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House passes farm bill; legislation now goes to president's desk

opinion

Erin Brown / Grand Vale Creative

Talk in DC shakes up agriculture markets

Sometimes political discussions in the U.S. Capitol are largely ignored by agricultural markets. Other times, we see a very clear connection, requiring a good understanding of the discussion and potential outcomes in order to brace for the eventual price impact.

Two key items are coming up in the news this week. The first is one that has been followed at length for the entirety of the Trump presidency: the North American Free Trade Agreement. As a refresher, NAFTA is the agreement between Mexico, Canada and the U.S. that has reduced trade restrictions and has been a primary target of the Trump Administration. Officials from all countries have been working to renegotiate the deal, with the potential of a U.S. withdrawal. New information on this topic is that Mexico is moving ahead with new trade relationships.

In the last year, Mexico has imported 10 times more corn from Brazil than the previous year, with even more expected in 2018. Mexico wants to assure its feed supply, and the uncertainty of NAFTA has pushed them to find an alternative source. This could easily spill into other commodities, and Canada could follow suit.

The other hot topic is the biofuels policy. Sen. Ted Cruz of Texas urged President Donald Trump this week to consider the loss of jobs at a refinery in his state as a reason to change the U.S. biofuels policy. Another Pennsylvania refinery had to file for bankruptcy and is blaming the same regulations. This has led Trump to call a meeting next week with key senators and cabinet officials to discuss potential changes. But do not expect an easy fix, as the clash of the strong oil and corn lobbies will not give ground without a fight.

Wheat

Wheat prices have been level this week. Strength in previous weeks in Chicago and Kansas City markets never spilled over to the Minneapolis futures markets. The main concern lies in the western Plains of the U.S. where drought is a major concern as spring approaches. The winter wheat crop there is in desperate need for rains, and this week's precipitation events largely missed that area. Analyst group Informa reduced their winter wheat production forecast for the U.S. as a result of this drought. Total production is expected to reach 1.231 billion bushels from their January estimate of 1.292 billion bushels. Spring rains could still help this struggling crop, but the longer we go without relief, the more support will come for the wheat market.

On the global side, things are looking stable. Russian markets have risen some on logistical problems due to weather, but tax crackdowns are forcing farmers to sell wheat that they have been holding on to, increasing available supplies. Ukraine and European winter crops are in very good condition for this time of year, with very little under duress as spring approaches. Total world supplies remain very comfortable heading into the new growing season.

Durum

Durum markets were unchanged this week. There has not been much news to drive markets ahead of the spring planting season.

Canola

Canola markets have been firmer, taking support from the soybean complex. Futures pushed through technical resistance at $510 per metric ton. Lack of rain in Argentina continues to be the driving support of the soybean complex, but beyond this, there has been little news to drive markets. Agriculture Canada's report showed little change from previous estimates for canola stocks, holding steady near 2 million metric tons. Planted area for the 2018-19 crop should again be a record at 9.7 million hectares with production to hit 21.7 million metric tons (which would exceed the 2017 crop by 0.4 million metric tons). All of this is conjecture, however, as official planting estimates will not be released until the end of April.

Peas and lentils

Agriculture Canada is forecasting a drop in lentil output in 2018 due to reduced acreage. The monthly commodity review suggests that the 2018-19 crop will reach 2 million metric tons on 1.3 million hectares of planted area compared to 2.6 million metric tons produced on 1.8 million hectares a year ago. 

Mustard

Mustard seed news was light this week. The export market continues to track nearly on pace with a year ago.

Barley

A lack of availability for barley is lending some modest support to prices (along with general strength in corn). Exports have been strong, constraining supplies and the market has risen roughly $10 per metric ton since the start of February. The Canadian Grains Commission reported 981,900 metric tons of barley exported as of Feb. 11 compared to 501,400 metric tons at this time a year ago. This lack of availability is causing some to switch to U.S. corn as a feed source.

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