With prices dropping over the past three months like a new-born baby giraffe out of the womb, governments/international buyers have started to notice and started buying appropriately. Egypt, Mexico, Japan and especially China, have all put their foot through the front door to secure some supplies at these current lower levels. Ultimately, while this is positive for the demand side of the equilibrium and helps support prices to the upside, the story remains that global production this year will satisfy this demand and then some.
Let’s take a look at what China’s doing: It’s estimated Asia’s largest economy will need to import somewhere between three and six million tonnes despite production coming in somewhere around 110 million tonnes. The sustained increase in grain imports is mostly due to rising labour costs and policies that boost local prices, making Chinese crops less competitive and profitable to actually buy internationally vs. the domestic market. Specifically, over the first week of July, China bought more than 1.7 million tonnes of U.S., Canadian, and Australian wheat!
Speaking of the Land Down Unda, crops down in Australia have enjoyed some decent rains recently after a fairly dry June. This has prompted some analysts to bump their total output estimates to above 25 million tonnes for the year. Wheat isn’t the only crop seeing better forecasts though — the Australian Oilseed Federation recently said they expect a canola crop of 3.3 million tonnes. This is significant as China opened their borders back up to importing Aussie rapeseed in April (ultimately competition for Canadian exports).
Switching gears, with the growing season of the northern hemisphere in full swing (and harvest starting in some places), we’re entering a period off “what if” weather trade more than anything right now. As I’ve been calling farmers to introduce the risk-free FarmLead Marketplace to them, the large majority of them tell me that their crops look pretty darn good. With warm temperatures expected to remain for some time, heading and flower stages could be at risk for cereals and canola respectively. Granted, with the extra humidity in the air lately, there is an increased chance of some clouds bring hail with them unfortunately, as seen in the Airdrie region recently. The rains that fall here and there also create the need for fungicide applications on fields, yet there are many reports of shortages for chemical out there.
At the end of the day, whether it is the dinner bell or beer clouds rolling through, I find it ironic that as producers do a good job of raising their crops, they’re only rewarded with lower prices. Granted there is some justification for lower commodity prices in general with a fairly high U.S. dollar, the bottom of this current market downtrend appears to be near. However, reader beware: we may see this bottom for some time. Market/sell proactively — betting on a sudden change of the trend isn’t necessarily always the best game plan.
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 (b.turner@farmlead.com) or phone (1-855-332-7653).
— FarmLead Breakfast Brief