Growing On Up — This Week in Markets

Many grain market participants are blaming the end of the calendar month as the reason for some sharp losses this week, as funds try to shore up their books and withdraw cash to pay off clients requesting their investment back. It’s interesting to note that managed money went net short in Chicago last week and aggressively culled back its longs in both corn and soybeans (this is an indication that major market participants are less optimistic on grain prices rising).

In my opinion though, the fundamentals are still the main factor for markets dropping. Quite simply, this is the time of year where the northern hemisphere starts to ramp up and world production numbers are better known. Combine this with decent average growing conditions, despite a slow start, and that puts planting paces near seasonal averages (although western Manitoba and eastern Saskatchewan are still very wet).

There’s a lack of weather concerns not just in North America, but also all over the world (although that’ll likely change in a few months when the expected El Nino weather pattern makes landfall). U.S. winter wheat conditions seem to be stabilizing as rains in the Midwest have helped the crop. While it’s guaranteed now that the crop will still be smaller, conditions are looking pretty good for the U.S. corn and soybean to grow up out of the ground (which would more than make up for less domestic wheat supply available).

Canola is also off its highs from earlier in the month, despite more demand slated for the Canadian oilseed. Richardson just completed a $30 million expansion of its Yorkton-based processor, increasing daily volumes 25 per cent to 3,000 MT. The company, which already has 1.5 million tonnes of annual crush capacity, is considering expanding its Lethbridge plant. Depending on how big this year’s crop is, we might see a few other line companies join in on the canola crushing expansion party. However, the International Grains Council just downgraded expectations of this year’s Canadian canola output, citing crop rotation requirements and planting crops with fewer input costs as reasons why. Also, as mentioned in last week’s column, a new plant in Quebec with capabilities of up to 500,000 MT of canola a year can also assist in supporting prices, but as mentioned, crop conditions are generally solid right now, which in turn is seen as bearish.

Switching gears, the Canadian Canola Growers Association joined Louis Dreyfus in filing a service complaint with the Canadian Transportation Agency, arguing that the railroads did not fulfill their duty this past crop year. With the Fair Rail for Grain Farmers Act still a hot topic, it’s an interesting move to see a producer organization to levy a service complaint with CTA (but kudos to them for stepping up).

Getting political, the Chocolate King of Ukraine, AKA Petro Poroshenko, has been elected as the new president of Ukraine. The new leader comes into power with already a full plate, what with trying to calm relations with Russia and civil war certainly on the brink in eastern Ukraine. Across the Black Sea in Egypt, residents have reportedly voted in former military chief Abdel Fattah al-Sisi, one of the main architects behind the aforementioned removal of the last president. Just like Porosehnko, Sisi will also have his hands full as Egypt continues to be divided. This news is important because these countries are trying to grow out their instability and more importantly, one is one of the world’s largest grain producer and exporter (Ukraine) while the other (Egypt) is only the world’s biggest wheat buyer so I’d say what happens there politically is pretty important to North American grain markets.

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