Markets mixed to start 2020 Uncertainty surrounding China still casts shadow over Cdn. exports
By Tim Kalinowski
Markets are generally positive to start 2020 with a few flies, namely wheat and canola, in the ointment, says provincial crop market analyst Neil Blue.
“Canola exports are down mainly because of the reduction of exports of China, and the continuation of the lack of export permits by two of the major line companies here in Canada,” he says. “On the flip side, although exports for canola are down about 9 per cent (year-over-year) so far, domestic use which is implied to be crushing in Canada is up dramatically. And so the domestic use, so far, is off-setting the reduction in exports, at least to this point at the end of January, so that total usage is actually exceeding last year.
“Prices have been generally better than expected on canola,” he concludes, “and generally canola has been able to get a price of $10 per bushel or higher for Number One grade. That’s not as good, of course, as $14 or $12, but it’s certainly better than it was.”
That doesn’t mean seeded canola acres still aren’t going to decline in 2020 anyway, says Blue, as farmers eye the ongoing China situation with wariness. But, he cautions, there will be no refuge found in wheat this year as producers have sought in times of market turbulence in the past.
“Wheat exports overall a little bit lower this year so far,” Blue says. “And I am just not sure how that is going to work out in the longer-run here, but deliveries are just slightly below last year; perhaps less than 10 per cent lower.”
If you take into account falling domestic demand that number is even sharper, says Blue— hovering at about 15 per cent lower than the same time last year.
Blue suggests durum might have better legs as a grain option to wheat this year due to rising overseas demand for Canadian durum exports.
“Durum exports are sharply higher than last year; so that’s a good thing,” Blue adds.“That’s providing a bit of an offset to wheat. There have been large durum sales to Turkey, and also Italy has been taking more of our durum than they have for the last couple of years.”
Prices for durum are hovering around the $7.50 per bushel mark so far in 2020, he says.
“It’s not spectacular, but it will likely be enough of a price premium to inspire more acres of durum being seeded this year,” Blue predicts.
However, as an alternative to canola, Blue feels green peas might be the go-to cash crop for a lot of farmers this year.
“Peas is a pretty good story,” he states. “Our pea exports, inspired by exports to China in particular, are up about 30 per cent from a year ago.
“Domestic use is also hanging in there and doing quite well; so overall we are up about 30 per cent from a year ago to date. The pea prices, although they are not spectacular here, are really strong for green peas, which are in relatively short supply.”
Blue says green pea prices are at about $10 per bushel. Yellow peas aren’t quite as attractive at about $6.50 to $7.00 a bushel. But green peas, says Blue, should be in a lot of farmers’ sites this year price-wise, through ease of market movement and as a beneficial nitrogen-fixing crop.
“It’s moving well enough, and it’s a good cash crop,” he states. “It looks to me like it’s going to inspire more pea acres this year, or at least be steady with last year’s acreage on peas.”
Blue says another factor in peas favour is their relatively short growing season, and with millions of acres in the province still left over to harvest in the spring, shorter-term crops will be a necessity for many.
“The crops like peas, barley and oats could be somewhat inspired just because of the difficulty having all the seeding done for the longer-season crops like wheat and canola early in May; or even by the end of May, for that matter.”
Oats and feed barley remain a good local market in Southern Alberta, says Blue, but he expects that bubble to burst somewhat as more of those left over acres come off in the spring and are sold for feed. Feed oats are still selling in the $2.50-$3.00 per bushel range and feed barley in the $5 range in Southern Alberta at the moment.
“I think there will be a down-swinging pressure on those prices once the spring crops come off,” Blue confirms. “I don’t think there is any doubt about it, but it’s just a matter of how much of that will move.
“On the flipside, we’ve got fairly high livestock numbers to feed here too; so part of it depends on how the winter goes, and how much more cold weather we get like we just passed in January. That really gobbles up a lot of feed in a hurry.”
Outside of the local situation, the United States has been a big importer of oats this year and China is taking a lot of Western Canadian barley, both for feed and malting, says Blue.
“On the course grains side, oats and barley are doing well as far as exports go,” he confirms.
“Because of the difficult fall, there is a relative shortage of good, clean milling oats. So those prices are staying rather high, and the feed oats, unless they are really downgraded as far as quality, the prices are really strong compared to last year’s averages.”
Soybean exports, on the other hand, have dropped off rapidly as the market tries to predict what a new agreement between the U.S. and China for agriculture exports might mean.
Blue says the cooling soybean market is more of a reflection of fear and anxious perceptions surrounding the agreement rather than actual changes in the underlying supply/ demand quotient. He feels Canadian soybean producers have more to worry about from South America rather than the United States in that regard.
“Exports of soybean are already down quite dramatically from a year ago,” he explains. “We’re down by over 30 per cent compared to a year ago to just this point in the crop year. Just even the fact that the Chinese are not maybe importing as much soybeans from North America versus South America, so far.
“It remains to be seen just how much buying they do from the United States before the South American harvest starts to have an impact on what China does import on soybeans.”
While Blue expects most farmers to be fairly risk-averse after last fall’s disastrous harvest season, he says there are a couple of potential crops farmers with a few acres to spare, and without too much surplus crop left over in fields, might consider: Flax and Hemp.
Of the two, flax is probably the better risk, says Blue.
“I know the last two years I have suggested flax is a fairly conventional crop to consider, and that would have turned out better (in 2019) except the difficulties with the fall weather. That made a lot of the flax unable to be harvested.”
He says the upside, however, is flax is pricing out at $13 a bushel at the moment. Hemp, on the other hand, suffered some growing pains in 2019, he confirms.
“Because you can so easily over-produce, and flood the market— I think that’s what happened lately with hemp in the 2019 crop year,” Blue explains. “There is a relatively strong supply and the prices have come down.”
He says what makes the crop somewhat enticing as a test crop is the high potential upside for secondary sales, outside of hearts and fibre stalks, in Cannabidiol (CBD) and because the Canadian government is now allowing farmers to sell the flowers and leaves containing higher THC to recreational and medical cannabis manufacturers.
Blue stresses the importance of farmers doing their homework on the agronomy side of things before even considering hemp. Much of the 2019 hemp biomass was unusable for the cannabis or CBD production due to the inexperience of growers who did not understand what the cannabis and CBD industries require quality-wise from the crop.
Blue says what might be an even safer bet as a bit of a test crop for producers rather than either hemp or flax, especially those facing a short growing season, is milling oats.
“Some oat millers are offering Act of God clauses in the contracts, which certainly removes a lot of the risk a farmer would have in contracting oat prices,” he says.