops. This a one million-tonne increase from their August estimate but still well below the 9.5 million tonnes that the USDA thinks China will need. Already, since July, China has bought 3.7 million tonnes of American wheat, 2.2 million tonnes of Aussie wheat, and 220,000 tonnes from France. Meanwhile, China’s PMI (purchasing managers index) climbed to a six-month high to 51.2 in September from 50.1 in August (anything below 50 is seen as a country in economic contraction; anything over 50 is seen as growth). This adds to the list of other data points that China, the world’s largest consumer of commodities, is bouncing back after a bit of a slowdown.
China isn’t interested only in securing actual food supplies — they’re looking to make sure they control the entire supply chain. The Chinese Investment Corporation bought a 12.5 per cent equity stake in disgruntled Russian potash producer, Uralkali, as they continue its brand of outsourcing its food security. Uralkali (if you missed it) broke off its arrangement with Belaruskali, which made up one of the two global fertilizer cartels, the other being Canpotex (Agrium, Potash Corp. of Saskatchewan and Mosaic). Uralkali has the only dedicated railroad into China from Europe, making this investment by China’s sovereign wealth fund interesting. China also signed an agreement to lease nine per cent of Ukraine’s arable farmland (aka five per cent of the entire country or 7.4 million acres) for the next 50 years as they look to secure land outside their own borders to provide quality food for its people. This is a trend that we are likely to see continue over the next five to 10 years (a resource buying storm is brewing).
Brennan Turner is originally from Foam Lake, Sask., where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online grain marketplace. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (firstname.lastname@example.org) or phone (1-855-332-7653).
— FarmLead Breakfast Brief