Commodity market influencers in 2022
Commodity prices and crop input costs are soaring, and the future of where both are headed is fairly uncertain given the ongoing backdrop of the pandemic. Bruce Burnett and Mike Jubinville of Glacier MarketsFarm review some of the factors that rallied commodity markets in 2021 and what conditions are likely to influence markets and producers’ cropping decisions in 2022. Hosted by Laura Rance.
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Laura Rance: [00:00:06] Welcome to Between the Rows, I’m your host this week, Laura Rance, even if we’re not planning a winter vacation. Waves are something a lot of people in the farm dream about in January. Well, as we move into 2022, we’re getting waves, all right, but not the sort that roll over those long stretches of deliciously warm sand. It’s looking like last year was the year that the 2020 pandemic won, and this year might be another 2020 too, at least when it comes to COVID 19 and all of its twists and turns. We’re all sick of talking about it, so we’re going to do our best today to talk about other things. Like those red hot commodity markets and how last year’s drought left us with supply shortages, that could make things interesting when it comes to planting this year’s crop. And what about those soaring fertilizer prices and other inflationary pressures? It’s all happening in the midst of a volatile weather and an uncertain economic and political backdrop. But before we get to all that, here’s a word from our sponsor.
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Laura Rance: [00:01:56] Welcome back to Between the Rows. I’m Laura Rance. Joining me now is Bruce Burnett, director of weather and markets for Markets Farm and Markets Farm senior analyst Mike Jubinville. Hi and welcome to the show.
Mike & Bruce: [00:02:11] Good to be here. Hi, Laura.
Laura Rance: [00:02:14] First of all, there’s a brand new USDA report out this week. It’s the first one for this year. Mike, what’s the significance of this report?
Mike Jubinville: [00:02:24] Well, you know, we’ve come out of some pretty extraordinary market events over the past year. Certainly, the drought was was a main player for the Canadian perspective, but we go all the way back to January of last year and that was really a game changing event when USDA came out. And the January report tends to be the biggest data release they have of the year. They have the final production numbers for the year before or a quarterly grain stocks no updated supply demand numbers for the U.S. and the world. The first guesstimate of U.S. winter wheat acreage that got planted in the full time and last year’s report drew a real significant market response, as there were some surprises that come out of this kind of big data release. And you have all these numbers floating at you like that there tends to be a few surprises in there and and that really set the rally off that went right out to springtime and delivered some of those extraordinary prices we saw in the spring last year. This year was less so much a big, game changing type of event. I think the focus right now had been on what USDA had been projecting for both soybean and corn production of of the two thousand one crop, and I didn’t really get a sense we got any big surprises there.
Mike Jubinville: [00:03:42] It’s confirmed a record 4.4 billion bushel soybean crop in the state’s 15.1 billion bushels in terms of production. So there were some minor adjustments on the on the production side, on the supply side, but nothing there to really took the market. I think too much by surprise. But, you know, some carryout numbers got adjusted a little bit bump up both on soybeans and corn as we’re starting to get into looking at the demand side of the ledger and how that is shaping up in the US this year. So, you know, there was some minor adjusting there. I don’t think it’s necessarily game changing events, but I think the focus of the marketplace is very much turning towards what South American conditions are as they started off their growing season under pretty reasonable conditions with moisture on the ground and such. But in the past four or six weeks or so, dryness issues related to La Nina have really picked up some momentum as some of these cropping areas, especially in southern Brazil and Argentina, have been hit with some very hot and dry conditions. And I think that’s probably where the focus of the market is going to be going in the immediate weeks ahead.
Laura Rance: [00:04:57] Well, Bruce does. Does the South American situation, is that going to confirm what the markets have been doing? I mean, we really haven’t seen the markets backing off at all. Is this going to add some fuel to that fire or is this going to be just kind of something that increases the volatility?
Mike Jubinville: [00:05:18] Well, I think it certainly is going to add to the volatility here because we’re in the critical growing period right now for the crops in Argentina, in southern Brazil. Those corn and soybean crops are getting into the reproductive stage growth stage over the next three or four weeks. And they’ve had some very stressful conditions, like the past few days. Here, we’ve seen highs in Argentina, parts of the growing areas in the western belt up around forty five degrees Celsius. So that, coupled with drier than normal conditions all the way through the past 60 days, certainly is causing stress to the crops. So that’s what the market is really trying to discern here now. Usda made some pretty big changes for, certainly for USDA in this report, we reduce the soybean estimate in Brazil by five million tons and three million tons out of the estimate for Argentina. So they’re starting to adjust. But again, we’ll have to see what happens over the next month or so. And in terms of how much rain there is rain forecast for this weekend. And it’s one of the reasons I think that the markets were maybe a little more subdued because the soybean numbers were fairly friendly in the report. And again, anything in the oil complex that causes prices to be supportive and move higher is good news for Western Canada because canola is such a big crop in terms of our production.
Laura Rance: [00:07:01] So South America is getting what we had last year on the Canadian prairies. You know, are we done with the drought that we had? Or do you see that continuing at this point?
Mike Jubinville: [00:07:16] Well, again, we need to see some rain, and we did get some rain this fall in some areas, especially in the northern and eastern regions of the of the of the western Canadian growing region did get some some catch up precipitation, but not nearly enough to make up for the deficits that we had as well. There are some areas that have not been getting any of the rain in the fall or the or the snowfall this winter. And you really don’t have enough snow cover to in a snowmobile across or do any cross-country skiing or anything like that, especially out in parts of southwestern Saskatchewan, southern Alberta, west central Saskatchewan, over into parts of even central Alberta. The precipitation has been quite a bit below normal. So in those areas they’re now looking at below normal precipitation for over 18 months and things are very, very dry, both on a subsoil basis as well as starting soil moisture basis. So we’re still in the middle of a drought and it hasn’t gone away. There is some hope because we do have better snowfall in parts of the region, but certainly overall we have done nothing yet to cure our long term soil moisture deficit.
Laura Rance: [00:08:47] Mike, how does how do you see this playing into the decisions that producers are making now about what’s going into the ground this spring, is there? Do you see any big shifts taking place?
Mike Jubinville: [00:09:00] Well, I definitely get a lot of conversations with growers looking out into new crop fall delivered positions, some pretty attractive prices on pretty much every commodity. You know, they’re certainly not as high as, say, the old crop market, but from a historical context, if you’re able to for price 17 and 18 dollars a bushel, canola and $6 oats. And so, you know, these are very attractive prices, $10 wheat and such. Historically, those are attractive prices. But you know, there is definitely a great deal of hesitancy in the minds of the farmer about making any kind of sizable commitments for next year on any of these commodities, given the dryness conditions and given, you know, the well-advertised shortfalls in terms of being able to meet contracts last year on last year’s production. So, you know, I think we have to weigh ourselves as to how much we can really look at for pricing next year. And that and that certainly weighs pretty heavily on growers minds right now.
Laura Rance: [00:10:02] It’s got to be a big factor for the companies trying to lock in supplies. They’ve obviously been been hurt by this as well in terms of not being able to meet their needs to processors. How how are they going to convince farmers that they need to to make a commitment?
Mike Jubinville: [00:10:23] It’s going to be a challenge. One of the things that I find interesting, and it shows up more on the smaller volume crops, especially things like mustards and well, actually, you know what? I haven’t seen it on peas now that we’re act of God. Clauses are being introduced when some of the smaller volume crops, and that’s pretty attractive. You know, for peas right now, you can yellow peas of about thirteen dollars a bushel or so for next fall. Historically speaking, you know, outside of this year, that’s one of the best prices we’ve ever been able to get for that and to be able to have that kind of protection behind it. And it might be only in the first 20 bushel an acre it’s offered, but still those kinds of things are there, and I know a lot of growers are pretty interested in saying, Well, why don’t can’t we have these kinds of protections in place for other commodities, especially the bigger ones? No argument there. But again, someone’s got to bear the risk on a lot of these things and grain companies have been reluctant to follow through on it so far, at least in this this year.
Laura Rance: [00:11:23] I think, you know, Bruce, maybe you can speak to this. But when you think about how growers look at this, I mean, yes, $18. Canola is, you know, would have been unheard of a few years ago. And now, because they’ve seen twenty twenty or twenty one dollars canola, it must be really hard from a producers perspective to actually say, Well, I’m going to lock in this very profitable price, but you know, perhaps give up on that, that record high again.
Bruce Burnett: [00:11:53] Yes, that’s right, and I think especially since we really haven’t changed the moisture situation going into next year, so all it really takes is another eight weeks of dry weather and hot conditions, and we could we won’t necessarily be back exactly where we were last year, but certainly below what you would think of as an average crop and the risks are higher, especially in those areas, let’s say, in southern southwestern Saskatchewan, southern Alberta, where they haven’t received hardly any moisture here over the winter season. I think it’s very important again to remember the risks because although the prices are very good, I think most farmers are very well aware of what can happen just because of last year’s experience. So I think everybody’s going to be cautious about that. And then you have to throw into the mix the fertilizer prices, which is another dynamic in this whole picture of what we’re going to plant next year.
Laura Rance: [00:13:02] So let’s talk about that a bit, I mean, there’s certainly reports of a lot of residual nitrogen out there because the crops didn’t make use of it this year. But when you look at the crop by crop base, I mean is fertilizer prices like wood fertilizer prices alone be enough to talk farmers in or out of growing a specific crop.
Bruce Burnett: [00:13:26] Well, I think again, it comes down to risk and especially in these areas that are still dry or where you’re worried about dryness, lack of subsoil moisture, whatever. Certainly putting additional inputs into next year’s crop, you’re going to think twice about doing that. And I think that’s what we’ll see is in some of these drier areas, farmers will be a little bit more reluctant, maybe try to stage their nitrogen applications. In other words, I’ll put in some top dressing after I get the rain because I’m not putting it on on before. Again, that tends to be a bit more expensive, but it’s just one way of hedging your bets. And the other thing is that basically pulse prices are very, very good. So there are some alternate crops out there that certainly are probably going to be in favor because they’re not only at near record prices or record new crop prices at this time of year, but they also don’t require a lot of fertilizer input.
Mike Jubinville: I think I think this year, especially with the cost of fertilizer, the popularity and demand for soil tests will be as popular as getting a COVID test this year, I think.
Laura Rance: [00:14:47] Do you I mean, are some crops more nitrogen hungry than others? I mean, you mentioned pluse crops being something that obviously would require less inputs in the fertilizer department anyway. But could it cause a shift that, combined with the drought conditions, cause a shift, perhaps between some of the major crops? I mean, are we going to see as many soybeans in Manitoba, for example, this coming year, given the performance last year?
Bruce Burnett: [00:15:18] Yeah, look, I mean, soybeans are certainly an alternative here, and I think, you know, soybean prices are not nearly at the levels that we saw for canola. But on the other hand, in terms of input costs, it doesn’t cost nearly as much in terms of the fertilizer in order to grow soybeans. So that’s going to remain a viable alternative there. But there’s also some other crops that are very well priced barley oats that do not require as much nitrogen as, let’s say, wheat and canola do that are going to be very actively competing for acreage this year, especially in those northern growing areas where they tend to be more popular anyway. And they do have some moisture to start the year off, and there’s always going to be rotational limitations as to what the grower can do on their individual circumstances.
Mike Jubinville: But again, related to drought, you know, there’s these group two herbicide residuals that are in the ground right now. And we’ve already seen chemical companies come out and advise growers that if they’ve had less than, I think it’s 120 or 140 millimeters of precipitation over the course of the summer last year, advising not to grow crops like canola or durum on that land without adequate breakdown of those herbicides. So this will make for an interesting mix, depending on one’s location this year.
Laura Rance: [00:16:42] So what do you see happening? Do you see any major shifts at this point in terms of what the acreage numbers might shake out? Or is it just too early to say with pulse crops?
Bruce Burnett: [00:16:51] So in terms of pulse crops, because Canada, we are very tight on pulses. In Canada this year, we are a major supplier to the world market. And so I think that there’s certainly going to be very attractive pricing for pulses combined with this nitrogen cost issue. I think that leads to a higher pulse acreage. The question will be do we get enough pulse acreage to satisfy the demand for next year, which I think is a very good position to be in? What’s your take? And I can’t think of a commodity this year that doesn’t need acres, you know, it’s hard to think of ones where you need to cut from. So the I think it’s an interesting scenario it’s going to be building between now and seeding time, for sure.
Laura Rance: [00:17:47] So what kind of things are you talking to growers about now? I mean, you’re obviously getting some calls. I mean, is it acreage? Is it what the market prices are going to do in the near term? What what kinds of questions do they have on their minds?
Mike Jubinville: [00:18:03] Certainly right now, I think a lot of the focus still remains on on old crop. And I know we didn’t have a lot of volume to sell this year relative to historical perspective, but I think that that point is certainly there. I think the focus right now in the marketplace is on growing conditions in South America as taking a leadership role in driving markets to where they’re going now. But the discussion about new crop planting considerations is, you know, after we get through the holiday season and typically during crop production week in Saskatoon, this really starts to gain some real significant momentum trying to do the calculations as to what’s looking best for their what for their individual operations is really starting to gain some momentum. But I even look ahead and aside from whether we get enough moisture to theoretically produce an adequate crop next year, even with the high cost of just with the high cost of fertilizer issue. And if growers aren’t adequately covered, if they can’t get the enough supply for seed time, you know there’s a potential there for a yield penalty as well if we’re sort of cutting back on fertilizer usage for next year. So I look ahead to next year as one where even under, you know, reasonably good growing conditions and hopefully that’s what we see. I don’t see us digging out of this hole of tight supplies that we’re seeing on a lot of these commodities, at least from a western Canadian perspective, in just one year globally may be a different story, but at least from a western Canada point of view, we’re going to need another growing cycle, I think, to start to build to what I would consider burdensome carry outs and a lot of these commodities.
Laura Rance: [00:19:48] And Bruce, how much time do we have before the the before the lack of rain in South America is going to be a deal breaker for those crops?
Bruce Burnett: [00:20:01] Well, for those crops, the southern Brazil and Argentina are sort of in the next three weeks is going to be critical if they receive beneficial rainfall. If the weather cools down a bit, then we probably stabilize the yields there. I think there are some yield losses already baked in to both the corn and soybeans down there. And although those aren’t going to be enough by themselves, especially in light of the U.S. production this year to tighten the global supplies to a point where the prices have to go higher, I think certainly there’s very little reason for prices to move lower given that corn and soybean prices are going to. I would say, at least remain flat here if we get hot, dry conditions in that region and we see further deterioration. Certainly, prices will have to move higher for those commodities.
Laura Rance: [00:21:00] So is it just to wrap up here? Is it fair to characterize the current situation as a seller’s market for a western Canadian farmer if they can get a crop?
Bruce Burnett: [00:21:12] Yes, I would say so, as Mike pointed out, and it is true there are very few commodities that you can grow on land in western Canada that would not make money next year if we get adequate rainfall in June, July and early August. So I think again, this is one of those situations where if we can produce a good crop next year, prices are going to maintain be it still relatively high levels to what we would think is good, good pricing if you took out what the prices are from last year’s crop.
Mike Jubinville: The one caveat I just throw in there is that ultimately these markets top, you know, this is not the new norm to have twenty three twenty four dollars canola prices and $9 barley, and this is not normal for us and ultimately we are going to top whether it comes near term, longer term. We don’t know that yet, but certainly, I think for the time being, I think it’s too early for us to go into some sustained downtrend on all of these markets because there’s a lot of work to do to rebuild up inventory.
Laura Rance: [00:22:30] Well, thank you to both of you for joining me today. I. That’s all we have for you on this week’s Between the Rows, but we’ll be back again next week. I hope you’ll join us. And in the meantime, here’s hoping you don’t get bowled over by the latest wave. I’m Laura Rance.
Commercial: [00:23:06] I’ve been farming my whole life, and the one thing you can always count on is change. And now there’s a new generation of inoculates from Lallemand plant care. New engineered granules and Lal fixed spherical for pulses and soybeans that provide improved handling and accurate metering. New rhizobium and Lal fix pro yield that deliver improved nitrogen fixation and iron uptake in soybeans. I’ve seen a lot of change, but this Lallemand company? Well, this changes everything. Contact your Lallemand and sales representative today.
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