2015 was a difficult year for commodities in general. So much so, that DTN's Top Ag Story of 2015 was titled Markets: High Supplies, Record Production, Low Prices, as written by Katie Micik. Micik mentioned that after bull markets such as experienced in 2012, it normally takes three years for prices to rebalance, while DTN Analyst Todd Hultman stated, "It's going to be a year of fighting tooth and nail. I think you're going to be scraping for nickels and dimes, and not getting big opportunities unless weather has some kind of surprise."
Over the past 12 months, hard red spring wheat futures dropped $1.29 per bushel, or 20.7%, from the Dec. 31 2014 close of the nearby March contract to the Dec.31 2015 close on the same contract. Canadian producers were largely sheltered from the move, given Canadian dollar weakness against the U.S. dollar, with the average CWRS cash price on the Prairies based on available internet quotes rising roughly 45 cents to $6.20/bu or $227.81 per metric ton, based on today's close.
The Dec. 31 2014 close for March canola on the continuous active chart was $439.80/mt, while today's 2015 close was found at $486.50/mt, $46.70/mt or 10.6% higher. This came despite surprising prior-year adjustments reported by Statistics Canada which substantially boosted prior-year production along with a 2015 crop which was much higher than expected at 17.2 mmt. The average prairie basis was reported at roughly $23.50/mt under the March this time last year while was calculated at $30.10/mt under on Wednesday, suggesting an overall approximate increase in cash price of $40.10/mt to $456.40/mt or $10.35/bu.
Crude oil sank roughly 30.4% over the past year, as indicated on the continuous active chart. On a Macleans magazine list of 50 of the most important charts for the Canadian economy for 2016, falling crude prices was reported first, while a headline in the Dec. 31 Calgary Herald, titled 2015: A Year Best Forgotten, focused on the pain felt in Canada's markets. A growing global supply glut has many expecting even lower prices, while the most recent low of $33.98/bu on the continuous chart is already the lowest level traded since February 2009.
Lower crude means a lower Canadian dollar, which is supportive for Canadian grain basis levels. Over the past year, the Canadian dollar has fallen approximately 15.9% since the Dec. 31 close at $.8597 CAD/USD. Well-known economist David Rosenberg suggests that while there used to be an 80% correlation between the Canadian dollar and crude oil, this correlation is now at 94%. Where the loonie is going may depend on your outlook for crude, with some economists suggesting that the Canadian dollar is currently bottoming while others are suggesting a further potential move to $.68 CAD/USD. Previous work in this space has pointed to range of potential support ranging from $.7030 to $.7135 CAD/USD, as seen on the continuous monthly chart.
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Row crops also drifted lower over the course of the calendar year, with soybeans falling 15.6% or $1.59/bu since the Dec. 31 2014 close, while corn prices drifted 38 1/4 cents or 9.6% lower. Once again, Canadian producers were insulated by the depreciation in the Canadian dollar over the course of the year.
One bright spot for Canadian producer prices was seen in pulse crops such as dry peas and lentils. Since Dec. 31, No. 2 or better yellow peas have increased $3.87/bu or 54.4% while No. 1 large green lentils have sky-rocketed 28.31 cents/lb or 77.8% to 64.72 cent/lb delivered to Saskatchewan plants, with back-to-back droughts in India pushing prices to record levels while movement remains at a flat-out pace.
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Cliff Jamieson can be reached at email@example.com
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