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Dumping 2021

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Market Insights_Dumping 2021
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Market Thoughts

What started off as an inflationary bull market quickly deteriorated into an explosive drought market fueled by zero precipitation and record-breaking heat. This perfect storm caused havoc and ruin to many people, not just farmers.

As we end this year it is important to see where the markets are and where they might go. In this edition of Market Insights I will be looking at 2 charts in particular. One, is wheat and the other is canola. These charts are extremely important because they tell a story. The story of price. How did we get here and where are we going? At this particular time many farmers are “bulled up” and “gun shy” of pre booking any grain. This is very easy to understand, but are the reasons valid? If we take an objective look at the situation and use the charts to tell us a story then we can start putting the pieces together for 2022.

Chart One: Wheat

Why This Matters:

Spring wheat or Minneapolis started to break away from the other two wheat near the very end of May. Most likely this was caused by the perceived drought in Canada and Mid-West USA, which subsequently turned into a full blown drought. Obviously, the market reacted to the low production of high protein milling wheat. However, what is this chart really telling us?

One, there is a shortage of milling wheat caused by a drought.

Two, All wheat classes have enjoyed a substantial run since January 2021.

Three, The probability of milling wheat returning to its “traditional” spread once production returns to normal is close to 100%. This means that spring wheat will drop faster or climb slower than Kansas or CBOT wheat. What this really means is that we should be looking ahead at HRS wheat, 2022 opportunities, before CPS.

Chart Two: Compare Canola, Soybeans And Soy Oil

Why This Matters:

With a quick glance this chart reveals something important. Canola is up 48% on the year while Soybeans is down 7%. What is going to happen when there is even a whiff of new crop canola production? Its going to drop faster than a Johnny Cash song at the Folsom prison. Down in a “burning ring of fire”.

Like wheat mentioned above, the spread between canola and soybeans is mainly attributed to a Canadian drought. Yes, soy oil is extremely strong, yet that alone can not keep canola at such lofty levels. Even soy oil has come off its highs of 70 cent/lbs down to 50 cents – still significantly higher than the average of about 35 cents.

What this chart really means is that Canola is not a crop to be messing around with because the soybean complex will act as an anchor, therefor limiting canola upside.

Chart Three: Calculated Canola Crush Margin

Why This Matters:

This will be discussed in detail in the Grain Navigator.

Chart Four: Percent Change Canola Vs Soy Crush Margin

Why This Matters:

This will be discussed in detail in the Grain Navigator.

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