If you turned on the news, Twitter, or Facebook in the last week, you were sure to have seen some interesting weather phenomenon in North America. Within a few hours, communities across the Canadian Prairies and the American Midwest saw how quickly Mother Nature can rain down on them and destroy. Flash floods in places like High River, Calgary, Medicine Hat, Redvers, Sask., Reston, Man., Pipestone, Man., Iowa City, Iowa, and parts of Minnesota certainly weren’t what their residents were expecting to deal with to start summer.
While aid and volunteers are plentiful for these communities, the extra rain isn’t making too many farmers fist-pump across the Prairies. It did look like nicer weather for the long weekend though. The wet weather didn’t necessarily force Statistics Canada’s acreage report to reflect smaller numbers but instead showed a slight uptick in canola acres (600,000 more) and a small drawdown of total wheat planted from farmers’ original intentions back in March. The same accuracy questions can probably be expected from the USDA’s Acreage and Stocks Report. Overall, while it may be wetter than many are expecting, the market sees the weather here in North America as generally positive for crop production. The same can be said in many places around the world as, recently, five major private agricultural analysts have provided their forecasts for the 2013-14 marketing year and they all include lower grain prices.
Speaking of prices, tight wheat supplies in Argentina have skyrocketed the cost of wheat 66 per cent since the start of 2013 to $363/tonne (local warehoused price). Only about 7.9 million acres of wheat was planted last year in the South American country, with another 9.9 million acres expected to go in this year (normally between 12-15 million acres but farmers are switching over to soybeans, barley, and other crops). Combine this with poor yields, the government actually cut its export quota by half to three million tonnes and for the first time in about 60 years, Argentina will become a net importer of wheat.
Speaking of wheat, the mess that is Egypt’s grain trade continues precariously. Egypt’s supply minister said a few weeks ago their wheat imports/buying will resume at the end of their fiscal year (June 30) but last week he said now they won’t buy until the end of the calendar year. Ultimately, despite talks with the International Monetary Fund improving about getting a $4.8 billion loan (US), the Egyptian government seems to not comprehend that they need money to buy grain for their people. As the largest buyer of wheat, this is significant.
On the macroeconomic front, both the U.S. Federal Reserve and the People’s Bank of China have indicated that the days of “easy money” — aka stimulus or quantitative easing — are over. Broader markets fell off on these comments as some suggest that the liquidity provided by the Fed and the PBC is like steroids, artificially pumping up the market. From an agricultural standpoint, a stronger U.S. dollar makes it more expensive for other countries to purchase American goods but allows U.S. buyers to come into Canada more willingly to purchase our grain.
With more grain available this year and a stronger US dollar, unless significant negative weather sets in over the next two to four weeks, upside potential will be limited and selling opportunities should be taken advantage of on short rallies in the market.
Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.co) or phone (1-855-332-7653).
— FarmLead Breakfast Brief