Tuesday September 02, 2014

Record crop not a huge problem

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Mike Jubinville

Prices may stay relatively strong for grains and oilseeds in spite of a record crop.

At least that was the contention of analyst Mike Jubinville with Pro Farmer Canada when he spoke at the Farrell Agencies Farmer Appreciation Night as part of the Grain Millers Harvest Showdown last week.

While final production numbers for the 2013 crop are not in, Jubinville said “generally speaking it was a real strong year.”

In fact Jubinville called the 2013 crop “the biggest crop in Canadian history. It’s a phenomenal level of production.”

And all those bushels will take effort to market.

“It does present some challenges for us,” he said, adding “this year is not just about prices.”

An issue away from prices will be getting the record crop to market.

“The rail system will be challenged to move the largest crop in Canadian history,” said Jubinville.

Jubinville likened the rail system to a small “garden hose”, adding there “is only so much grain we can move, even at peak capacity …

“Any hiccup in the transportation system is going to be problematic.”

The constraints of the transportation system may make it difficult to “convert deliverable opportunities.

“Last year we could deliver at will in most cases … This year is going to be a tight one.”

Jubinville said based on transportation capacity, and terminal capacity, “there’s going to be carryover” of the 2013 crop into the next crop year.

On the price side Jubinville said they have been strong the past couple of years. He said commodity pricing is cyclical and that in terms of grains and oilseeds it has been at the higher part of a cycle “the last couple of years”

It’s a also a case where high points in the price cycle will eventually decline.

“We know there are ups and downs in this business,” said Jubinville.

Jubinville said in recent years high prices have been supported by crop issues around the world, from a Russian drought in 2010, to drought in the United States and South America in 2011, and problems with pulse production in India in 2012.

This year that is not the case. Jubinville said in 2013 there has “been a return to strong production levels,” adding it is not just in Canada. “Most of the world is strong. There’s not a dire crop-related problem.”

As a result Jubinville said the market will need to adjust “to take up all that new inventory coming to market.”

The situation is one Jubinville called “a more challenging pricing environment.”

As an example, looking at world wheat stocks Jubinville said, “in the grand scheme we’re really not short of wheat … A sizable amount of wheat exists in the world.”

But Jubinville is not panicking either.

“I’m still optimistic … (the market) will generate descent pricing opportunities for farmers,” he said.

That will not mean prices at 2012 levels, but Jubinville said returns generated may be close to last year’s levels. He pointed to canola and said a 30-bushel per acre crop last year selling for $14 per bushel generated about the same as a 40-bushel crop at $10.30 now would.

“The gross return per acre in the same,” he said.

In term of wheat Jubinville said $7.50 wheat is still likely attainable, when the system “gets into wintertime there’s some potential for an upside … I’m not bullish about wheat, but I think there is a bounce (in price) opportunity.”

On the canola side Jubinville said he has long suggested the commodity works on a six-year cycle with prices up for two years, then sown for two, and sideways for two.

The last two have been up, he added.

That said Jubinville said he also believes grain and oilseeds markets have undergone a fundamental shift where “the old highs have now become the new lows.”

Still, Jubinville said “we’re going to carry some (canola) into next year, not because we don’t have markets offshore, but because we can’t get product from here to port.”

In fact in terms of market for canola Jubinville said “we have very strong demand pull. The desire for the product from the crush (domestically), and off shore is there.”

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