Episode Transcript
[00:00:00] Speaker A: Welcome to episode number 43 of the what the Futures podcast.
I got a doozy for you this week. We are going to talk to Kyle Sinclair about China. Everybody wants to talk about China and canola and this and that.
Everyone's got some type of opinion.
But you know what? Nobody actually has strategy out there for you or I haven't seen any talk about strategy. So that's what we're going to get into here. In episode 43, you guys farm in western Canada. You have a canola crop to market with all this crap going on around you.
Let's get after it. Episode number 43 of the what the Futures podcast.
Hey, folks, welcome to the what the Futures podcast, where we break down complex market trends into simple, actionable advice. It's your quick guide to better farming decisions.
Kyle with producer profit. Back on what the Futures podcast.
I want to ask you how your week's going, but we're going to figure it out because you're on the show here to talk about this latest jab from China and the impact to the, to the canola market. So I guess, you know, how is your week going, Kyle? I guess we could talk about it.
[00:01:31] Speaker B: But, yeah, you know something? It's okay. I mean, China's bombshell coming out certainly didn't make anybody happy, I don't think. And of course, they timed it really well. Markets closed for us. Labor Day long weekend.
If you have a trade running, you can't call your broker because it came out at, I think, 1010 o'clock at night, Alberta time.
So, you know, it really, it was well timed. And, I mean, some differences, too, because you look at, you know, 2019, that happened in March when they restricted exports last time. And that was more of a, you know, a bit of a function where they went after, obviously, Vitara Richardson, Pioneer, and we lost some export there, but it's not at the start of harvest either. And insult to injury, we just finished the rail situation. You know, we're just getting to catch your breath, maybe have some optimistic feelings about price action. It's climbing. It's over 600. And then all of a sudden, China's like, hold my beer. We got a surprise for you. So, yeah, I mean, I already warned you, but you look at it and it's like, wow, this is a go to for China. Every time. Politically, we go after something with them, they go after canola. And for the life of me, I wish they would recognize that this does not impact the voting base of the person leading the country because it's blue across the prairie. So I mean, it's, in a way, it still falls on the federal government even though they're following along with the deal, the new NAFTA deal, that, of course, came into effect under the first Trump administration, but the liberal government had negotiated that. And so they're in lockstep with policies that the US puts forward and kind of forced into that. And it really, I mean, whats the benefit for Canada here? Because its largely Tesla thats going to be coming in from China.
Theyre a $665 billion company. So I was looking up EV data here today, and I think the other companies, if you add them all together, maybe are 15% of the market share versus Tesla.
Essentially. This has very little impact.
Canada's action here has very little impact on China's Tesla or, sorry, EV market. Aside from Tesla, it's going to obviously hammer the GDP of Canada. $5 billion worth of canola exports is what we're looking at crippling here. And something, the shock value of it, I think we saw yesterday with the trade action, massive push down in the overnight session limit down the market recovers ends above 590, which for me is one of the support levels in the market. So I was actually encouraged by that.
[00:04:27] Speaker A: I was proud of canola at the end of the day yesterday. Good for you, canola.
[00:04:31] Speaker B: Keep going, little guy. So fighting off the big monster there. But I think that still sums up a bit of the outlook overall, even with this headline. Is it really as dark and gloomy as it comes off on at the initial reaction? Right.
Obviously the initial shock is, oh my gosh, we just lost our biggest buyer of canola. And last year they bought about 4 million tons of canola from Canada, at least according to Reuters data. So I think it was 4.04 million metric tons is what I had written down.
They're off to a tremendous start through August. My data suggests we've moved about 768,000 tons of canola in August. If they're going to put something in place, it probably won't be until October 1, which matches when the EV tariffs would go on as well. And so if that's the scenario, I would suggest we're going to move maybe another 250,000 tons. I think that's a low estimate and a safe estimate to China in that timeframe. So there's a million tons that we've moved in this marketing year. Right. So thats 25% of last years canola that we sold the tram. Okay. So we have to find if we just wanted to keep things the same, we have to find a way to move 3 million tons of canola if China all of a sudden decided that they werent going to take any more from us, which is also unlikely when you look back at the data. So I think that at its face value, the snap reaction to the trade or by the trade was Canada just lost $5 billion of exports of its number one commodity. Not the case, I don't think. I think the United Arab Emirates are going to pick up a bunch of canadian exports as well. And that's the way we always seem to rework it whenever China gets mad at us.
[00:06:18] Speaker A: Are you saying we have a playbook here, Kyle?
[00:06:20] Speaker B: I think we've seen it before.
I think we can.
Once you've seen it, the roadmap is there. So yeah, we're going to go to UAE. And Europe needs a million tons more of oil seeds this year as well.
[00:06:35] Speaker A: Because they are production.
[00:06:36] Speaker B: So there's an extra million tons we could pick up.
So, I mean, between the higher export pace that we've seen to start the year to China, Europe's needs, the additional crush demand that's supposed to come on locally, which is about a million tons whether or not it happens or not, and then still massaging some exports through the United bear of Emirates, youve got the workings here where this isnt an issue. Were at the same spot we were last year as far as demand goes, I would argue, im not sure what youve heard from growers that you talk to.
[00:07:13] Speaker A: Were going to talk about it, Kyle.
[00:07:14] Speaker B: I would argue that yield is down.
If yields going to be down as well, where are we at on a balance sheet? I was digging through that. And depending on the data that you look at, a lot of it, a lot of it really matters where you think the ending stocks are for the last year, beginning stocks for this year. And there's a lot of debate about that. I have Reuters data suggesting 1.49 million metric tons. I've heard as high as three.
I think the World Agriculture Outlook Board, which is the USDA, is right around 2 million metric tons, wherever you think that number starts us at. But curious, do you think that there's more canola this year in Canada than there was last year?
[00:07:58] Speaker A: All right, let's move over now to the what's cool in crop marketing segment, which the last couple of weeks hasn't been that cool. But I have a hodgepodge of things to talk about today. First thing I want to cover off here, Kyle. In this episode, we talk about the harvest rally as well.
But along with this little bump in futures, which is not that exciting. We hit a low. We rallied $0.60. But we were here, you know, a month or so ago. It's not that exciting.
But when you add that in with these hungry buyers, and I talked about it last week as well, but you start. You're getting some phone calls. There's movement in most areas.
Buyers are trying to work the phones, trying to get some stuff bought. Like, they're actually working, you know, a little bit harder right now.
It starts to set up a bit more positivity towards some higher prices later on this winter, in my opinion. Okay, I don't have a crystal ball, but when. When I see that the buyers have to work as hard as they are. And in your backyards now, you're seeing multiple companies with multiple. I don't know. I hate calling them specials. That word is just overd, overused in western canadian agriculture.
Just park it. But, you know, these companies don't have very much bought, which, again, makes me sad. I talked about that a couple weeks ago. Right.
You know, you stared down eight to nine dollar wheat and said, no, thank you. Right. That stings. But now it's starting to come.
But they do have capacity to buy. Basis levels are still terrible, but they're starting to get better. And I think that continues. We're gonna see more of that. And this futures rally starting to show a little bit of life. Now, am I sitting here, sitting on my hand saying, I'm not selling a darn thing here, I'm gonna lock up the bins? New. I'm not saying that at all.
But, you know, hey, like in my. In my, you know, at the farm, we were quoted 634 bushel for number 113. Five last week, or 630, whatever it was, it was in that range, 630 something. And then today it was 730 something. Right. So combination of futures and basis, and within a week, you know. And again, are we excited about 730 something new? It's below the cost of production. But, hey, it's coming. It's coming the right direction.
Protein spreads. No update on protein spreads for this week. That's my bad. I actually didn't double check that before recording, so I will try to get that done for. For next week. Still seeing a lot of high protein wheat come in, though. So I'm assuming premiums have not improved and discounts have gotten better, if anything. But that is an assumption. Okay.
Uh, the other thing cool in crop marketing is we're starting to see oat prices climb, specifically in Alberta.
I talked about this, that in portions of the prairies. Brittany and I talked about this, but you might start to see some premiums, you know, if the areas with light bushel oats or poor malt, malt quality lately is not, not stellar out there either. So starting to see the oat market. Wake up. We saw sweetgrass out of linden.
They gained forty cents a bushel from last week to this week. Richardson pioneer bids, I think they gained $0.60 here as well. The old markets are starting wake up a little bit because there is a lot of light oats out there. So that's kind of cool that prices are smartening up. Mo Barley just continuing their, you know, the maltsters out there, they're not like threat level midnight concerned from what I can reading between the tea leaves, you know, but, but there's just not as much malt quality out there. Doesn't seem to be compared to the last couple of years. All right. So we'll see, we'll see what that does for price. But it doesn't make me bearish malt barley prices. In fact, turning just a little bit more bullish on malt. And, you know, we'll definitely see where that goes.
Okay. Now here's a really cool arbitrage opportunity. All right. So green peas. Green peas. It's rally time in green peas. I, I'll get chuck on to talk about it at some point in the near future because I don't quite understand where the demand is coming from here to buy these green peas.
But back in Saskatchewan, they're at $15 a bushel. Again, portions of Alberta still at 14.
But here's a neat story, and this is what I, if you have something that's off spec in your area.
[00:13:01] Speaker B: It.
[00:13:02] Speaker A: Might be looked at negatively in your area, but then you go two, three, four, 6 hours outside of your region where they don't have that issue and it doesn't look that bad. So my example, high bleach, green peas, highway two corridor in central Alberta, disaster green peas, high bleach, big discounts, major concerns, 10% bleach. You know, they want to discount five, $6 a bushel, take it down to seven, $8. All right.
You take that exact same p and go into central Saskatchewan.
Can you guess what the discount is?
You got it. You got it in your head that grower is going to get 13 to 1350 for those peas.
I can move peas a long way for that difference in price. And so it's, it's, it's oats, it's malt, it's, you know, green peas, apparently, you know, light wheat. But take a look at this stuff, folks, because, yeah, you might go deliver grain somewhere you've never delivered before. You might haul it across a border or something. But, you know, this is opportunities for you guys to consider if you're in one of these situations. Like the guy, when I called the guy back, I'm like, hey, you ship them down there, they're going to pay you like, 13 and a half. He was like, what? Like, I got offered seven. I'm like, yeah, it's not a problem over there. Doesn't seem to be a problem. So, hey, so my carryover number has been on the higher side. I've been talking about, you know, upwards of 3 million tons.
But you got to remember that that's at the end of July and what, you know, what happened or what's happened in, in August here.
I.
This is probably not going to be the most popular opinion out there, but canola yields, when I talk to growers in the early part of their canola harvest, yields are down compared to average, a minimum of 20%.
Okay.
Somebody listening to this might say, ah, mine's not that bad, or, mine's better. Um, but there's actually quite a few more producers that report have been reporting their yields lower than that. Like 30% lower than average. Okay.
[00:15:37] Speaker B: Right.
[00:15:38] Speaker A: We got a lot of canola to harvest, but I'm in the camp of, like, an 18 million ton production number, and I might even be a touch high as well. It could be a little bit lower than that, I would say. So I don't know if we're between 20 and 21 million tons, but I think that 21 would be a little bit higher year over year. If I remember correctly, once you add.
[00:16:04] Speaker B: In the carry out is what you're going to say.
[00:16:06] Speaker A: Yeah, but if I'm a little bit, you know, high on my yield expectation, then all of a sudden we're dealing with maybe a very similar crop. And if the carry out number.
You know, I don't have a carry out board in the. In the studio here, but if it is two or 1.5, well, then we're talking about 10% less crop. So I guess if I. If you had to, like, hold my feet to the fire and say, we're dealing with an even crop, in my opinion, even crop with additional demand coming out of Europe is how I would call it, china baloney.
[00:16:44] Speaker B: Sure. Yeah, I would agree.
The debate, I mean, its going to be maybe 500,000 to a million times difference between what those carry out stocks look like, I think in the argument side, but I do think outside of whatever this fallout is with China here, I think that youre going to still get enough demand coming into the market to absorb what were doing. And I agree.
In my mind, Im thinking were somewhere in the 17 million metric ton mark for production this year. So add in the carry a number that you think you need to add in. But you do that and you figure, okay, if crush demand is going to be eleven, five or 12 million tons, that doesnt leave a lot of exports available anyway, depending on how the yield comes in, how big of a deal is it? The trade's certainly taken its boots to it a little bit. I have been watching the european rape seed spread quite closely. What do you see there?
I dug back to 2019 as well because I wanted to compare it to that as well a bit.
In 2019, I think we were trading around that $60 to $80 ton spread before China came in with the restrictions that point. Then we widened out to about 90 to 100 on average. I think the biggest it got to was about 135. But that was the end of a contract month and you get some synthetic price action. So im not sure id read a ton into that. But if were talking, we added a $20 a ton discount, well call it to canadian canola to be able to maintain market share. I would say that were all, weve already done that dollar 80 a ton is the number that ive been using this year as a relative spread to maintain global competitiveness for canola.
We were very close to that. Before China dropped the bombshell on Monday, I think we were $84 a ton spread. And so now we're at $115 a ton, 119, sorry, today.
And the market's kind of widening out right now. Similarly, when rail was coming to a complete halt, we also were sitting around $120 ton spread. And then all of a sudden that ended and canola shot up and narrowed that range again.
The takeaway from that, I think, is that the trade, how much lower can it push the price before it's already cheap enough? I don't think it needs to get wind out further. I think there's already enough demand in the market to maintain a bit of a floor underneath the canola values, or you're going to run into a farm that tries to sell everything else but canola in a way. So you're going to shift other commodities rather than give something away. That's one of the most expensive, if not the most expensive crop to grow.
The other thing that I would note too.
Just while we're throwing all the data at the board and seeing what sticks is in 2019, we fell just under 7% in about a month period. It wasn't as volatile as it is now. And yesterday we fell.
[00:19:53] Speaker A: I was looking at that chart.
[00:19:54] Speaker B: Yeah, yeah.
[00:19:55] Speaker A: I was looking at that chart. I'm like, oh, yeah, we were trading like, wasn't like 490 or 470 the high back then. In 2019, it fell to like 430 or something.
[00:20:06] Speaker B: Yeah, it was, it was like a $15 day maybe, right? And that rocked the world. And yesterday was $45. That was a little more. I'm glad we didn't end with expanded limits is where I'm at. So that could have made me a little bit more nervous.
[00:20:21] Speaker A: Kyle, are we going to survive? Western canadian farmers listening into the podcast here, are we going to get through this, man?
[00:20:30] Speaker B: We're going to get through it. We're going to find export lanes. I think that with the price down where it's at, if we keep a wide spread, you're just going to attract buyers that maybe we haven't sold to since the last time China punished us for the federal government's actions.
You could see your exports pick up to Japan. We're going to gain some market share into Europe. Mexico can become our friend again. Right. You're going to find different ways to still move the commodity because the value is low enough to substitute for something else that they would have bought. So, I mean, obviously the soybean crop in the states and the saturation of the market that could come from that could become a bit more of a problem. But for right now, theres some weather concerns kicking in there that maybe take the top end off the yield and chatter about that. But you could make the argument that soybeans are also cheap enough right now because theyre seeing really strong demand over there. So I feel like were witnessing bottoms forming on markets.
Certainly the wheat side seems to be quite happy right now, but when it comes to canola, how much more can you drop this market that farms will be willing to sell into, especially if theyre yields? If were saying that yields are down 20% on average, which ive talked to growers across Alberta and I mean, not a lot of guys have started on canola, right? So probably the best crops are still to come off.
[00:21:58] Speaker A: Exactly. The early stuff in every crop here has been the poorer stuff, right? Yeah, yeah, yeah.
[00:22:05] Speaker B: So maybe it gets better, but there's areas. The problem for me when I look at it is the areas that are going early are big producing areas. It's not like the desert areas of Alberta that a big crop for them is 30 bushels an acre. It's the guys that typically shoot for sixties and seventies if they can. They're the ones rolling right now. And your production is coming in at 30. So you've lost 50% in those areas. So we're being generous at only knocking 20% off currently. So that to me, how do you sell that?
[00:22:40] Speaker A: That 30 or 40 or whatever it is or whatever crop bushel weights are super light too, across the prairie. So like, you know, at the end of the day there's.
[00:22:53] Speaker B: Yeah.
[00:22:53] Speaker A: You know how you know like that when you have a really heavy crop and you get it all delivered and you're like, wow, that was a pleasant surprise. Like we ended up having more than we thought.
2024 crop is going to be the opposite. Where you think, hey, like, I know, like I'm grilling my dad on this all the time on yields because I'm like, hey man, is it a true 30 or is it 30? But it's a little bit light and it's going to come in less at the end of the year.
[00:23:19] Speaker B: So yeah, it's a bad year for the farm to switch to tons instead of bushels for calculations.
[00:23:27] Speaker A: Alright, folks, for housekeeping this week, just a couple of things. Nothing too, too major here, but song of the week from the YouTube music playlist. The what? The futures hashtag harvest 24 playlist. I'm going with can't you see the live version by the Marshall Tucker Band? This is a absolute fantastic song. I listen to it all the time. That is my song of the week. My other housekeeping item, just in regards to the making crop marketing cool conference here in Drumheller, I had like a clear thought or maybe an epiphany.
Anyways, I, I wanted to say this out loud because I got an email from Sarah in Manitoba. I got a text message from Tom in Lloyd Minster. I got a message from Ryan in two hills. Oh, and what's that other guy that messaged me this week as well? Anyway, him and Ryan are buddies. People are getting excited about this conference and want more details, which is pretty cool for me to see that excitement. So keep it coming. Message me, let me know that you're interested.
Who knows where it goes from a numbers perspective, but I'm excited to be putting this on.
So my, my, my thought that I wanted to get out there. To those listening, this conference is not. It's not about market outlooks.
Okay?
Now we have Chuck Penner with left field commodities joining us at the conference. We got him locked down. We got a few others locked down as well, though. The agenda is taking, it's going from, you know, liquid form to something tangible here. Like it is evolving and happening, which is great.
But this conference, like when I do a presentation, I tell people at the end, hey, you know, mic drop, by the way, this information could be stale the moment I step off this stage or the moment I walk out the door or by tomorrow morning. Market outlooks, they change and they change quickly and they change all the time.
So this conference is about you getting some knowledge, tools, confidence, maybe a bit of a playbook to go and execute your crop marketing plan regardless of market outlook because they're going to change. And I can't call you up two weeks after the conference and say, hey, hey, hey, remember that? All we had? Well, it changed and this is how it changed. So you got to adjust your plan. We were going to give you the tools to create the plan regardless of outlook. Now we have a little bit of outlook, like with Chuck coming on specialty crops, like that's important. I think some of the crops that you can't hedge, some of the smaller crops where production can really swing, like that's super important. So I'm excited to have Chuck come and do that.
But you're not going to sit there and hear ten market outlooks because they change all the time. And you could have five of us go do a market outlook and tell you five different things about the same commodity, or three of us will say something different, like it's the way it goes. So I want to arm you with those tools and I hope that makes sense. I don't know if I have to say that out loud or not, but I wanted to venues kind of booked now. We seem to have that figured out. Hotels seem to be booked.
Yeah, it's coming along, folks. It's coming along hopefully by the end of September. That is the goal. Have the agenda out and get us rocking and rolling here. So that's it for housekeeping this week. Let's move along.
All right. Positive moments of the week here. Just a couple for this week, both life events.
But our daughter Willa started her second go round of preschool. She started when she was just under three last year, her first year of preschool. This kid loves reading, loves books, loves people, high energy. And so she did preschool last year, starting her second year this year. So we went to do drop off here Wednesday morning. It was the first day of preschool. And by the way, the only thing I have to do this year for preschool is just volunteer in class. So I think I signed up for Halloween. And, yeah, a couple days here, we volunteer every couple times a month to help out in classes. So it's a hoot. It's a great time.
So. So anyways, this morning, of course, we were taking, like, family pictures as well. Like, not like serious family pictures, but, like, hey, first day of school, you see them. Everyone's taking them. They're great.
My wife, I come downstairs, and my wife looks at me, and she's like, that's what you're wearing?
I was like, uh, yeah. I don't know. I thought so. I guess not.
She's like, yeah, you know, go. Go change. Wear something a little better. We're taking our kid to school here. Like, let's go. So, anyways, I thought that was pretty funny. But anyways, preschool, we did drop off, of course, Willa, this is her second year. There's a few of them in the class that are second year. And so she's. She's got to figure it out. She's guiding the other ones. I don't know. It was great. Nice to get into some routine as well. And, of course, school starts. Will is doing irish dance. That starts. Finn is doing. I keep saying aerobics. It's not aerobics. It is gymnastics. Finn starts gymnastics as well. And we're just kind of getting into the groove here, and it's a lot of fun. Beginning of September, a great time. My second positive moment, I talked about golf last week. I was going to do my first round of golf, and I did my first round of golf of the year. And our team ties were, like, in a head to head competition with another team. We end up tying after the 18 holes. We have to go do a playoff. Number one, I sink like a six foot putt to get us into the playoff. Okay? And then I'm not a. Like, I'm not a good golfer. Those that have golfed with me know, like, hey, I can hit a lucky shot from time to time, but I'm not great. Anyways, on the playoff, they have, like, a four foot putt to make, and we have a 30 to 40 foot putt to make. We have to make this putt. They make their putt. We have to make our putt right, and we get to go first. Anyways, my team first. One, two, three. They go. They all missed. And I've got this goofy putter, this hockey stick thing, oiler hockey stick putter thing that everyone kind of makes fun of. And the tournament's done, so there's. Everyone's around the green, and everyone's getting quiet, and I just have this moment where I'm like, okay, like, happy Gilmore style. Like, let's go. Like, let's get loud here. Like, let's have some fun with it because nobody. Nobody thinks. I don't even think I'm gonna sink this darn thing. Nobody thinks I'm gonna get close to it. And I'm just having fun with it because I'm like, there's no way I'm gonna do this.
Lo and behold, in front of everybody, cameras on, loud cheering. I sink the pot shot of golf. Shot of my life in front of everybody with, I don't know. There was. Didn't feel like pressure, but I guess pressure, right? And I sink it. We went to a second playoff, and we end up losing. But anyways, it was great time at a. A really fun time out there golfing at the nation open.
All right, what else do we have for positive moments?
Like, I'll say, I don't want to jinx things on the farm here, but harvest is chugging along in, like, north central Saskatchewan at the farm. And, yep, the guys are having a nice little run right now, and I. It's. It's going well. So, you know, fingers crossed, knock on wood, to keep that going. So that's been pretty positive here as well.
We're gonna, you know, I'm with you on, on, you know, surviving this. Like, I think there's. Depending on your cash flow needs as a grower and your movement plan, you know, you may need to take some action here. You know, if you're like, hey, I'm on October, mover of canola. Like, what do I do? You know, I think someone, you know, in those scenarios are going to take action. Um, I do want to mention, though, I haven't had a discussion with Cargill, but the growers that I talked to in the regina area, you know, that crush plant is, uh, you know, on track to start, um, you know, getting the kinks out next summer. And they're fully booking for. For fall. So you know how they do it. You know, they get the kinks out in the late spring, early summer, and then all of a sudden, they're like, yeah, things are good. Let's get going. And so things look good there. Not sure how to Yorkton, what the latest is out of those expansions there, but that's something I could dig into as well. But I know some of the other analysts have added a million ish tons of crush. So that's certainly going to help.
What else I want to add in there?
Do you have any, you know, any strategy that you'd be willing to share or, or even the conversations you've been having with your clients? Like.
[00:33:13] Speaker B: Yeah, interesting, because, like, the, the question right now, I think, on everybody's mind is, well, we just saw 620 and, you know, was that the best that we're going to see?
How big of an impact is this going to have? I think the question for the farm becomes a, how long of a timeframe do you have that you can hang on before you need to make these sales? Right? Because it could make a huge difference. I mean, I know we want to focus on canola, but even on the wheat side, talking to farms about that, and it's like, okay, so if we're going to move wheat or canola, obviously wheat's coming off first. So if we're trying to create cash flow or bin space, and we consider Wheatley, you know, wheat today closed above resistance level and looks like it. It's poised maybe another. I know, crazy. Hey, looks like it's poised to maybe run for another $20 to $0.30 before it runs into the next ceiling. And so sometimes these decisions, and it seems, I'm pretty sure for the farm, it's like shoving nails on, like a sliver underneath your nail kind of thing. Like, I don't think it's pleasurable at all. And farms are certainly concerned about being able to move crop and getting cash flow and hopefully making some level of a profit or limiting losses.
It's painful right now because you're sitting on your hands waiting and you get rocked by some of these headlines coming out.
I don't think that the wheat market is necessarily going to rock everybody's narrative here and go through the roof, but I wouldn't be surprised to see another. I think we've gained $0.60 from the bottom here right now. I wouldn't be surprised to see another $40 to $0.60 come into the market.
But when it comes to those considerations, the farm wants to know, okay, should I do it right now? And you have to remember that, heck, even a week to ten days in this market could change everything. As far as your outlook goes. The rail stoppage ends, canola shoots up. We had, what, five, six trading sessions, and we gained over a dollar a bushel in value. And I mean, even wheat right now climbing significantly for the last. Well, small steps, baby. Stairs up, elevator down, right where you're getting those baby steps going in and all of a sudden you're like, hey, we've gained, I think, $0.60 here. I'm not 100% certain on that, but I think we've gained $0.60 from the floor. So all of a sudden things aren't looking so bad. But now it becomes, is it worth waiting another five days? And the basis levels are horrific. I know you and I have been lamenting that for quite a while. It's absolutely, it's terrible. And I do think that those are going to get better and they have been getting better.
Before the China news came out, I know there was some buyers that were ticking around the idea of a -15 basis on canola. And so for farmers, I think that are wickedly in a crunch right now. If you can get, and I mean, you have to fight for that basis. Thats the way it is right now. But if you can get something in that -15 range, I think the buyers are underbought because farms didnt like the prices and they wanted better. But then they were also concerned about the production that they were going to have in the field coming off, certainly in Alberta, certainly in central Alberta.
So it slowed sales. And so with that, the buyers also didnt get as much volume as theyre used to. Whos going to win that standoff? Is the farm going to have to blink first and pull the pin or is the buyer going to start to give an incentive as guys rolling through harvest here? So I think a -15 on canola is what I would be targeting.
[00:36:56] Speaker A: Preston, incentives are happening and evolving in many areas. And I mentioned this last week on the podcast, I had a buyer reach out to me that said, hey, were looking to expand market share and ive got some money to spend. And I was like, wait a minute, is this like 22,009 or something? Like, what's happening here?
[00:37:19] Speaker B: Where did this come from?
[00:37:21] Speaker A: Yeah, so I hadn't heard that in a long time. And then today in my backyard here outside of Edmonton, Cargill Cameros looking for wheat. Patterson Dazeland looking for wheat.
Guys, it's harvest time. It shouldn't be that hard to find wheat, but here we are. And even, you know, in the farm in Saskatchewan as well, like we're, we're getting, well, not even we're getting, we're delivering our September week contracts right now. And they said, when the train comes, just keep going. And I was like, that's not September anymore. They're like, don't worry about it. Just keep the trucks going and. Yeah, all right. Like, that's stuff we sold a long time ago.
[00:38:07] Speaker B: So interesting because, you know, rail stopped for a day or two, maybe it, you know, depending on the line, a day or two, which, theoretically is supposed to take us, what, two weeks to recover from, but, yeah, two weeks for every.
[00:38:18] Speaker A: Every day. Yeah, yeah, yeah, yeah. So we've, we've, we've got the harvest rally on, which, if anyone's been listening to the show, it was talked about when we were at pioneer seeds at that meeting. It was highlighted in there. It's been highlighted on this show a couple of times. And again, we're not telling everybody that, you know, the bowls out of the. I took the bowl off the shelf for you today, Kyle. The bowls out of the kitchen at all, whatever. Out of the, out of the corral. But, you know, like, there's. Yeah, this is pretty normal for this to happen. And here we are, a little spike in the wheat market.
All right. So I think that covers most of it.
I think what, again, I'd like to just remind farmers tuning in across the prairies is that this playbook's getting a little bit tired. Like, we, we've seen this before. Like, this isn't the.
I don't know if you remember this, the flax situation. And, like, man, I was buying grain at the time. Was it 2008? What's the. Oh, I'm going to butcher this. But there was something in the flax, and I'm sure it was china, and they stopped taking flax, like, completely. So a small acre crop with small volume from a large buyer. I want to say it was, like, trifid or. I can't remember. I'm sure someone listening will be like, dude, you're totally off. This is what it was, and this is what happened. Email me. Ryan. Whatthefuturespodcast ca so we've seen this happen, and that was actually quite devastating. I remember we were buying flats and we had, like, bins of flax in the elevator, and we couldn't do anything with them. They were just there for a long time.
But this is getting a little bit tired. Farmers, there are ways to navigate this and panic. It's not one of those ways.
Again, go back to your cash flow, your movement, your cash flow. How does that look? And, you know, time might be very important here. As harvest continues, as yields come in, what happens? The stats can. The first week of December, printed a 17 million ton crop down from a 19 and a half.
Right.
[00:40:43] Speaker B: That's a big. That'd be a big change, especially go from a satellite image to real numbers, you know?
[00:40:51] Speaker A: Yes, yes. I won't go down that.
[00:40:54] Speaker B: Not a fan of that. But anyway.
[00:40:55] Speaker A: Yeah, yeah, exactly. So we've been here before.
[00:41:01] Speaker B: Well, like tying into. We've been here before. Yeah, we got this situation. We had 2019. Was it 2017? Maybe we had black leg issue. I can't remember. I think it was, yeah, there was.
[00:41:13] Speaker A: A black leg thing, like black leg.
[00:41:15] Speaker B: Issue where they kind of went after us and that spiked the canola market lower. Like there's, it's, it's the political go to for China to go after canola exports.
And I think we've, once you've seen it a few times, the trade knows how to rework the trade flow to reduce the hiccup and the delay of resuming normal exports. Right. It'll still find its way to China. We'll just do it differently. And I was ahead of this, joining the show here I was looking at, there was an article talking about the trade war with China and the US and the potential for that happening again here.
And even in that article they highlight how when the US slammed China with a bunch of tariffs, China just found a workaround where it went through Mexico or whatever.
It's almost like this is the standard when tariffs go on, you're still going to find a way into that country. You just might have to pay a little bit more for freight to get it there.
[00:42:15] Speaker A: Do you remember the whole yellow pea thing back in. Yeah. With India and we were looking, I'm sure you.
[00:42:25] Speaker B: Was that agritrade and red deer. I'm pretty sure when that came out.
[00:42:30] Speaker A: I can't remember, but I just remember looking at the stats and it was like, Bangladesh imports went up like 1000% and TNT, it was down to nothing. And I was like, they share a border. Okay, I get it. Okay.
[00:42:43] Speaker B: I understand where it's going exactly.
[00:42:46] Speaker A: Yeah. So again, folks, you know, time here, if you have some time, that's probably the best thing for you right now. And if you don't, there are strategies there for you to consider. Kyle, last time you were on, you talked about the triple play strategy.
[00:43:02] Speaker B: Right.
[00:43:02] Speaker A: And I got an email from a list there and they said, hey, that was really cool.
Could Kyle just go through it one more time? So I don't know if I didn't prepare you for this, but could you go over the triple play one more time?
[00:43:18] Speaker B: I can, and I don't have the exact numbers in front of me, but I'll go through the concept of it and the functionality for it, for the farm. And it's predominantly for us with clients that we work with. It's a strategy that we use usually during the summer, usually when it's risky to sell high volume off the farm because you don't know what it is.
I wouldn't necessarily be looking at that strategy now just because farms are so close to harvest, that once we get it, we can sell it and we can wait to reposition up or down whatever we feel like. But essentially, how we work the triple play is you evaluate your market and you figure out where the top end of the range is. Now, I viewed that as 700 this year on canola. You could start doing it at six. I think in that presentation, we considered doing it between 660 and 680 a ton.
And the three key pieces? Well, there's three pieces, and one of them, to me, is more important or more significant than the other two. Now, the first piece is sell whatever percentage you're comfortable selling a physical production into your buyer, whoever that favorite buyer is, sell that volume to them. Now, that's locked in, it's committed. You're going to have to come up with that one way or the other. And so, typically, for a farm that's maybe a little risk adverse, that's going to be. Maybe that's 25% of your production, we'll say, and we have to come up with 25% of production, but it's only 25% of production. We're probably going to be okay filling that contract.
That starts your floor price.
Then what you would do is you would go into the market. Now, theoretically, this is all happening at the same time, because all three pieces are a sell. In a way, you're betting the market's going to go down.
What you're going to do then is you would go and you'd buy a put option. Now, depending on how volatile the market is, will determine how expensive that put option is going to be for you.
In this example, let's say it's going to cost you a buck a bushel to do it. Now it's $45 a ton. So now you're going to lower your floor by a dollar a bushel for a break even point. But now, if you've done equal volume, now you have essentially, if that was 25% that you did to the physical sale, and then you bought 25% of your production on puts, now you're 50% price protected with a floor price that's $0.50 off of wherever you sold it, because of how that averages out.
Not bad. Farms 50% protected and great. The problem with just doing the first two parts, in my opinion, is that if the outlook changes, you've either wasted money on productions or you're going to have a bio on your canola. Theoretically, if you can't deliver it right because the market's going higher. And so this is where I think the kind of the, the gem of the whole strategy is with the outright futures position where youre shorting the market. So youre going to short it out. The money where you make your sale, the strike price for your put options. So youre going to short it there. Thats going to cost you much less than the options. But its going to tie up liquidity for the farm, but its not spent. I think thats the key thing for farms to understand.
Its going to, it's going to create. Now you've sold another 25%, now you're 75% price protected. Maybe it's costing you. The whole strategy is maybe lowers your floor price about twenty five cents a bushel or something like that.
And now you have 75% going down. You don't care if the market falls apart because you've eaten your veggies, as you like to say, you've done the work. Now, on the flip side of that, what happens, and this is where it really was awesome in 2022, right after the rally. Obviously, those prices unsustainable to maintain at those levels. So the expectation was that the market's going to fall off, but still very low ending stocks. We just came off terrible production.
What are we going to have for production this year that we were in the, the reason why that futures position becomes so important, I think for the farm is that if something happens, if something changes in that outlook, maybe it gets hot and dry through the entire month of July like this year or something. Right. And the canola market decides, and the canola market decides to go on a run as soon as it breaks through a predetermined level. So say we're talking 666 80 is where you want to do this strategy. If it breaks and closes above 700, maybe that's where the alarm bells go off for the farm of crap. I'm wrong on this strategy and I don't want to drag my price floor and take a massive loss on a short position and potentially have a higher buyout. So then at that point the farm would switch, would reverse that short position into a long.
And by doing that, the farm went from 75% price protected to now only 25% sold, if that makes sense, because the 25% that you were short on a futures position and switch into a long position now is either going to wash out the cost of a buyout on the physical volume that you sold to a buyer, or it's going to cancel out the put option that you spent money on.
[00:48:50] Speaker A: Yeah, I see that.
[00:48:51] Speaker B: That's the functionality of it, I guess, the components of it.
[00:48:57] Speaker A: Well, I appreciate you running through that one more time. And as Kyle said, you know, no one's endorsing that. You go out and execute this at the beginning of September 2024. This is a markets move. Things happen. There's seasonal things to consider. So just reach out to. It's Kyle ducerprofit.com dot.
[00:49:18] Speaker B: That's right.com. yep.
[00:49:19] Speaker A: Yeah. Reach out to Kyle if you need more specifics. All right, so, Kyle, I just want to end with this.
So my dad, he's got like a flagpole in his farmyard, right? And so what the future is, I think we did, like 50 flags last year and kind of spread them all over. They ended up. They're not. They're not big or anything, but he put it on the flagpole for me. You know, you're doing this. We're going to throw this out there in the center of the yard, right? Shows the center of attention.
Well, before that flag went up, he had a different flag up there.
And he sent me a text message this morning and he said, ryan, I apologize, but your flag is down. And I've got the old flag back up. And it's something that you see across western Canada quite a bit. It's got Trudeau's name on it. It's got a few other words on there as well. Not the friendliest words. And it is now in the center of the yard.
And I said, you know what, daddy? Uh, because we were long canola futures going into, uh, going into this week. And so I'm like, he cost you, uh, x amount of dollars here, dad. So, yeah, you raise your flag and. And, uh, let's. Let's give her so. Well.
[00:50:34] Speaker B: And, yeah, and plus side for your dad and everyone else that's kind of leaning that way politically. The big news today is the Ndp ending the supply confidence deal with the liberal government. So, yeah, maybe change is on the horizon.
I saw on social media there's a couple of funny posts where, boy, it's got to suck for Trudeau being divorced twice in one year. But I don't know. It does make me laugh and smile a little bit. It puts a little pep in the step. After China coming after canola, for sure. Yeah.
[00:51:06] Speaker A: Well, yeah, we're definitely tired of everything going on here. It's super frustrating. All right, man, anything else you want to add before we let you go?
[00:51:15] Speaker B: I don't think so. I think that. I think we covered things off. Always happy to come on. I appreciate the opportunity. And, yeah, if you guys have questions, feel free to reach out to me.
[00:51:23] Speaker A: Well, thanks for talking us off the ledge here and appreciate that, man. It's never fun in these environments, but there is hope, and we are going to get through this. So thanks, man. Have a good rest of your harvest.
[00:51:36] Speaker B: Thanks. You, too.
[00:51:40] Speaker A: All right, so the pioneer seeds mailbag is, it's a little bit light this week, and that's okay because we're still figuring out the next phase of giveaways here. Of course, we wrapped up the three gallon bucket cooler and the breakaway speaker. We gave away one, one per month here this summer.
So we got that kind of wrapped up for now. And stay tuned for the, for the next round of giveaways here from pioneer seeds.
A lot of the questions that have been coming in have been in regards to harvest updates. And, Ryan, what are you seeing out there? What are you hearing out there?
I would say that from a results perspective, harvest results perspective. Last week, I was really, the struggle continues on trying to peg this crop because there's that much variability out there in 2024.
But when I look at wheat specifically, we are starting to see some of those better yields come in. Now, the wheat crop now to me is, again, we'll keep looking at this in the next couple of weeks here.
It looks to me like it's a high protein crop, good quality crop so far, and lots of ones and some twos, but lots of ones and twos out there. Pockets of light bushel wheat, but yield is getting. It's getting better as we go into harvest, as we get more and more into it. And so I would actually start leaning towards more average type wheat crops across the prairies here. Again, I think peas fell off just a little bit. I think canola is going to have its struggles just the way it works or way it worked this year.
But, yeah, wheat's kind of hanging in there just a little bit better when it comes to figuring out production. I'm still definitely a wild card in trying to get that all handled, but I will say wheat's coming in just a little bit better.
Another question I had come in from the mailbag, and this was from Colin, but he, he just, he mentions a specific grain buyer here, but he says, you know, with all the grain buyer trouble out there and research that you've been doing, you know, how safe is company x? I'm just gonna say company x for, for now. That's not the name of the company.
They are already a company where you deliver and then you get paid in two to three weeks which makes Colin nervous and I totally get that right.
The longer that you have to wait for payment the more exposure you have. And it doesn't mean necessarily that. It doesn't mean that it's going to be a bad experience. But you know, like when buyers, if they change terms, if they, if they used to be two weeks payment and then they move to three weeks payment, well that's a bit of a red flag that you have to watch.
Pushing payment back is something. If they're continuously delayed on payment and you have to stay on them, that's a little bit of a red flag as well.
And so when, when I look at buyers, like the number one thing I look at is are they licensed and bonded and if they are the Canadian Grain Commission, well there's, they're holding a bond there. They have some type of insurance. You have some type of coverage. You should have some type of coverage there. So that's kind of where I start. Other than that, guys like it is, it is feel, it is word of mouth, it is experiences, people talking about this stuff.
You know, you think about the companies I've mentioned on here.
Those red flags were popping up here and there. But when you're isolated by yourself and you think well it's probably just me, they just forgot to pay me. They said they put the check in the mail but they mixed me up with somebody else and, but they got me paid, you know, a month later. Like things like that. You know, if you knew that ten other people were in the same boat, you might say, hey, geez, something's going on here, something that's not good. But when we're isolated, when we don't know what's happening out there, that's when, you know, that's when things can escalate and things can get a little bit worse. So, you know, I'm not going to go out there and mention this company right now because I don't see any issue or any problem. But you know, I'd say if you're comfortable to talk about these scenarios with your neighbors and stuff and when something goes sideways on you, you just start popping up those red flags to say, hey, that's different, that's changed, changed for the worse. Like, you're a bit of an investigator at that point, trying to make sure that nothing stinks out there and that you're going to get paid and treated fairly, and away you go. Um, this show, like season two starts in, I don't know, six weeks or something like that, right? Like, not that seasons matter, but, you know, I'm going to spend a lot of time here and work hard throughout the winter just identifying, you know, the good and the bad out there from a buyer's perspective. I don't want to be the, the guy, the show that's on the witch hunt all the time on the bad, but I want to highlight the good and the positive as well and all those good buyers out there that are, are great to work with.
Because when I, when I, you know, heard last week someone mentioned on a much more popular show than mine that, you know, farmers may walk away from some of these specialty crops, you know, that I get it. I certainly get it because no one can afford not to get paid.
But that made me a little bit sad that we'd have to consider walking away from some of these crops that traditionally can be profitable, high margin, even difference makers. I know you guys work harder to grow a lot of them and to harvest them and to, you know, to work with them, but they often are some of our highest profitable crops and difference makers. So, you know, I want to spend a lot of time this winter just talking about these really good buyers and, and highlight who to do business with as well and why and some of the positive experience. So stay tuned for, for that and eating your veggies segment here. Brought to you. Bye. The lunch box crew. If you want to have your meat and potatoes as well, head over to Ryan Denny, CA. That's where you can check out things like the lunchbox crew or some of the one on one consulting that I do.
Yeah, sometimes the veggies just aren't enough. You need that mean potato. So head over to Ryan. Denis, CA all right. For this week, guys, I feel like I'm just harping on this every week, but cash flow, cash flow, updated cash flow.
I don't want to say sheets, but update your cash flow. What you need each month we talk about it time and time again, and then you have this event that happens that, you know, potentially cripples your, your canola market, at least temporarily.
You know, what is your plan to meet your cash flow needs moving forward?
Because if you're sitting here and saying, I need to move all my canola by November, then why you know, make sure you know what month you need cash flow. You have that up to date. Match up your contracts, see where your plus, where you're negative, and then figure out what you're going to sell to keep the banker happy on cash flow. Number two is canola strategy. I'm going to toss in here. All right?
Now, everybody's different.
Everybody has a different marketing plan, right?
This is not a silver bullet by any means of.
But as you sit here this week in the combine and you're this weekend and you're, you know, sitting there hoping that, you know, thinking about the riders game plan against the bombers to, you know, make up for that loss last week, you know, figure out if you're, of course, if you're a canola grower, figure out how you're going to tackle this conundrum that we're in. This cluster.
I was going to say the last part, but this clusters storm that we're in because the canola strategy, it's different for everybody. But things to consider, you know, number one, multiple. Multiple things here to, to get your net price right. Multiple parts. So you got futures, you got basis. So let's just look at basis for an example.
If you know your cash flow needs and if you know that you need to sell some canola, are you going to be bullish basis. I know Kyle was bullish basis in our segment today, but are you going to be a bullish basis in October and November? December? Like maybe basis is the part that you sit there and say, delivery is so important to me that I'm going to take that with the crush plan. I'm going to lock that in because those crushers, they're going to crash. So I'm going to keep. I'm going to do business with them. I'm going to lock that in. Because if on October 1, China said, bo, we're not taking your canola anymore, then all of us are looking at those crushers saying, hey, we're best friends. Let's get this done. Basis doesn't improve in that scenario unless the crop is really, really bad, right?
So maybe you look at basis and say, it's important for me to have a delivery. And you get. By establishing basis by locking that in, you get delivery. Now, Donna, if you're listening to the show, Donna and I have been going back and forth for months. I've been telling Donna, do not do basis contracts. Don't do basis contracts. You know, in this market, it doesn't, it does not make sense to do business contracts. Basis is going to get better.
But now things have changed, right? China has changed the rules of the game here a little bit. And you may have to buy that space. That space might be so important to you for cash flow that you need to lock it in. Okay, but don't forget about the future side of that equation because what you can do is you can sit here and say, well, I've got my basis, but if China escalates this futures are going to go lower as well. You could say, hey, I'm going to buy a put option. I'm going to have a put option in place against my basis contract, 100 tons of basis. I got 100 tons on a put option. I've got a worst case scenario. I know that if China escalates this and makes it worse and prices drop, I've got delivery, I've got a better basis than what's out there. That's what that, right, because China's making this worse and I've got a floor right now. The other thing too is all of a sudden October 1 rolls around or whatever the date is, it may not be October 1 and China says, hey, we did this investigation. We're actually okay with everything. It's all good futures pop, skyrocket. You can just sell that put back, get 1020 on the dollar, whatever it is, sell the put back and you got upside exposure in your futures market. Okay?
So that is kind of the one strategy you can look at. The other strategy you could look at is just saying, hey, im just going to lock in a price here because price, cash and movement is so important to me. Im just going to lock in a price. And then if China comes out and says, hey, things are fine, im just going to buy a call option at that point and participate in upside.
Again, if youve got a whack of canola to sell your maybe isnt that crucial to you, but if youre heavily sold, then maybe you want that upside exposure. Okay.
Now again, folks, I say this every week. I'm just a yahoo behind a microphone, right? But talk about this stuff with your buyers and, and your business partners, like figure this stuff out. Because what can happen is if you sit on your hands here and I was a part of a bunch of conversations already this weekend, people saying, well, China's not, they're not going to, they're going to investigate this for 18 months. We're not going to hear anything.
Well, the market does not like uncertainty and it's going to ring loud and clear from our merchant friends out there.
If your merchant friend out there normally sells to China and you're hearing they're not selling to China, regardless of the investigation, it is impacting us and having a negative impact. Right.
So even though we may not see anything for whatever speculation out there, that doesn't mean that business is happening. We gotta, you know, I don't know if you have merchant friends out there, but I'm gonna be texting my buddies to say, hey, you making any sales out there? Like, how's it going with China? Because, yeah, my strategy is going to be impacted by this, but if you sit on your hands and just say, I'm going to wait for the next update, oh, man, I don't know. I don't know how that's going to feel when that update, when that happens. What happens if it's negative?
Negative to the point where it's not just a probe, it's a ban, and then you, along with everybody else trying to do the same thing. Right?
We had that back. What was it, 2013 when we had that? When the market was just tank, tank, tank. It's like limit down. I think it was wheat limit down seven days in a row or something like that. It was hard selling grain. I remember phoning around and companies were like, we're not buying anything. The markets slim it down. Like, bugger off. Try again tomorrow.
Tell the market trades we're not doing anything. And, yeah, was not, not a fun time that that stuff can happen here, folks.
So I don't know, should that have went in eating your veggies? I'm not sure. I guess you can let me know on that one. And do we have a third and final one?
You know, I still think, what did I say last week? I think I said, put wheat targets in last week. I'm still, I'm getting close to a wheat sale here in the next, you know, week or two. Um, so stay close to the wheat market. I may, maybe that can be number three for eating your veggies. Stay close to the wheat market. And if you see a sign of weakness at all on the future side, you know, get ready to pull the trigger. It's not, not going to be the sexy sale of the year. It's not going to be the one that necessarily pays the bills. But I still think it's an important one to make because marketing weed in the winter is not that fun. And we have a few stories to go on right now for wheat futures, but nothing fundamentally shifting quite yet. So I still like to get a little bit of wheat sold here in the next week or two on this little these gains we've had. Folks. Thanks for hanging in here for episode number 43. If you found this episode useful, please share it with a friend, neighbor, colleague in your local egg community. Spread the word my friends. I am looking for more people to tune into this show, which I think is just common sense. But by you spreading, spreading the word, subscribing, engaging, it helps me with that goal. And of course, prices can change. We talked a lot of strategy today. We talked a lot about what could be. But folks, things change quickly. So just remember that when you're checking out the podcast, if you want to be a guest on the show, send me an email or head over to Ryan Denis, CA that's it for me here, folks. Have a great weekend and.
