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Grain Navigator Oct 2021
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Executive Summary

World Ag Stage:

The growing season is basically complete for the northern hemisphere. Harvest for US corn and soybeans is coming along excellent. South America is starting to plant both soybeans and corn for the 2022 crop.

Overall ag commodities are hot.

Once again, China will continue to influence the markets like it did last year, if not more. For those who are paying attention and putting the pieces together you know that there is something big happening in China. Of course, we don’t know the details but when there is smoke there is often fire. Things like massive flooding 2 years in a row, supply chain issues, factories and whole cities going dark and of course the whole Evergrande “thing”. Something is going on.

Financial World:

Equities: The S&P index is at all-time highs. As of this writing the S&P 500 is at 4566 which is the highest it has ever been.

Energy: The energy market is on fire. Since early September oil has gained nearly $20 per barrel and is hovering just over the $80. Likewise natural gas has also rallied up to $6/MMBtu which is back to 2014 levels. Judging from the chart it looks like there is some serious support and resistance around 6.

Risk To Reward Management:

Biggest risk factor that can potentially influence the farm is geo-political economic risk. Meaning that the “printing” of money and the global debt levels are bound to cause some serious repercussions. The problem is nobody knows when the piper will come calling. Nobody knows what the piper looks like either. Historically, it never ends well.

Environmental: It looks like a la nina is developing again. If this happens we should see a repeat weather pattern of 2021. Hot and dry summer for western Canada and Mid West States.


Overall Market thoughts

There is no getting around it we are in an inflationary market. I hesitate to call this a bull market because the nature of a bull market is determined in the supply and demand space. What we have now is inflationary. Inflation is a direct result of monetary policy. A very different beast than a bull market. This type of market is extremely dangerous and unstable because government is fundamentally the root cause. The government has created a false market. Therefore, there is a huge disconnect between wall street and main street. At some point these two streets must converge and when they do a correction comes. There is always a trigger event and the market corrects, as was seen during the 2008 financial crisis. This is the reason why inflationary markets are so dangerous. There is money to me made, yet it needs to be protected.

Previous Thoughts

Canola - Cautious Bull – Sentiment still holds

Wheat – Bullish – Sentiment still holds

Barley – Neutral to bearish – Sentiment still holds

NEW RECOMMENDATIONS

Peas – Target yellow for 16 and greens for 18

Canola

Sentiment: Cautious bull

World Stage:

Canola has been hit with a double whammy. Fundamentally, Canola should be classified as a bull market. Demand is strong and supply is short. However, technically speaking canola may have already had its big bull run. Canola is starting at 20 not 10. This is the deception of an inflationary market. These inflationary pressures may have already pushed canola to a new high negating the bullish fundamentals. What this means is that outside forces have already done the work of supply and demand. This means that the current shortage of canola will not have the same impact on the market as it would have in previous years.

Another major influence on the canola market is the soybean market. In reality, the soybean market puts a lid on the canola market. If this soybean crop is as good as reported then canola will find a top and stay there. The strength of the canola market will largely be influenced by the strength of the world vegetable market, which is a very strong market.

Market Zoning and Timing:

Since August canola has been range bound between 850 and 950. Most likely this is going to continue. However, canola will probably breakout to retest those May 2021 highs of just over $1000/mt.

Risk To Reward Management:

In my opinion this is an extremely risky market. The conditions are right for the market to move either direction by $5/bushel in a blink of an eye. It’s this unknown direction of a breakout that makes it risky. The real problem here is that if the market drops to $15/bushel lots of farmers will lose money on their canola crop because the yield was so poor. A move like this could easily put the farm in red.

The only solution that is prudent is to reduce your market and physical risk by selling and moving canola sooner than later. Then keep back a percentage that you can afford to sell at 15. That percentage could be 50 or it could be 5, but its good practice not to go broke by speculating.

Smart Contracting:

· 2021- Look for opportunities to take profit off the table. It looks like $22/bushel is going to be achievable.

o Have some percentage to sell if the market rallies up to $1000+

o Remember, heated canola at 20 hurts a lot more than at 10.

o Watch the soybean market. If it takes a run up than expect canola to run also.

· 2022- Stand aside and wait. Maybe consider booking some new crop at 20. A small percentage.

Current Trend and Looking Ahead:

Volatile market with a slight increase in price.

One way of measuring a stocks volatility is to look at its standard deviation which is roughly how narrow the trading range is. Since oct 2020 till now the Std. Div. is about 122. In 2019 it was 21 and in 2018 it was 12. This demonstrates that the volatility of canola is getting greater hence riskier.

All the 2021 crop data is pretty much priced into the market. It won’t be until January 2022 when the new South American data start coming in. Until then the market is most likely to stay in a holding pattern.

Moving Forward:

The number one thing anyone can do right now is to evaluate their own risk profile. Decide exactly how much to sell at today’s levels and how much to speculate on. This market is strong and wants to stay strong, but remember it is starting from 20 not 10.

Canola - General Selling Thoughts

Charts and Graphs

The Calculated crush margin is negative. This is a big deal. If nobody is making money what are they doing it for. Margin is roughly -50

Soy Oil has come off its highs. Palm oil is at record highs. This will keep canola strong.



Wheat

Sentiment: bullish

World Stage:

There is something big going on in the wheat market. My personal opinion is that China had another crop wreck. I think this because at one point this summer there were concerns that the 3 gorges dam was going to break because of excess flooding. My intel also indicated a percentage of crop failure.

As many of you know that China is the worlds number one wheat producer at 133 MMT which is almost 1/5 of the world’s productions. A 20% drop in production equals 100% of Canada’s production.

Not only China, but Canada and the USA also had wheat failures. There is no getting around it this year was a terrible year for wheat production.

Market Zoning and Timing:

Since this was an La Nina year it is best to look at previous La Nina’s. The most recent one was in 2011 and 2012. In both years the Kansas wheat market topped out in the 9.50 range. Currently, Kansas wheat is at 7.81 which means upside is still possible.

Also, unlike corn and soybeans the wheat market has pretty much been a dead duck for the last year. Which means it really hasn’t enjoyed an inflationary market. If that hits the wheat market, watch out. Wheat could hit 2008 levels. Which equals 12-to-13-dollar wheat! Canada wheat would be worth $15 plus!

During previous La Nina years the market seems to top out sometime in mid winter, between end of December to mid January. This makes sense as this period is kind of a dead time for wheat and the market is waiting for direction.

Risk To Reward Management:

Wheat is the one crop that the reward may be greater than the risk. The reality of a 25% gain is there. The potential for wheat to drop back down is small, although, geo political economic risk still looms in the background

Smart Contracting:

· 2021-

o HRS: an initial sale at $12+ is recommended. Keep the rest for higher values

o CPS: an initial sale of $11 FOB is recommended. Currently feed market is higher than elevator. $11 FOB CPS is a really good price. A sale of a minimum of 50% is recommended.

· 2022- Stand aside on new crop sales

Current Trend and Looking Ahead:

From today’s vantage point wheat is a bullish crop. Regardless of where you look in the world there are issues everywhere. The 2021 crop had problems and there is no getting around it. As we look ahead we look at the previous La Nina year’s to base some of our decisions off of history. This indicates that the wheat price will peak in the mid-winter.

Moving Forward:

Of all the crops wheat is the most bullish. That means we can take some time when it comes to marketing it. There are lots of outside forces affecting this market, yet one can pick some lofty targets.

Wheat - General Selling Thoughts


In 2011& 2012, Both la Nina years the market ran up to 9.50+

Barley

Sentiment: Neutral

World Stage:

There is obviously a barley shortage. Why else would the maltsters pay 10.50 for malt barley unless there was a shortage? At these price levels the world’s maltsters should be buying it from somewhere else, but they can’t. Canada is one of the top 5 barley producing countries, last year we produced over 10 MMT and this year we will be lucky to produce 7. Not only did Canada lose production but also Russia, Australia, and the EU. Of the top 5 countries there was at least 10 million tonnes lost to production issues this year. In 2020 the world produced roughly 160 MMT and in 2021 it only produced 147 MMT.

Unfortunately for the barley market the US alone is projected to produce an additional 23 MMT of corn; Brazil is expected to produce 118 MMT which is 32 MMT more than last year. In short the barley market must compete with the corn market.

Market Zoning and Timing:

The barley market is likely to remain flat. As long as corn is able to come into feed lot alley than don’t expect barley to rally significantly. As of this writing it is cheaper to buy corn than barley. Outside of the mandatory barley markets there is really no reason to feed it. Its no longer a cheap feed source.

Once the elevator system has completed all their export barley contracts don’t expect the elevators to even have a bid. Supply is simply too small and demand is limited.

In reality, there is no reason to hold onto barley. At the time of this writing feed barley is 8.25 FOB central Alberta.

Risk To Reward Management:

Why wait? At these prices there is simply no reason to hang on to barley.

Smart Contracting:

· 2021- sell majority at 8.25 FOB.

· 2022- Stand aside

Current Trend and Looking Ahead:

Barley is likely to remain strong and downside is limited. However, the upside is also limited


Moving Forward:

The barley market does have potential to hit 9.00 FOB in Central Alberta. Although it might not happen till spring.

Barley - General Selling Thoughts


Charts and Graphs

Below is a world production chart for corn and barley.


Ethanol margins are really good right now. This will help the corn market stay strong even though production is excellent.


Conclusion

Overall all commodities are enjoying a very strong market. There are so many factors influencing these markets that it is extremely hard to pin on one thing. Supply chain issue have become huge which was unthinkable just a few years ago. Inflationary pressure is pushing these markets higher at an unhealthy rate. The world is running into supply and demand issues with all commodities. And of course, there is always the BIG money moves which can swing the market like a rag doll. These are only a few factors influencing the markets. The Ag markets are very good and there are so many factors pushing and pulling them that risk mitigation is more important than ever.

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