By Brennan Turner
For the last 3-4 weeks, grain prices have been moving lower. At beginning of this week, new weather models suggested to the market that scorching heat would hit the U.S. Midwest the last two weeks of July (albeit not record heat). The 90-100-degree temperatures forecasted in the long term has reiterated the “La Nina is coming!” declarations by the bulls, but rain is failing in these areas ahead of the heatwave, likely alleviating some of the incoming stress. Also, the U.S.D.A. is still rating 76 per cent of U.S. corn good-to-excellent and 71 per cent of soybeans as G/E (the best since 1999). All things being equal, even with some heat, the crop today looks like it’s about to swing for the fences.
Our call here at FarmLead since spring has been that while we don’t doubt that La Nina is making its way into the game, just that it won’t have a massive impact on the North American crop potential this year. More specifically, the N.O.A.A. dropped their expectations of a fall/winter La Nina to 55 per cent-60 per cent (from 75 per cent last month) and the latest forecasts from the International Research Institute for Climate and Society are expecting a weak event by early August or September. Accordingly, we continue to think South American crops are likely the first to feel pain from The Girl and that the 2017/18 North American crop could possibly be impacted a bit.
Yes, in Western Canada, the wet weather has put a damper on crop potential in Western Canada, but quality effects are still uncertain. Given the speed of crop development this year, most fungicide spraying were likely done before the rains came, but that doesn’t help lentils or peas standing in water for more than 2 days. For those thinking about grade and protein spreads for wheat starting to widen, it’s just too early to bet your grain marketing plan on that. More specifically, unless it rains like it did in the first half of June during the end of August / early September, we won’t 2014-like variances (anyone calling for $20/bushel durum like they did that year should use history as a lesson).
On durum specifically, European farmers are selling as quality is coming in better than expected with 2/3s of the crop harvested. Sure, the North American crop isn’t in the bin yet, but just like the market is removing more weather risk the closer we get to harvest, you need to think about swinging your bat effectively – hitting a few singles, instead of trying to swing for the fence and hoping for a home run. With the hectic nature of harvest time, things to keep in mind for the next 18 months of grain marketing include:
1. Take swings at singles when you can (making sales in block increments of 10-20 per cent);
2. Know the quality of your bat (know what’s in your bins);
3. Know the tendencies of the pitcher on the mound (what are your cashlow needs going to be at specific points over the next 6-18 months); and
4. Be realistic and understand that you may strike out (meaning the market is more than likely NOT going to hit the price that you’re “hoping” for).
President & CEO | FarmLead.com
Brennan Turner is originally from Foam Lake, SK, 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 and mobile grain marketplace (app available) that has moved almost 300,000 MT in the last 2.5 years. His weekly column is a summary of his free, daily market note, theFarmLead.