Grain crop returns were good for 2015 and won't be equalled this year, but grain hedges, protected by revenue insurance, could improve profitability in 2016, says marketing specialist Brian Wittal.
The price of canola could go down to $9 per tonne from $11 if the world market continues to unfold as it is now, the Pro-Com Marketing expert said in a Gazette interview.
“Pricing your crop is a 12-month job,” he said. “We had a very good crop in this area last year. It started dry so growers got the crop in the ground. We had rain in August at the exact right time to make the bushels.
“There was a little loss in quality because of rains at harvest, but not that much.”
Prices for 2015 wheat, canola and soya beans are good and, “one of the big reasons for that is our low dollar,” he said. Wheat is traded in US dollar futures. When the currency exchange between the US dollar and the cheaper Canadian dollar is added, wheat sells for a 40 per cent premium.
“For quality wheat, growers are getting $7 Canadian. If the Canadian dollar was at par with the US dollar, growers would be getting $5,” he said.
Canola is traded on the Winnipeg exchange, the American soya market drives the price and Canadian canola and US soya are competitive on a cash-to-cash basis. Canola is selling this winter for $10 to $11 per bushel and the average yield was 40 bushels per acre, but got 50 bushels, he said.
International market factors will impact prices for 2016 crops, so producers can take advantage of current prices by signing forward contracts with grain companies for a small percentage of their anticipated crop.
“The concern growers have is, ‘what if I don't get that crop and have to buy the contract out?' he said. “But if you are only hedging 10 or 15 per cent of your crop, you have to get wiped out 85 per cent or more, for that concern to come about,” he said. ”
Wittal advises hedging and purchasing revenue insurance.
“The prices now are better than we are going to get next year because of other things that are happening in world markets that could really twist our commodity prices,” he said.
For Russia, the low ruble means the economy needs foreign exchange and the Russians have plenty of wheat to sell so they will be aggressive.
Argentina has eliminated its export tariff on wheat and corn and reduced the tariff on soya beans from 35 to 30 per cent. The government has also devalued its peso.
“The Argentine farmers are seeing an opportunity to get an increase in the price of their grain because of currency,” he said.
They are starting to unload a year's supply of beans – 16 to 18 million tonnes – more supply onto a well-supplied market. This will impact the price of canola oil.
The South American second crop of beans looks like it will be a better than average crop.
The devaluation of the Chinese Yuan and the softening of the Chinese economy means that the Chinese won't be buying as much oils and that means supplies will continue to build.
By March the price of canola in Western Canada could go down to $9 per tonne.
The pea price is over $14 because of the drought in India – the world's largest market for lentils and other peas – where for the third year the monsoons have not come. But lentils can't be grown everywhere in the Prairies. And not all farmers want to manage peas or expand their rotation to accommodate peas.
Meanwhile there is no shortage of wheat, said Wittal. The next thing to watch is the American winter wheat crop and the impact of recent winter storms and hard frosts that could result in winterkill.
“That could tighten world supply,” he said.
