___

8

NOVEMBER 17, 2016 | WWW.PRODUCER.COM | THE WESTERN PRODUCER

MARKETS

OAT DEMAND

WHEAT PRODUCTION

Oat expert predicts 2017 rally

Black Sea wheat looks good Black Sea wheat exports could increase 12 percent this year and seeding for 2017 went well

BY SEAN PRATT & REUTERS SASKATOON NEWSROOM

BY ED WHITE WINNIPEG BUREAU

Oats might have ended their recent rally, but analysts are not expecting them to fall back into the gutter.

Oat supplies are so short that another rally is likely, although not for a few months.

“We’re closer to the record low than the average and that’s only taking half the (possible) production loss into account,” said Randy Strychar of Oatinformation.com, the oats market analytical firm.

“The seeding numbers in 2017 are absolutely critical.”

Strychar said acreage needs to expand not just by a marginal amount, such as five percent, but by 20 to 30 percent.

“To do that you’re going to need to keep oat prices up at 50 percent of wheat values — or better.”

RANDY STRYCHAR ANALYST

The recently stalled oat futures rally has been notable not just for the nearby gains of about 60 cents per bushel, to around $2.30 per bu. from $1.70 in September, but also in rising toward highs that haven’t been seen since 2014.

If the oat futures can break through the $2.50 area, another leg up might be possible.

Strychar said an independent oats market rally shouldn’t be expected right away. The rally that began in September was driven by funds covering shorts, so it was a temporary phenomenon.

Then the harvest problems in Western Canada drove buyers to scramble for nearby supplies.

At this point, most buyers are covered for the next few months, Strychar said, so they won’t be scrambling for nearby supplies.

The short-covering rally has eliminated most of the funds’ net short position, so that trigger has already been pulled.

“You won’t see this go through the roof,” said Strychar.

Broker Errol Anderson of ProMarket said he also doubts the rally can re-ignite soon.

“For us, this is a pricing opportunity,” said Anderson.

While oat supplies are likely to be extremely tight by the end of 201617, oat processors carry many months of supplies now after suffering greatly in the 2013-14 grain transportation crisis.

That’s why Strychar is thinking spring is the likeliest time for another oat rally.

“The rubber’s going to hit the road. I just don’t know if it’s January-February or April-May or whenever.” ed.white@producer.com

The wheat crop in the Black Sea region is in good shape heading into winter, which is creating the prospect for another big crop in 2017.

The region produced a record 114 million tonnes of wheat this year because of good spring and summer growing conditions.

UkrAgroConsult is forecasting 54.1 million tonnes of Black Sea wheat exports in 2016-17, up 12 percent from the previous year.

Last year’s winter wheat crop got off to a poor start as farmers seeded into dry conditions, but crop prospects improved greatly because of a mild winter and good spring rainfall.

Fall soil moisture conditions were much improved this year, which prompted farmers in Russia to plant more winter wheat.

Russia’s agriculture ministry is forecasting 42.85 million acres of winter grain, a six percent increase from last year.

The ministry does not specify how much of that is wheat, but SovEcon estimates that 86 to 87 percent of the winter grains crop has been wheat the last two years.

SovEcon says the condition of winter grains is significantly better than the average of recent years in most of Russia’s southern and Volga regions.

Bruce Burnett, weather and crop specialist with G3 Canada, was a little more subdued in his assessment of the crop.

“The crop is off to a reasonable start,” he said.

Burnett said the increase in winter wheat acres will come at the cost

Strong competition could rule wheat markets as Russian winter wheat acres increase. | of spring wheat acres. Winter wheat typically delivers twice the yield of spring wheat, so there is potential for another bumper crop.

“It’s probable they’ll get up to the same type of production levels they had this year and with good growing conditions it could be higher.”

Neil Townsend, senior market analyst with FarmLink Marketing Solutions, said it has been very cold in Ukraine, which could hurt some of the late-seeded winter wheat.

However, he has observed over the last three or four years that wheat can overcome poor conditions.

“We’ve seen an amazing resilience there. The general story out of Ukraine has been the crop has surprised to the big side,” he said.

“The only acre with no potential is the unplanted acre.”

To w n s e n d h a s n o p ro b l e m believing reports of bigger winter wheat area in Russia. It has become a significant cash crop for farmers because exporters are eager to get their hands on American currency due to Russia’s faltering ruble.

Burnett does not anticipate an increase in overall global wheat production despite good prospects in the Black Sea region because he expects smaller crops in the U.S and the European Union.

He also said Black Sea wheat does not typically compete with Canadian wheat in many markets with the exception of Asia.

He said exports from the region have been strong this year, but they

FILE PHOTO

needed to be because of a disappointing European crop.

UkrAgroConsult reports that Ukraine boosted exports by 13 percent in the first quarter of 2016-17, while Kazakhstan is expected to increase its annual export program by 15 to 20 percent.

Russian shipments are behind target because of an unexpected late-season drop in quality, Egypt’s concerns about ergot content and the Russian government postponing its decision on scrapping the wheat export duty.

Townsend said the brisk Black Sea export program is forcing Russian prices higher as exporters try to lure more wheat from farmers. sean.pratt@producer.com

U.S. ELECTION PROMISES

Copper rally unlikely to mark commodity boom MARKET WATCH

D’ARCE McMILLAN

I

s there such a thing as Dr. Copper?

In the world of metal commodity trade, copper is seen to have predictive power concerning the global economy.

In a way, the Dr. Copper moniker is similar to the adage “oats knows” in the grain world. A rise or fall in oats was once considered to be a leading indicator of the direction of the whole grain complex.

But oats’ reputation as a market lead is now history and copper might also be on shaky ground.

Copper’s reputation grew from its importance in manufacturing. It is used in a vast range of products and so if manufacturers expect to increase production, they need more copper and its price will rise.

The argument extends that if copper rises, then perhaps increasing global economic activity will stimulate demand for all commodities.

Copper has undergone a multiweek rally and it intensified since the American election, pushing the price of the metal to a one-year high.

Its price had fallen from a peak in 2011 to a low in late 2015 as global economic growth stalled even as the U.S. economy grew slowly.

Copper prices remained lethargic this year until the autumn when the value began to rise, on both a decline in production and the Chinese government’s decision to spend more on infrastructure to stimulate its economy.

In the days before the U.S. election, many investors were rattled and uncertain what a Donald Trump victory might mean, given his stand against trade agreements.

However, since his victory, the market narrative has focused on his promises regarding infrastructure spending and tax cutting that could stimulate the economy and demand for raw materials, including copper.

The prices of other metals have

also risen, helped by the copper rally.

But several analysts now say that the extent of copper’s rise has outpaced the supply and demand fundamentals. The latest strength has more to do with high speed algorithmic trading than with the real world.

Good and the bad And while infrastructure spending in China and the U.S. should provide global stimulus, it could be offset on the downside by uncertainty caused by Britain’s exit from the European Union and rising anti-globalization, anti-trade sentiments around the world.

The crop market appears to have paid little attention to the copper rally. It focused more on the U.S. Department of Agriculture monthly supply and demand report last week that increased the forecast of U.S. corn and soybean production and ending stocks.

Prices were also pressured as the American harvest raced toward its conclusion, more Canadian farmers wrapped up their harvests and

the U.S. dollar rose.

If a Trump administration gets Congress to back his infrastructure stimulus, that could further lift the U.S. dollar.

Stimulus can cause inflation and that would give the U.S. Federal Reserve reason to pick up the pace of its interest rate increases and that would put upward pressure on the buck.

A strong U.S. dollar would be an impediment to U.S. grain exports.

For Canada, rising U.S. interest rates would likely keep downward pressure on the Canadian dollar, which lost about a cent last week.

On Nov. 14, it was trading below US74 cents, its lowest level since February. The loonie set a multiyear low in January at 68 cents.

The failure by the Organization of Petroleum Exporting Countries, better known as OPEC, to make any headway on reducing oil production is weighing down crude prices and that also has a negative impact on the loonie.

Follow D’Arce McMillan on Twitter @darcemcmillan or email darce.mcmillan@ producer.com.