For the last few weeks I have been talking to farmers from the eastern edge of Saskatchewan all the way to edge of the Rocky Mountains. And let me tell you I can hear and feel the frustration and stress in your voice. In fact, I was almost compelled not to write this Market Insights, as I know right now, everyone would rather be in the field. Even me.
As many of you know each year I get "recruited" as a combine professional. In fact, when Melissa first dragged me back to her folks from Lakeland College the first thing she yelled to her dad from the safety of her Dodge Neon was: "Don't SHOOT! He has his class one and can drive a combine real good. He just got back from the Texas harvest run. He may be of USE someday". In truth, I love the harvest. Even though the crop is all lodged and we are going two steps forward and one step back, it will always be a highlight for me each year. Even now that I'm in the hot seat talking to all you guys every day, I enjoy the harvest season the best. In fact, just for fun I dare you to call me on my cell the next combining day around 8 pm to see if I plugged the rotor yet. I know this year is going to be tough and there is no getting around that. But, right now we have the opportunity to evaluate the situation and move forward.
Let's all have a safe and productive harvest. Come on guys, Youtube + Twitter are full of awesome farmers doing hard things - lets show them what Canadian Prairie Farmers are made of.
World Ag Stage
What is going on in the world and what does it means to you? I want to write "completely screwed up", but that's dumb and farmers already know this and what to do about it.
In reality, the major things happening right now are still the same things that were happening 6 months ago. Canada still has some major issues on the political front which is all I'm going to say about that until the election. The US and China are still in some sort of trade war, yet nobody really knows what it's all about - I have my theories which dive way deeper into currency wars than this short little article could ever discuss.
So as a grain farmer in Western Canada, what are the biggest factors affecting the market and how do you navigate them? So far this year the biggest factor affecting Prairie farmers is home grown. That factor is quality. Yes, there are a million things happening across the world and they do affect our price at home. Four weeks ago, I too would have been on the supply and demand band wagon coupled to that old fiat money supply horse. That story has moved from the foreground to the background. This means more than likely this year will be a basis year. In other words prices will be more affected by local S&D than in years past. Now, don't let that scare you it only means that you will need to call me a lot more than you have in the past.
Local prices, Futures prices, Charts Pick one commodity
FEED GRAIN - WHEAT AND BARELY
In my opinion this year is going to be a record feed year. By record I mean by a long shot.
The problem we are seeing now with wheat and barley is not one of "visual" grade, but one of real world biological factors. We're talking germination. Instantly that crop is no longer any good for human consumption, because the nutrition is no longer in the seed. Now it's in the radicle (first root) then hypocotyl (first leaf). The seed is growing and doing it's thing converting starches into sugars for growing. It's those starches that people are after. Long story short your good quality grain is now a true feed grain. It's now time to start thanking the Canadian Beef Industry. Let's get those guys running on all four cylinders. Hey, I'm just giving fodder to chew your cud on. HA HA HA.
But really who cares? What is the impact on your farm in Western Canada?
Well, I'm going to build a case for feed market and by the end, the Bull will be a steer and the Bear a silver tipped Grizzly with paws the size of dinner plates.
So let's get started.
1. Initial Barley Observations
· In 2019 it was estimated that production would top 10 Million MT; 2018, 8.3MMT; 2017,7.9MMT
· Estimated ending stock are 1.4MMT which is NOT burdensome at all. In fact the average ending stocks from 2014-2019 is 1.4MMT.
· However, the data that I have does not separate between malt/export and feed. In order to take an educated perspective on the whole thing we need to evaluate how much of this traditional malt/export is now wrecked and stuck in the feed market.
· We also know that Canada Exports approximately 25% of the barley crop. In 2018;2.29mmt,2017,2mmt; before that Canada rarely exported more than 1.5MMT.
· In my professional opinion I believe our Export program will be drastically cut short because of Quality issues and Political Nonsense. This leaves me to believe that our barley ending stocks will be closer to 2.2 MMT than 1.4 MMT.
2. Canadian feed supply and demand
· In 2019 Wheat production was estimated at over 33 Million MT; 2018, 32.2MMT; 2017,30.3MMT. Of which, a way higher than normal percentage will be destined for the feed market.
· Judging from the basis levels at the elevators I personally think the wheat ending stocks will move from 5.8MMT to 7-8 MMT in 2019/2020.
· Like many of farmers in Alberta and Saskatchewan, I'm sure you have seen one of my ads on Facebook or Google. A mute point in itself; however, because I'm paying for those ads those companies give me real time data on what is going on. As in, what search terms are being used and where. Judging from this data I can safely assume the supply of feed grains is much higher in 2019 than in previous years.
3. World feed substitutes
· At the time of this writing the world is awash in cheap low quality grain. There is no reason for any country to come to Canada to look for poor quality grain.
· We need to consider the African Swine flu in China, which, according to Reuters, estimates that 360 of the 700 Million hogs will need to be culled - although who really knows.
· I know this is 100% non scientific, but over the summer months I have been plugged into many Twitter and YouTube folks and from my observation I personally believe the whole world has a slight quality issue.
4. Canadian Political stage
· Goes without saying. Remember to vote on October 21
Caging The Bear. -> Moving forward.
I know right now it looks terrible. And it is. But as professionals we need to take a step back and ask the question now what?
We can look at this market and ask ourselves the question: What is the probability of the market dropping more or making a significant rally? Is the current price in Lethbridge historically a good price or bad price? And judging from the chart below, a 200 /mt landed in Lethbridge price is closer to average than not. This means opportunity. Sometimes it's best to take advantage of an average opportunity now than wait for a average opportunity later. Remember, the market is coming off a super high feed price year and many farmers are experiencing regency bias-where past prices influence present marketing decisions. As a grain farmer, it is super important that you look at 2019 from the perspective of 2019 not 2018.
What I want you to do now is to sit down and evaluate your current feed grain situation, not just that but the whole farm situation. Be thankful that there was no drought and the yields for the most part are pretty. I know these current prices aren't great but they are not terrible either. I guess what I'm trying to say in a roundabout way is that you could sell now or wait until spring and sell at the same price you could have in the fall.
I know this is not fun at all. However, it is something that needs to be discussed because your farm is important. If you want answers to these kinds of questions then give me a call. I know I can make a positive difference on you farm. I Guarantee it.
Things We Need To Consider
Because this year is a grade issue year it would be wise to get your grain samples graded by the Canadian Grain Commission or SGS or some other independent grading company.