For most western Canadian farmers, what to grow in 2016 was fairly straight forward with pulses and durum leading the way with a few other standard crops thrown in for good measure. Those producers not in the pulse or durum growing areas mostly stayed with their usual spring wheat, oilseeds and barley/oat crop rotations.
While the choice of what to grow in 2016 was fairly easy; execution was a whole other issue as farmers were deluged with record rainfall, disease pressure and a harvest that went on forever. For many Alberta and Saskatchewan farmers, the 2016 harvest will continue into the spring of 2017 as farmers work to clear the last of the 2016 crop before turning to seeding the 2017 crop.
Outside of lentils, crop yields were generally very good in 2016-17 and producers that locked in higher prices and took advantage of early delivery opportunities made out well. As of the end of February, Agri-Trend Marketing was 90% sold in most crops with 10% left to take advantage of any late season price spikes.
Late season price spikes may be difficult given the Canadian and world supply of most cereal, oilseed and pulse crops. Although canola has opportunity to rally given the current export pace, high level of domestic use and expected tight canola carryout at the end of the year, if soybeans can maintain a higher price posture.
Higher soybean prices may be difficult given the anticipated large South American soybean crop and potential large oilseed acres intended to be planted in North America. Though, up until now soybean prices have been strong based on an excellent US soybean export sales pace, very good domestic use and some political conjecture about improvement of the US bio-diesel and ethanol programs.
Note: The new reality for farming, is that industrial use of crops are becoming almost as important as food/feed use as a price driver. For example, 2016-17 US corn use is estimated at 38% for feed, 37% for ethanol, 10% for food/seed and 16% for exports.
Below is a quick overview of major considerations of each crop type going forward into the 2017 seeding season.
Cereal grains have been in a bearish mode for the last 5 years with world and US carryout stocks rising each year for the last five years for both wheat and corn and prices declining. The US has cut back on amount of winter wheat acres sown this fall so we could see a some turn around in wheat but don’t expect any big jumps in price unless production declines are also seen elsewhere in the world.
Corn is also on the defensive as US corn production has hit record levels in recent years with US carryout rising from 21 million tonnes in 2012-13 to 59 million tonnes 2016-17 while world carryout numbers have risen from 135 million tonnes to 218 million tonnes. Corn use has been strong so we have seen a slight drop in the stocks to use ratios but again don’t expect a big turnaround in price unless we see a drop in significant drop in US and world coarse grain production.
As for Canada, wheat (other than durum) carryout was expected to drop at the end of this crop year but a slow Canadian wheat export shipment pace suggest wheat carryout will be similar to last year. Meanwhile, durum production was at record levels last year with the Canadian durum carryout projections jumping from 1.1 million tonnes in 2015-16 to the 2.8 million tonnes projected for the end of 2016-17. This would be the third highest carryout of the last 17 years.
Canadian durum quality was generally poor last year due wet conditions and disease pressure which has kept prices somewhat higher for higher durum grades. A large cutback in 2017 durum production will be required before any relieve from lower prices is experienced. Current estimates are for a 20% reduction in seeded acres but with a projected carryout of 2.2 million tonnes at the end of 2017-18 which is still at historical higher end of the carryout levels. Prices for high quality durum will be heavily dependent on the quality of durum production this summer.
Barley prices are also under pressure with the large coarse grain production throughout the world and Canadian malt barley premiums are declining as some Canadian malt companies are indicating that a significant carryover of malt barley supplies will occur from the current crop year to the new crop year.
Oat prices are positive this year with some good premiums for new crop currently being offered. This fall’s oat prices will be heavily dependent on this year’s production and could be under pressure if we see a big switch to oat acres this spring. Current projections are for oat carryout to decline again next crop year which would be positive for prices.
Pulse prices were very strong through much of the 2016-17 crop year but have declined in recent months as India pulse production improved on better weather conditions and world production expanded in response to higher prices. Pulse prices are expected to stay at reasonable levels for the coming year but not at last year’s highs unless production problems occur elsewhere in the world this summer.
As discussed above, oilseed prices have been good over the past year on strong demand, primarily from China. The big question going forward is the depth of Chinese demand and will this demand continue to grow with expected expanded soybean and other oilseed acres both in North and South America in 2017? Producers should talk to their market coaches on how to lock in these higher new crop prices when they become available.
Like most years, producers will be faced with a multitude of production choices for the coming spring planting season. Farmers can call an Agri-Trend agrologist if they would like to discuss potential growing alternatives for their farm for 2017 or an Agri-Trend market coach if they would like to discuss potential returns, costs and new crop pricing opportunities for the coming crop year. Agri-Trend consultants look forward to helping you maximize your returns for the 2017-18 crop year.