The start of a new year is a time of reflection and also a time of looking forward. As history has a habit of repeating itself, what were the big factors that moved the grains and oilseeds in 2012? And what might we expect this new calendar year?
As far as Western Canada was concerned, the big story in 2012 was the end of the Canadian Wheat Board’s long-standing single desk for marketing wheat, durum and barley. That story is still playing itself out, but the fact the changes happened in a year where wheat prices were quite high surely helped the transition. Wheat acreage increases are being talked up for 2013, as it turned out to be a good cash crop in 2012.
The looming global economic collapse, and/or looming turnaround to improvement, provided constant fodder for speculative money flows during the year. Whether or not the U.S. falls off its “fiscal cliff” in 2013, the sputtering global financial system will remain a feature in the grains and oilseeds as well. The key takeaway is this: If investors are confident in the economy and throwing more money into riskier assets, agricultural commodities also benefit. However, a side influence on Canada under such a scenario is a stronger Canadian dollar, which makes Canadian exports a little less attractive.
It was too wet in some areas, too dry in others, and a big wind at harvest caused problems as well, cutting into Canadian production overall. In the U.S., drought conditions remain a concern heading into 2013. Europe and the Black Sea region have dryness issues of their own, while the weather is a bit of a mixed bag in South America as soybeans and corn are currently in the midst of their growing season.
Brazil and Argentina are forecast to grow record-large soybean and corn crops this year, and the possibility of that large production is overhanging the markets. However, North American supplies are tight, which means that production will be needed to meet demand, and any problems that develop over the growing season should provide a boost to the North American markets.
China played The Grinch and cancelled nearly a million tonnes of U.S. soybean purchases the week before Christmas. That news added to the end of the year-long liquidation already weighing on prices and was bearish for canola as well. The country is always a wild card, and what it buys, or doesn’t buy, will be closely monitored once again in 2013.
Canola, soybeans, wheat and corn were all trending down in the week before Christmas. However, prices on all four commodities also closed out 2012 on a much higher footing than 2011. Weekly charts would point to more downside potential in the grains and oilseeds, but chart analysts can also make an argument that values are consolidating before turning for another leg higher. The charts are easier to make sense of in hindsight, although as far as canola is concerned nearby prices may fall to the $540- to $550-per-tonne level before finding major support.
Supply and demand
Regardless of what the charts may say, or what’s happening in South America and China, the greater concern on the local level remains the cash price. Canola supplies are forecast to be very tight at the start of the 2013-14 crop year, and attractive bids in the country are reflecting those concerns over tightening supplies. Canola cash prices were all but divorced from the futures heading into the new year.
The question now: Will the futures rise to reflect the bullish fundamentals? Or will demand from the crushers and line companies finally be rationed, causing cash prices to come back in line with the futures? Supplies of most other major crops grown in Western Canada are also forecast to be tighter at the end of the current crop year in July 2013 compared to where they were in 2012.
The fight for acres
With supplies on the tight side for most of the main cropping options in Western Canada, the annual battle over what will go in the ground this spring could get interesting. After pushing rotations for a few years, the anecdotal reports suggest that canola will lose out to other, cheaper to grow, alternatives in 2013.
How 2013 plays out remains to be seen, but all of the preceding factors will definitely play their part in the ebb and flow of the markets.