Going into 2018, most farmers have been relatively disappointed by the lack of strength in the grain markets. Be in canola, wheat, malt barley, or pulses, there have been more bearish factors than bullish variables that are keeping the complex at levels below prices that most farmers are seeking. Put in a much simpler way, supply is outpacing demand. Here is a brief list of bullish and bearish factors that we’re watching for grain prices in 2018.
For canola, bearish factors include the large crop that came off in 2017, the strong likelihood of record acres in 2018 in Canada, and a large amount of vegetable oils that competes with canola oil. However, the EU recently banned palm oil-based biodiesel, which meant open the door to more canola imports from Canada (on average, just under 300,000 tonnes go to Europe). On the bullish side, we continue to appreciate robust demand, both domestically and abroad, as well as some potential South American weather premium as it relates to soybean production. But this is a double-edged sword as it could easily drive more production, which in turn, pressures canola prices.
Soybean prices are pretty much in a similar boat. It’s widely expected that soybean acres in the US will increase for the 2018/19 crop year and the Brazilian crop – whose harvest is just starting – is looking pretty good. The one main driver will be Argentina, as dryness concerns and delayed planting there could easily add more premium to the market.
Moving on, there are three overarching factors that we think will drive spring wheat in 2018 (In FarmLead’s newest product, GrainCents, we go into much more detail of all the factors affecting wheat prices). Specifically, the impact of ending stocks and dry areas on 2018/19 acres, divisive spring wheat ; and domestic and international protein premiums. Soil moisture concerns are easily the most bullish component but spring wheat demand has also been robust. If we see the Canadian Loonie weaken in the first calendar quarter of 2018, we could easily see spring wheat acres compete more directly with canola.
There are a lot of acres to fill though, thanks to lower pulse prices. While yellow peas prices have rebounded back close to $7.50 CAD / bushel on the FarmLead Marketplace, it’s likely below levels required to keep acres elevated. The big question mark will be if China amps up its purchasing of peas or not. It’s a similar topic in lentils as the market as Canadian exports are a looking for a new destination other than India to play ball with. As such, we think as much there could be 1.5 million less acres of pulses planted in 2018, compared to last spring.
And these acres will get planted with something. Other than canola and wheat, we’ve heard ideas of more mustard, more flax, and more feed barley because of the strong price. While I won’t comment too aggressively in this column on the oilseeds, feed barley has been one of the strongest markets thus far in the 2017/18 crop year. A huge corn crop in the US (and the threat of feed ration substitution effects) are keeping a lid on prices going too high though.
Overall, current prices making it tough to open bin doors, leading to sales getting kicked down the road for better prices. This isn’t necessarily the best plan of attack from a risk management standpoint, especially when there’s likely some bills coming due within the next 6-10 weeks.
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.