Cash grain prices in Western Manitoba continue to drive off the harvest lows. Over the past month, we’ve seen canola prices sit in the $11 handles with some $12s trading on the FarmLead Marketplace for spring 2018 movement.
The Canadian Loonie has been hovering around 78 cents USD, which has helped improve basis for most crops. However, the coveted $7 per bushel hard red spring wheat bid continues to be a bit elusive. On the pulse side of things, India introduced a 50% import tax on peas, which means the entire Western Canadian market went no bid. In fact, you can get a better feed pea price (~$7/bushel) versus the average bid for a #2 yellow pea in Western Manitoba ($5.80/bushel).
The silver lining is that grain prices are holding up against larger-than-expected supply levels. This suggests that we might be turning the corner on prices. What’s certain is that managed money maintains an extremely short position in both corn and winter wheat markets. There were estimates that going into the week of US Thanksgiving, hedge funds were holding a net short position of nearly 245,000 lots! Is a short-covering rally in our future? Maybe it’s too early; however, one could think that with U.S. Thanksgiving out of the way soon, a silver lining for the grain markets is the potential buzz about a Santa Claus rally.
What we know is certain is that grain markets are seeing more volume this year compared to 2016. First, more volume can suggest more volatility (This, in turn, creates more potential opportunity). With more volatility, this leads to the second point that bullish or bearish moves may be artificially exacerbated even more than they should be. I’ve spoken in the past about how hedge funds and managed money will “buy the rumor and profit on the fact.” This means that if there is buzz that the price of a commodity could go up, then the market participant will start buying. If the rumors turn out to be just hot air, they’ll sell and take the profits.
Case in point, the rise of wheat prices this past summer, especially those on the Minneapolis spring wheat market. The rumors that there was going to be little-to-no American spring wheat got people “buying the rumor.” Eventually, though, the market pulled back as quality and conditions didn’t worsen much and production estimates were not as bullish as everyone thought. As such, everyone started to get bearish.
Ultimately, this is the game that we call commodity trade. There are hundreds of millions, if not billions of players between all the farmers, grain buyers, and speculators worldwide. Over the coming weeks though, given some seasonal tendencies, we’ll be looking for a few more players to leave the super-bearish camp.
Brennan Turner, President & CEO of FarmLead
Brennan Turner hails from Foam Lake, SK, where his family started farming the land in the early 1900s. After graduating with an economics degree from Yale University, Brennan played professional hockey and worked as a Commodity Analyst on Wall Street before starting FarmLead.com. FarmLead was named one of Canada’s top startups in 2015 and one of Forbes most innovative companies in agriculture in 2017.