Spring Will Be Here Soon

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Grain Navigator Feb 2022- Spring will be here soon
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Executive Summary

World Ag Stage:

Most market fundamentals are coming from the political theater. The Russian and Ukraine situation has not been resolved. Additional political unrest around the world is high. This situation is very conducive to volatile prices. Also, the month of February there is no major grain harvests taking place.


Risk To Reward Management:

Old Crop: At this point the only reason why grain is not priced is because you expect the drought to continue into next year.

New crop: Farmers are extremely cautious this year regarding new crop. However, this is a very precarious situation. Timely rains and the market will drop significantly. If it stays dry the market will stay high. Unfortunately, this is a hard decision. However, it is prudent to always lock in a profit.



Overall Market thoughts

Inflation is here. US official inflation rate is 7.5%. The unofficial realistic inflation rate is closer to 15 to 20%. This is a double edge sword for commodities. Higher inputs and higher outputs.

Previous Thoughts

Canola: Neutral. If soybeans are stable don’t expect canola to rally much more

Wheat: Cautious Bull- January will be important

Barley: Neutral to Bearish. Majority of feeding is now corn.

NEW RECOMMENDATIONS

Canola: Neutral. Soybeans and vegetable oil are wild cards. Don’t expect canola to change direction until spring.

Wheat: Extreme Cautious Bull – Political tensions and weather.

Barley: Slight Bearish. Majority of feeding is now corn

Canola – Old crop Bear / New Crop CAUTIOUS Bull

World Stage:

Old crop is old news. The market is turning its attention to new crop. Old crop canola market is still in a backwardation situation. This means that the front months are higher than the back months. What is interesting is that both new crop canola and new crop soybeans are also in backwardation. This shouldn’t happen because in normal markets the further out months should always be higher, thus paying storage and interest. For example, July ‘23 beans are at 13.93 and January ‘23 beans are at 14.44. In a normal world these values would be reversed. This could a good possible spread trade.

The biggest fundamental issue right now is the soil moisture level in Canada. It’s basically nonexistent in many ways. This buys us a bit of time as the drought premium will remain until moisture conditions improve.

Market Zoning and Timing:

Old crop canola seems to be hitting major resistance around $1023/mt or about $23.50/bu. What is really fascinating about this is the fact that canola is not responding to the market moves of soybeans and vegetable oil. This is a tell-tale sign that a market is running out of steam. In order for a rally to happen there needs to be some major fundamental shake up.

Overall, the market is starting to focus on new crop and what to expect in 2022. As of right now, I believe the market is expecting a small average crop. This means prices between $15-18/bu.

From early July to end of October ‘21 canola ranged between 850-900. Then it rallied up above 1000 and stayed there ever since. During this time the drought was finally realized which resulted in a drought premium of about $150/mt or $3.50/bu. This means that when new crop canola is trading around 850 the market is expecting a small crop.

What this really boils down to is that new crop canola is excellent value at $850/mt or about $19/bu. The market is basically waiting for production direction.

Risk To Reward Management:

· 2021- At this point it should only be gambling stocks left.

· 2022- Pre pricing percentages and values are going to be hard this year. The risk of prices being lower at harvest is significant. The minute the drought premium is over then prices will drop to a new normal which I believe is between 15 and $18/bu. This means that opportunities above $18/bu should be considered. Under normal circumstances 30% would be recommend as the profit margins are at extreme highs. However, production risk has never been higher as soil moisture reserves are virtually nonexistent.

Smart Contracting:

· 2021- Use lofty targets on remaining levels.

· 2022- Use of targets to lock in prices. Elevators will reach to fulfill trading obligations.

Current Trend and Looking Ahead:

The current trend is sideways with a lot of volatility. The market is looking for direction. It is waiting for some fundamental change to give it direction. In all reality it will probably come around April May. Old crop may not change much, but new crop could react violently.

Moving Forward:

Be patient and have a plan in place. Determine how much of this crop you are willing to sell at these prices. Put some targets in.

Canola - General Selling Thoughts

Charts and Graphs



Wheat – Extreme Caution Bull

World Stage:

The whole world is focused on geopolitical tensions. The whole world is in a state of uncertainty. Plus, all eyes are on Russia and Ukraine. Until this situation resolved the market is likely to remain volatile. In the next few weeks, the market will start to evaluate growing conditions causing even more uncertainty.

Market Zoning and Timing:

The Kansas wheat futures have major support and resistance right around 8.50. This is the major zone on where to start pricing old crop or new crop. Since this market is so volatile it is important to use targets.

· 2021- Old crop. There should be opportunity to achieve 13. HRS at the elevator and 12 on CPS.

· 2022- New crop. The setup for wheat is extremely volatile and the market could easily move either side 3 or 4 dollars per bushel. This means that pricing needs to be done with targets.


Smart Contracting:

· 2021- Use targets for 13 HRS and 12 CPS. If holding grain into summer be aware that the price swings could be huge. Now is the time to get down to gambling stocks.

· 2022-

o HRS: Look for opportunities to sell at around $12/bu use Targets and get to a comfortable level.

o CPS: Initial pricing should be starting around 10.25-10.50 and use of targets for $11

§ Another option is to use a futures only contract and wait for basis to narrow in. The basis gain could easily be 50 cents.

Current Trend and Looking Ahead:

The current trend is slightly down, yet the market seems to be carving out a bottom. Market volatility is pretty much a given for the next 6 months, this time the swings will be extreme. Once it’s over its over. Now is the time to have your plan in place and be ready to execute it when the time come.

Wheat - General Selling Thoughts –

Charts and Graphs


Barley – Neutral / Bearish

World Stage:

As discussed last issue the world production and ending stocks of barley are way down. Most of this can be attributed to Canada. Hopefully, this production issue is a one-year event, meaning barley supply should not be an issue next year.

It is no secret that most feedlots have now switched to corn and are not switching back to barley anytime soon. Barley trading volumes are down 90% this year. This means that barley is only used when it must be used.

Market Zoning and Timing:

As of this writing barley delivered Lethbridge is trading at $425/mt ($9.25/bu) and corn is trading at $410/mt. Plus there is virtually no barley left on farm. This means that barley has become a price island where it doesn’t really matter what the price of corn does because barley just isn’t available. Meaning that only people buying barley are the ones who absolutely need it, but even then alternative feed sources are used when possible. This is the ultimate demand destruction. Basically, barley has no reason to rally.

Risk To Reward Management:

· 2021- Sell 100%

· 2022- Sell 10-50% at $7.25/bu+ (central AB). In most cases profit margin is over $200/acre. Obviously, over 33% is extremely risky, yet it is a prudent move.

Smart Contracting:

· 2021- Just sell it. Stop looking for the extra 5 cents.

· 2022- Use targets.

Current Trend and Looking Ahead:

The current barley price is a record price. In the last year or so, barley has increased in price by almost 50% or about $4/bushel. On the other hand, corn has only increased about $1.25/bushel or about 25%. This means that the barley price is operating at a huge drought premium. Which is 100% guaranteed to be gone if there is a normal growing season. This fact alone is why everyone should be pricing some barley at these prices. Out of all the commodities next year I’m most bearish on barley.


Moving Forward:

Figure out the maximum level of comfort that you are willing to book and then book it.

Barley - General Selling Thoughts


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