Spring Fling

Watch the video while autosteer does the work. Then share it with 5 other farmers, every grain farmer needs to know this. This issue is a long one, but very important.

Note. I'm removing the password until may 30. Then reverts to paying customers only.

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Executive Summary

World Ag Stage:

The fundamentals say bullish all day long. The technical signals and reality say proceed with extreme caution.

Out of all the places to invest your money agriculture is pretty high on the list right now. A solid argument could be made that when the financial world melts down than agriculture will hold together the best.


Financial World:

Equities: Extreme overvaluation of stocks. P/E ratios up in the 3x of normal. Extreme amount of stocks bought on margin. This means its all leveraged money. Good when the market is rising, very bad when it is dropping.

Interest Rates: Interest rates have doubled in one year. The US 30 year fixed year mortgage rate has gone from 2.65% in January 2021 to 5.11 in April 2022. This means that a previous payment of $5000/month could service a 1 million dollar mortgage over 30 years. Now that same payment can only service $770,000. A drop of $230k

How interest rates affect house prices. Using a payment of $5000/mth. What happens if the banks reduce maximum payment to $4000/mth.


Risk To Reward Management: Risk level is high. Time is on our side at least until July.

Overall Market thoughts

Ukraine:

  • It does not seem like this war will be ending anytime soon. It seems that Europe be impacted more than previously thought. Russia has been quietly building a monopoly on commodity sales to the EU. This is not good for the EU. They can expect shortages of all types of commodities which are very important to agriculture.

China:

  • China has been on full lock down for some time. This is going to affect their GDP which in turn will reduce their global demand for everything.

Export bans:

  • It seems that once a week there is a new country putting on export bans or some form of export restrictions. There are export bans as a direct result of the war, but there are many that have been put in place for a variety of reasons. One of these reasons is to combat inflation and/or production issues.

Fertilizer:

  • As long as we are in this commodity cycle than I don’t expect fertilizer prices to come down to previous levels. Expect very exciting price swings. Especially, since Russia supplies a lot of fertilizer to places like Brazil.

Weather, la nina & Wavy Jet stream:

  • La Nina was supposed to end in late spring. It now looks as if La Nina will defy historical trends and stay longer than expected. This means that we could see a similar weather patten to last year. July could be very exciting.

  • Normally the jet stream is a consistent band (Zonal Flow) around the globe. Like last year, expect a wavy pattern (Meridional Flow). This means that it undulates up and down the earth which in turn brings extreme heat or extreme cold to latitudes that would normally never reach those temperatures.

Global production:

  • I’m convinced that this year will see a drop in global production. So far there has simply been too many little problems that will negatively impact global production.

  • India is the first major wheat producer to have claimed to have a problem and I personally think China has a huge wheat issue. All these issues will be compounding over the next few months.

Previous Thoughts

Overall: New crop is setting up for a bullish scenario. Dryness in Midwest & Canada, supply chain ramifications, political tensions around the world and inflation.

Canola: Neutral. Expect new crop and old crop to start coming together. World is worried about supply. (results= Market went for a good rally and ended back where it started)

Wheat: Neutral – Political tensions and weather. La Nina is expected to remain longer than originally thought. Ie. Same weather as last year. (results= Market went for a good rally and ended slightly higher than it started)

Barley: Old crop is Neutral. New Crop is neutral to slightly bullish. Depends on the Ukraine seeding situation. (results= Old crop did nothing stuck at 9 FOB. New Crop rallied up to 9 FOB.)

NEW RECOMMENDATIONS

Overall: Overall setup is still bullish. Even more than last month. Yet, we need to pay very close attention to what is happening to the economy. These prices will not be an island if 2008 is repeated. The focus needs to move towards risk management and price preservation more than it does towards speculation. Expect volatility to continue. Weather is now king.

Canola: Neutral. Expect new crop and old crop to come together. Unlike normal years new crop will probably rally to meet old crop.

Wheat: Neutral to slightly bullish – World production will probably be down. Rumors of problems will send market higher.

Barley: Neutral. With Corn acres down Barley has made significant strides in the new crop. New crop is currently priced the same as old crop which has never happened this early.


Canola

World Stage:

All things vegetable oil. As stated in the chart below palm oil is the number one source of vegetable oil in the world at 73 MMT while canola is only 28.8. Therefore when Indonesia puts an export ban on palm oil the market takes off, since Indonesia produces roughly 1/2 of the worlds palm oil.

Canola production is likely to be down this year again as acreage will decrease this year.


Market Zoning and Timing:

All ready discussed the spread trade between new crop and old and if you would like to review it here is the link: https://www.members.insightag.com/News/Canola-Spread-(Futures-Fridays)


From a technical standpoint it seems that new crop canola will rally a little bit more. Basically, the most likely range during this growing season, no surprises, should be somewhere between 1000 and 1200 dollars on the futures. This translates into $22/bu to $27/bu.Anytime you can get 25 or greater is a good deal.

Risk To Reward Management:

2021- What you have canola left?

2022- As the price goes higher so does the risk. The worst thing to do is to believe that these prices will never come back down.

  • What we really need to do is to figure out how much to risk at these current levels.

  • Obviously, the market can go higher and there is no doubt in my mind that they won’t.

  • On the flip side these markets can come crashing down to a historically record price, but in today’s environment just barely over the cost of production. For many of you a price of $650 (~$13.5/bu) would be below your cost of production.

What do we do? We take risk off the table when possible. Selling 20% of your expected production is a good start. OR utilize the futures markets either through a grain company or by yourself.

Smart Contracting:

2021- Just throw the dice and see what happens.

2022- During extreme volatile markets, targets are the best tool out there.

  • Figure out what you are comfortable with and put a target in for that amount.

  • It can be assumed that canola is going to try and reach for $1200 or about $27/mt.

  • Another good option is to utilize some of the special grain contracts that are available at certain elevators. Some of these contracts are great for minimizing risk while capturing these market conditions. If you have questions give me a call. Make sure you do the right one!

Canola should be staying along this trajectory for a while. There is nothing on the immediate horizon that is indicating canola prices come crashing down or go screaming up. All the news that is needed is already in the market.

This is the growing season. Anything can happen at anytime.

Most likely the market will be more inclined to rally than drop because during this season the crop usually get worse not better. Right now time on our side because fundamentally nothing has really changed.

In my opinion the biggest risk factor that could destroy this market is outside forces like a global meltdown.

Moving Forward:

1. Evaluate your risk tolerance.

2. Match your risk level to the number of Tonnes sold.

3. Figure out a price that you are happy with and put a target in.

4. Go farming.


Friday Futures:

Last month I added Money Making Mondays and Friday Fun Futures to my Market flash email list. On Monday I look at the top 3 things to pay attention to for the week and on Friday I take a look at some futures commodity and see if there is a speculation trade somewhere. You can view it here: https://www.members.insightag.com/News/Canola-Spread-(Futures-Fridays)

April 8 we put the Futures Friday trade on at 124 as of May 4 the spread is 67 for a cool 57 grand. I think the spread will go to 20, so still holding.

Charts and Graphs


Wheat

World Stage:

Wheat is quickly becoming the forefront commodity. The mainstream media is now pushing the food shortage narrative which I believe translates into a wheat production problem. There are a tremendous amount of countries that have implemented some sort of export ban or restriction And let’s not forget about the war in Ukraine. It seems to me that there is something going on with global wheat supplies. To top it all off the northern hemisphere growing season is far from complete.

Just the other day India is claiming that wheat production will drop 6%. For those of you that don’t know india is the worlds 2nd largest wheat producer. 6% for them would be like Canada losing 25%. Could you imagine how high the wheat market would be if Canada lost 25% of their wheat.

Market Zoning and Timing:

Obviously, wheat production in the northern hemisphere is far from complete. This means that we can expect a very volatile summer. If these production problems are real then we can expect the wheat market to rally even more in the fall.


From a fundamental perspective there is solid support around 10.50. The 2008 high of just shy of 13 has yet to be tested. We should expect that high to be challenged in the coming months.

Risk To Reward Management:

2021- See what happens in July. If it turns hot and dry the market will take off.

2022- Fundamentally the market is in a bullish setup. However, as we discussed before everything outside of the commodity world is pointing towards some sort of massive correction. This means that we must not get caught up in our own heads. We must elevate risk management more than speculation. It is important to protect profit.

Smart Contracting:

2021- Put in some lofty targets and go to the lake and have a good time.

2022- Again using lofty targets is an excellent strategy. At these levels the focus should not be on the per bushel value but rather you should be focused on the profit per acre level. For example $14/bu cps wheat would easily equate to $750/acre PROFIT. This is not the time to mess around with a profit margin of 150%.

Current Trend and Looking Ahead:
  • Over the past few months the trend on Kansas wheat seems to be relatively stable and has basically been range bound between 10.50 and 11.50

  • Back in April the spread between all three wheats (cbot, kanas, minni) collapsed which meant the price was exactly the same for all three. The normal spread is currently reestablishing itself. This is important because when this spread is out of whack it helps determine pricing opportunities.

  • Fundamentally the wheat situation is bullish, yet the global financial world is anything but stable right now. This means that Wheat will probably trade in a volatile bullish pattern until it finds a new equilibrium. Once this equilibrium is established it needs to be supported at that level. That support most likely come from the financial world.

Moving Forward:
  • Establish a predetermined amount and price that you would like to sell. Then put in a target for that amount.

  • As the growing season progresses it extremely important to pay attention to what is happening in the rest of the world, agronomically and fiscally. This setup is one of an extreme double edge sword. Extreme up or extreme down.

Charts and Graphs

Barley

World Stage:

Once again the war in Ukraine will have a major influence. Both Russia and Ukraine are top 10 producers and exporters. This fact alone will add a premium to the Canadian barley market.

Corn acres in the USA are predicted to go down from previous estimates. At this stage of the game it means that corn production will not be in excess this year. In addition to the corn acreage drop there seems to be no end to the ethanol mandates.

Of course one must take a quick look and evaluate how much of reduction of fertilizer will South America have. This too will reduce overall corn supplies.

Market Zoning and Timing:

New crop barley has already come into alignment with old crop. As in New rallied to meet the old crop. This is a sure signal that the barley market is strong.

We are seeing a reduction in Canadian acres this year. StatsCan estimates that acreage will fall from 8.296 million acres down to 7.491. This acreage drop means that a minimum of 1 million Tonnes is gone.

Since new crop rallied up to meet old crop prices it would be a safe bet to lock in a portion of your crop at that level. I think this because, last year was a wreck and the elevator demand was huge. This year I think demand will be down significantly which will limit the potential rally.

We really need to pay attention to the corn market and how much corn is flowing into feedlots. Most feedlots would prefer Barley, but price is always a factor.

Risk To Reward Management:

2021- Give Greg a call and sell the rest.

2022- It would be wise to sell 20% at $9.00 FOB central Alberta.

Smart Contracting:

2021- Just sell it.

2022- Call Greg and get him to put a target in for you.

Current Trend and Looking Ahead:
  • The barley market has been very flat since Feb. There has been opportunity to achieve $9.00 FOB barely the whole time. Doesn’t really look like anything will change.

Moving Forward:
  • Start pricing some crop.

Charts and Graphs
Extra Reading

ALERT: Insanely Overvalued Stock Market MUST Revert (Bubble Update #4)

From <https://www.youtube.com/watch?v=Es-7syOX-8M>

ENSO Weather: La Nina has strangely reversed its collapse, but how will it now impact the weather as we head towards the Summer and into the late year?

From <https://www.severe-weather.eu/long-range-2/la-nina-update-cooling-warm-cold-season-forecast-fa/>


RECAP: THE CHANGING JET STREAM AND GLOBAL COOLING

https://electroverse.net/recap-the-changing-jet-stream-and-global-cooling



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