Is Harvest Pressure Over for Wheat?
I've been getting a lot of questions lately wondering if we are at harvest lows on wheat.
Looking from a seasonal perspective since 1988 on the December Minneapolis wheat futures the bottom tends to be mid-September.
A rally often occurs into October, then more of a sideways trend until the end of the year.
History is only a guide and not a guarantee, but it always helps to know what has happened.
Since the beginning of July, Minneapolis December wheat has traded between $9.30/bu and $8.60/bu approx.
My viewpoint is there are opportunities to look at short term trades for suitable operations within the range we have seen.
If you are looking more from a hedging standpoint, now might not be the time to just be purchasing put options for protection.
In a sideways trending market, it would be better to buy puts and sell a put or call possibly to have the time decay work in your favor.
These are more advanced strategies I look at for clients depending on their situation.
Earlier this month Stats Can reported wheat production is projected to decrease 38.3% in 2021 on lower anticipated yields and less harvested area.
Here is a summary by province from the report:
'In Saskatchewan, wheat harvested area is expected to fall 7.9% to 11.8 million acres, and yields are anticipated to decrease 38.8% to 28.1 bushels per acre, to bring total wheat production down 43.6% year over year to 9.0 million tonnes.
Wheat yield in Alberta is expected to decrease 40.5% to 33.2 bushels per acre in 2021, and harvested area is projected to fall 7.0%, resulting in a 44.6% production decrease to 6.1 million tonnes.
Wheat production in Manitoba is projected to fall 35.0% to 3.4 million tonnes in 2021, the result of lower harvested area (-17.2% to 2.6 million acres) and lower yields (-21.4% to 48.2 bushels per acre).'
Source: https://www150.statcan.gc.ca/n1/daily-quotidien/210914/dq210914b-eng.htm
Minneapolis Wheat December Futures - 1 Year
Chart sourced from Market Q
Chicago Wheat September Futures - 1 Year
Chart sourced from Market Q
Kansas City Wheat September Futures - 1 Year
Chart sourced from Market Q
Canola
European rapeseed futures surged to a fresh record high this week as global oilseed shortfalls combine with surging demand.
StatsCan reported this month canola stockpiles shrunk 72% from last season
Recently, November canola futures are nearing the $900t level again.
Similar to Minneapolis wheat, canola has been trading in a sideways range between $840t and $927t approx. on a closing basis since the beginning of July.
I could see canola moving higher into the winter months if certain factors turn positive.
For example, the soy markets have been dragging down/keeping a lid on any significant canola rally.
U.S. soybeans appear to be coming in with yield estimates at or above expectations putting pressure on soybean futures.
This points to a possibility of an increase in the average yield number from the USDA.
I'll be looking at options protection strategies for clients holding canola in the bin if the futures get closer to $920.
It might be worth doing some type of low cost bear put option strategy to ensure a profitable price.
Some farms have been asking me about buying call options to replace canola contracts they have.
I'm only looking at far out-of-the money options for this because of how high the current at-the money option premium is.
Learn more about options terminology by clicking here.
Canola November Futures - 1 Year
Chart sourced from Market Q
Corn
This week December corn futures closed at the highest level since August 30th.
Technicals are now turning more positive with this breakout.
Traders are looking at how actual yields are not coming in as high as expected.
Cash market news is strong and this helped provide active buying support as near term supply is tight.
September stocks are expected to be the tightest since the 2012/2013 season.
The lower yield, tight stocks and now positive technical trend might keep corn futures going higher.
Market technicians are talking about a "bull flag" pattern potentially.
However, there has been recent pressure from the energy markets and surge higher U.S. Dollar.
Surging natural gas prices have helped to drive fertilizer prices sharply higher.
In the long run, this makes corn production more expensive than soybean production and may be a factor to cause a shift to less corn acres for next year.
Corn December Futures - 1 Year
Chart sourced from Market Q
Canadian Dollar
It has been a rollercoaster for the Canadian Dollar this month.
There are no short of positive and negative factors including the Canadian Election, U.S. Dollar surging, oil surging, Canadian inflation increasing the most in a decade etc.
For better or worse, the Liberal win essentially preserves the status quo and ensures that the fiscal spending plans that have supported the economy for the last year and half are likely to continue.
Arguments can be made that spending will ultimately weaken the loonie, but foreign investors like to see stability and continuation of policy when investing.
The December futures are around 78.50 cents and traded almost to 77.50 cents this month.
It seems like there is a tug-of-war between how the U.S. Dollar is pushing the Canadian Dollar lower and oil pushing the Canadian Dollar higher.
Currently, the U.S. Dollar is winning the battle given how much it has rallied.
A break below 77 cents would definitely be bearish for the Canadian Dollar.
80 cents is strong resistance now.
Canadian Dollar December Futures - 1 Year
Chart sourced from Market Q
Cattle
The sluggish trend for cash cattle has the futures market on the defensive as December live cattle holds a premium to cash.
Cattle markets will need to see more positive cash news in order to rationalize the premium, or futures could continue to drift lower.
Both the feeder and live cattle contracts peaked at the end of August.
Since Sept 1st.....
November Feeder Cattle declined $14/cwt (8.54%)
December Live Cattle declined $6.525/cwt (4.89%)
Both contracts are at support and have been trading in a narrow range for the last week.
Trends are lower and it might not take much for cattle futures to decline more.
Feeder Cattle November Futures - 1 Year
Chart sourced from Market Q
Live Cattle December Futures - 1 Year
Chart sourced from Market Q