Seeding into an uncertain marketplace in 2016

By Tim Kalinowski, Staff Writer

 

Many farmers in southern Alberta will soon be out in the fields seeding. With an oversupply of commodities filling up terminals and bins around the world, it will likely be quite complicated to cipher through the various crop market reports and price analyses to figure out what might be best to put in the ground this spring.

Alberta provincial crop market analyst Neil Blue says there are several factors farmers will have to consider this year. The possibility of drought in some areas will likely affect what gets seeded. The recent volatility of the Canadian dollar could come into play. And, of course, the overall price for various crops and commodities relative to the producers’ costs is always a concern.

Even granting these potential drag factors, Blue is cautiously optimistic about the 2016 crop year.

“I am not sure there is a real negative that sticks out on the crop side,” he says. “It is true there is generally an abundant supply of grains across the world, but from a Canadian perspective there has been quite a draw down, particularly on wheat stocks, during the last couple of years following the large crop we had in 2013.

“So we are in a fairly good situation from the wheat point of view here in Canada, and the delivery difficulties we had as of two years ago have been quite a bit alleviated.”

Wheat might be the most difficult crop to predict at the moment, says Blue, but he does not believe there will be a huge drop in seeded acres this year.

“I think wheat will not be necessarily a strong choice, but I don’t think we will see a strong drop in acreage of wheat. We have seen some price strength lately, but nonetheless it is not a real strong contender on the cereal side (for farmers). So we could see a bit of reduction in our wheat acres. We might actually see durum acres stay the same, or go up a bit, because of fairly strong durum prices the past few months.”

Blue says barley also might not a bad choice for producers to consider.

“One of the strong markets has been that of malting barley. For a couple of reasons: There has been strong demand generally and our lower Canadian dollar has been supporting our export market to a certain extent. Malting barley has been running at over a $2.00 a bushel premium over our feed barley market this winter. And I think that will be supportive to ideas of strong malting barley acreage.”

“On the other hand, the feed barley market has pretty well been sideways all winter, and I don’t know that it would be a signal to producers to seed more feed barley. Some of the advantages of having feed barley though is it is easily marketed here in Alberta in our strong feeding sector. So I think we may see our barley acreage about the same or even slightly higher just due to that strong malting barley price.”

Blue predicts canola will also continue its reign, particularly in southern Alberta.

“A strong positive for canola this winter has been a strong disappearance in the form of exports and domestic crushing,” explains Blue. “That bodes well for the demand side. It has been a good strong crop for farmers and that is what it is continuing to be. It will still be a contender for increased acreage this year.”

But the big winners this year in terms of increased acreage in both Saskatchewan and Alberta, says Blue, will likely be yellow peas and lentils.

“Prices for yellow peas have been the star performer this season, mainly because of strong demand from India and China. Yellow peas are used in substitution for chickpeas in India, which has had two and now maybe three growing seasons of mediocre production. So there is going to be a move to peas and also lentils because of the very strong and, in some cases, record prices we have seen during the winter.

“Lentils have never been a major crop in Alberta but I think we could see increased acres here as well. I definitely think we will see more of that in Saskatchewan where there is more processing and acres developed in that particular crop. That will pull some seeded acreage from wheat and maybe even to a certain extent from barley.”

For those thinking of maybe taking a bit of a flyer on something new this year, says Blue, mustard is looking like a strong possibility.

“One crop we haven’t talked about that may be important to some of the growers, particularly in the southern areas, is that of mustard. Mustard has been at record high levels this winter also. I think in anticipation of more acreage, mustard prices for fall delivery are lower than current prices. Nonetheless, I think mustard will still be strong crop price-wise for this coming season.”

Canary seed, on the other hand, is looking like an increasingly risky bet.

“It’s not a large crop here in Alberta, but canary seed has been a bit frustrating for people,” confirms Blue. “It’s a relatively small market and the demand side seems to be very lacklustre this winter. Possibly because of forward buying that had been done last summer and into the fall because of expectations of low production, which did not really turn out to be the case.”

While the overall crop price outlook for 2016 may be relatively mediocre compared to the past five years’ average, Blue definitely feels producers should be able to get a decent return on their crops if current trends hold steady through the fall.

“It’s not looking like we are going to see record high prices so far,” states Blue. “Generally supplies of feed grains and of wheat are quite strong in the world perspective and in the U.S., which, of course, has a huge influence on our price here. I think it will take fairly major and sustained production shortfalls in a major producing area to cause our prices to really rally and explode higher.”

And for the most opportunistic farmers, they may be able to do a little better by watching for windows of opportunity to lock in for higher prices earlier in the year.

“From this time of the year forward to probably the end of June or middle of July is a time when prices often turn more volatile, with more attention being paid to the growing conditions in the northern hemisphere growing areas,” says Blue. “That often provides opportunities to do some forward pricing of new crop and finishing pricing off old crop supplies farmers may have. Prices often peak during this interval.”

“On the other hand, the feed barley market has pretty well been sideways all winter, and I don’t know that it would be a signal to producers to seed more feed barley. Some of the advantages of having feed barley though is it is easily marketed here in Alberta in our strong feeding sector. So I think we may see our barley acreage about the same or even slightly higher just due to that strong malting barley price,” says Blue.

Blue predicts canola will also continue its reign, particularly in southern Alberta.

“A strong positive for canola this winter has been a strong disappearance in the form of exports and domestic crushing,” he explains. “That bodes well for the demand side. It has been a good strong crop for farmers and that is what it is continuing to be. It will still be a contender for increased acreage this year.”

But the big winners this year in terms of increased acreage in both Saskatchewan and Alberta, says Blue, will likely be yellow peas and lentils.

“Prices for yellow peas have been the star performer this season, mainly because of strong demand from India and China. Yellow peas are used in substitution for chickpeas in India, which has had two and now maybe three growing seasons of mediocre production. So there is going to be a move to peas and also lentils because of the very strong and, in some cases, record prices we have seen during the winter,” he predicts.

“Lentils have never been a major crop in Alberta but I think we could see increased acres here as well. I definitely think we will see more of that in Saskatchewan where there is more processing and acres developed in that particular crop. That will pull some seeded acreage from wheat and maybe even to a certain extent from barley.”

For those thinking of maybe taking a bit of a flyer on something new this year, mustard is looking like a strong possibility.

“One crop we haven’t talked about that may be important to some of the growers, particularly in the southern areas, is that of mustard,” confirms Blue. “Mustard has been at record high levels this winter also. I think in anticipation of more acreage, mustard prices for fall delivery are lower than current prices. Nonetheless, I think mustard will still be strong crop price-wise for this coming season.”

Canary seed, on the other hand, is looking like an increasingly risky bet.

“It’s not a large crop here in Alberta, but canary seed has been a bit frustrating for people,” says Blue. “It’s a relatively small market and the demand side seems to be very lacklustre this winter. Possibly because of forward buying that had been done last summer and into the fall because of expectations of low production, which did not really turn out to be the case.”

While the overall crop price outlook for 2016 may be relatively mediocre compared to the past five years’ average, Blue definitely feels producers should be able to get a decent return on their crops if current trends hold steady through the fall.

“It’s not looking like we are going to see record high prices so far,” states Blue. “Generally supplies of feed grains and of wheat are quite strong in the world perspective and in the U.S., which, of course, has a huge influence on our price here. I think it will take fairly major and sustained production shortfalls in a major producing area to cause our prices to really rally and explode higher.”

And for the most opportunistic farmers, they may be able to do a little better by watching for windows of opportunity to lock in for higher prices earlier in the year.

“From this time of the year forward to probably the end of June or middle of July is a time when prices often turn more volatile, with more attention being paid to the growing conditions in the northern hemisphere growing areas,” says Blue. “That often provides opportunities to do some forward pricing of new crop and finishing pricing off old crop supplies farmers may have. Prices often peak during this interval.”