Canadian producers are starting the marketing year with strong equity positions, bin space, and cash to spare. The net result allows farmers to be reluctant sellers even in the face of bumper crops.
There is no question, after some concerns earlier in the year, that farmers will generate massive crops in Western Canada. This is especially true in the wheat and oilseed markets.
The challenge of traders this season is to reconcile the instinctive drive to reduce prices in the face of large crops with the unprecedented ability of producers to hold their selling price.
Crop quality is also excellent this year and production is virtually all in the bin. As traders, the quality makes executing shipping orders much easier, but it also has the effect of commoditizing the special crop markets and dropping margins even further.
These factors have brought some asymmetry to the market. On one hand, growers are still enjoying the confidence and yields to feel in control of their sales. On the other, traders are choosing to compete aggressively for market share in destination markets at levels below replacement cost.
It is not totally clear where markets will finally settle. The answer lies in how much stock producers are willing to hold into 2014 growing season. Futures markets of peas and lentils are pointing back to a more positive trend indicating growers will hold and demand will improve in the coming months. I think that stocks will eventually weigh to heavily on the market and we will see prices trend flat to negative in the coming months.
Have a great week.