WINNIPEG, Manitoba -- When Viterra refuses to buy any wheat before next November you know farmers are pushing too hard to deliver. Relax. This big slug of crop will eventually work its way through the system.
Elevators are trying to stem the flow using their standard tools, widening the basis and delaying delivery.
With wheat, you probably can't sell it anyway. It's even harder to deliver. If there's another leg down in the market, at this stage that's academic.
Bear markets don't last forever. This one is a year and a half old.
Western Canada has never had such a selling push on grains. Elevators started pushing back the date of delivery on new crop contracts before the crop was even in the bin. Farmers learned to sign up and get in line for delivery. It's apparent that not all the crop could even get moved within the crop year. Prices are steadily going lower and the queues are getting longer.
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Western Canadian farmers have lots of experience with holding grain over. Now that there's a giant crop and no Canadian Wheat Board to set quotas, we have to figure out how to ration grain handling capability. It's a doable job.
Canola trending lower
Canola prices continue to trend lower and there is no signal this trend has ended. The 2013 canola crop was 18 million metric tons, which will cause the carryout for 2013 to '14 to reach a record high of 3 million tons.
We project an increase in canola acres in Canada and soybean acres in the U.S. Argentina and Brazil are on track to reach record soybean production, which will come on the market in March and April.
Don't be surprised to see canola futures under $400 per metric ton. Basis levels deteriorated on a surge of farmer selling after the holidays.
Stable soybeans
Soybean prices have been relatively stable, but when the South American harvest comes off in full swing, expect the soybean complex to come under severe pressure. Canola could drop sharply within a week. The media may hype up dryer conditions in certain parts of Brazil but don't be too focused on one region. Remember, this is rainforest country. Canadian farmers haven't experienced these price levels since the fall of 2010. This price slide isn't over yet.
Milling wheat backing up
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Western Canada is contending with the largest wheat crop on record.
The commercial handling system is running at capacity, with many elevators booked solid until new crop. Prices in the country system have been trending lower throughout the fall and we don't feel this downward trend has come to an end. In Southern Alberta, feed wheat is now trading at a discount to barley as farmers increase sales of lower-grade milling wheat.
Australia and Argentina's harvests are in the early stages. U.S. hard red winter wheat acres are up 5 percent from last year and the crop was in excellent shape going into dormancy. Europe, Russia and the Ukraine expect a marginal year-over-year increase in wheat production. Keep in mind world corn production was a record in 2013 and the U.S. has a burdensome corn carryout.
Minneapolis and Kansas wheat futures have been trending lower and are due for a correction. The market will correct in time by trading sideways or it will correct in price with a minor rally.
Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.
