Growing crops comes with a certain set of challenges, some not even in the field. Knowing the ins and outs of grain markets is simply part of the job these days, but it can sometimes be baffling.
We asked Bruce Burnett, director of markets and weather information at Glacier FarmMedia, to help cut through the noise and provide a balanced understanding of what’s likely to affect markets in 2018. This includes an expected rise in oilseed acres, Spring moisture levels, the Canadian dollar and NAFTA. Okay fine. But how do these things help you decide what to seed this year?
It’s a question that takes on a greater significance in 2018. India recently slapped Canada with a 50 per cent tariff on its pulse imports. Burnett thinks it’s a political issue, and one that may require 18 months to resolve. Prairie farmers should keep this in mind when making cropping plans. It’s no secret pulse acres have been on the rise, especially in Saskatchewan, the lentil capital of Canada. The question now becomes what will replace those acres? Burnett points to oilseeds and perhaps cereals as natural standins.
“Given current market prices, oilseeds are favoured in this scenario,” he says. “If things are dry in the south, there may be a tendency to plant more cereals, especially durum. A lot of farmers would like to see higher prices for their durum, but if you look at the alternatives, it’s not too promising for anything other than oilseeds. ” But, he adds, those come with additional risk if you live south of Hwy. 1 in Saskatchewan and Alberta, where soils are typically quite dry.
Farmers around the globe are growing more wheat, corn, soybeans and other oilseeds and as a result, many Canadian producers will be watching what happens in areas other than their own. For example, if South America experiences inclement weather, production pressure shifts to the U. S. Add to this low American corn prices — trending between $3. 40 and $3. 60 on the futures market — and Burnett posits a likely shift to more soybean acres and a drop in corn.
That’s something canola and soybean growers, especially in western Canada, should consider next year, says Burnett. “With the current oilseed situation, even though demand is strong, there will likely be an increased supply next year.”
The shift in seeding decisions is also influenced by an 18-month dry spell that stretches from Texas all the way into parts of the central and northern prairies. Farmers in Manitoba shouldn’t be concerned about moisture, since precipitation tends to be more reliable there, says Burnett. But Saskatchewan and Alberta may endure sustained periods of dryness.
Long-term dry spells occur from time to time on the prairies. “From my perspective, especially in the southern areas, we needed to see some fall recharge in those soils to provide farmers with some comfort,” says Burnett. “Unfortunately, we didn’t get that and winter precipitation has been below normal. There will be concerns in the spring in those regions. Spring moisture is going to be critical, but it’s critical in most years.”
Another thing to keep an eye on is the Canadian dollar. It has been trending above 80 cents for some time, but Burnett predicts that will drop somewhere between 75 to 78 cents for most of 2018. And that’s good news for prairie farmers.
“That is one of the things that impacts our farm gate returns,” says Burnett. “It does hurt prices when we have a dollar that’s up at these current levels. I’m expecting the dollar to slip, so we should get some headwinds for our pricing.”
Simply put, Canada is punching above its dollar weight and needs to come back to reality. “I think it’s overvalued relative to where we are at with our economy, especially with a growing U. S. economy,” he says and adds that a higher Canadian dollar does makes sense if other commodity sectors get going, such as oil and mining.
The Bank of Canada increased its interest rates in January by 25 basis points and Burnett expects another jump of the same amount at some point this year. He also believes that U. S. interest rate spreads alone should pressure the Canadian dollar. “There’s a breaking point if the Canadian dollar stays that high (80 cents or more) for an extended period of time. ”
When it comes to NAFTA, Burnett says, farmers should be aware of what’s happening with negotiations but not necessarily build their marketing plans around it. “It’s very difficult to predict what’s going to happen,” he says.
“If NAFTA is scrapped by the U. S. , I think it does have the potential to bring commodity futures down, especially corn and soybeans. That’s because Mexico is a significant customer of U. S. corn and soybeans but, without an agreement, I’m not sure how willing Mexico will be to take those commodities if the U. S. decides to increase tariffs on things like auto parts. ”
Burnett views Canada-U. S. relations as a longer-term issue. “The risk for Canada is more in trade complaints from the U. S. for certain commodities. Wheat, hogs, beef, dairy … you go through a litany of issues,” he explains. “It’s in the back of our minds that the U. S. is a significant customer. If the agreement is scrapped and the U. S. becomes very aggressive on the trade front, it doesn’t take much in the way of a complaint from a commodity group to get the U. S. commerce department to investigate.”