Grains finished trading in the green

Breakfast Brief

Grains finished the last full week of trading in September in the green thanks to some unfavourable weather conditions in Europe and Asia, and better-expected-export numbers for U.S. sales. While crop progress reports in North America continue to show that things are ahead of schedule & crop quality is relatively decent, some good buying strength has returned to the table. Does this mean up, up, & away for grain prices? Hardly. The reality of markets as they can go down just as quickly as they can go up so we’ll need to see this sort of demand sustained for a few more weeks before we can concretely determine that bearish-neutral headwinds are changing.

The Russian government has proposed lower its current wheat export tariff, which may open the floodgates for wheat shipments, given the country is set to harvest a record crop of over 60 million tonnes! SovEcon says that the way the current tax is set up, it’s taking about 10% of the farm gate price out of farmers’ pockets b/c exporting companies are pricing these taxes in to their domestic prices. Since July 1st through mid-September, only six million tonnes of wheat have been shipped out of Mother Russia, a drop of 23% compared to the same period in 2014, so a change in the export tax could open the doors a bit more. Staying in the Black Sea, drier conditions across most of the region is delaying seeding, in addition to stressing germination. Bear in mind though, that fall seeding conditions were also very dry last year and yet, the Black Sea 2015 wheat harvest is one on of the largest on record! (What’s the saying? Seed into dust and the bins will bust?)

Switching to demand, the Chinese government announced that they would be continuing their corn stockpiling program but would be decreasing the price paid to farmers by about 10% (currently, domestic Chinese corn prices are about 30% higher than imported ones). Further, the federal government has decided to end its subsidy program for canola growers, and instead leaving it to provincial regimes to dictate how they want to incentivize their farmers to grow canola  More than a few grain buyers are optimistic that this could mean more canola imports by China down the road but sales are slow right due to the lack of the demand and poor crush margins. Even with the Canadian currency being significantly lower than a year ago, crush margins are more than half of what they were a year ago at just under $40/tonne, despite prices being below $400/tonne a year ago. Further, depending on how much of an effect El Nino has, bountiful canola supplies in the Land Down Undaa (Australia) may be able to compete price-wise with that of Canadian goods.

Overall, grain prices continue to see quick rallies on headlines while harvest 2015 pressure endures. Bearish winds are moving in on feed grains in our opinion as some later-harvested cereals are getting affected by rains and frost, not to mention another big U.S. corn crop. Conversely, higher quality cereals (i.e. wheat) will likely see some upside in the winter months & given where the Loonie & prices are at today, locking in some basis isn’t such a bad idea.

To growth, Brennan Turner: President & CEO |

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