Episode Transcript
[00:00:00] Speaker A: Futures moves here this morning. We've got canola down about six bucks to the November contract, trading at 780 the last I checked. Now we have soybeans down six cents at 1182. I've got bean oil down 41. Basis points at 7340. Wheat markets under pressure here once again. Spring wheat down about a nickel, trading at 689. It was not long ago folks that we were at 765 where we had close or around $9. Spring wheat trading in Alberta $8.75. Wheat in parts of Saskatchewan that is not there anymore. Kansas wheat down 12 cents at 6:46. Corn down 3.5 cents at 4.40. What else do we have here? Crude oil 92.30 a barrel kind of trading mixed here with what's going on in Iran and the latest in the Middle east and the Canadian dollar at 72 30.
That's what we have going on with futures. We have seasonal trends kind of come into play here. We have the soybean chart. I look at the corn chart, I look at the wheat charts. You know, not great action there right now. It looks to be setting up for, you know, maybe a short term pullback. Canola's kind of doing its own thing. Bean Oil and Canola doing their own thing, supported by the biofuel space and the rally and you know, and rins.
We'll have Susan Stroud on this week's what the futures episode to just dive into that just a little bit more. But yeah, these charts shown a little bit of weakness here in a lot of our different commodities diesel prices. I don't have a fertilizer price update for you. I'll park that for this week. But diesel prices are noteworthy because diesel has dropped. Well, I guess if you pick up the phone today and say good morning, I'd like to buy a load of diesel, it's going to come in around a buck 20, a buck 25 a literally know delivered in the next day or so. That's, that's kind of where it's at. But if you're doing a little bit of forward planning or a little bit of like price discovery. My socks were blown off last night when we got a load of fuel for next spring delivered up into the Peace region. Google Bonanza Alberta, you'll be close to that. 88, 89 cents a liter for next April. We had some farmers book fuel for harvest of this year for under a dollar a liter. Our Farm quote range 20 cents a liter. Yesterday we are as low as like a $5 here, $6 this morning for product coming out later this summer. It's noteworthy. All right, Do I think the crude oil market is set here? I have no idea. But when diesel gets to below a dollar a liter, when I can start planning, you know, locking potentially in some worst case scenarios here on diesel prices for the 27 crop, I take notice. All right.
And the reason I say that locking in worst case scenario is because there's a mechanism out there that you could secure, you know, 90 cent fuel, let's say, and on the day of delivery of the prices below that, you get that lower price. All right. If it's above that, you pay the 90 cents anyways for another day. The chat is getting fired up here. Trenton. Yeah, we feel for you. 40% in the ground. 4 to 6 inches of rain in the last three days, man, like just absolutely brutal. The northeast portion of Alberta, that's what they're facing right now here as we go into the first week of June. The guys in the peace country, they got fired up again yesterday.
Western peace, cruising along eastern peace. I don't know if we call it half done or something like that. So some delays there and then portions of Saskatchewan as well. The crew has been going like crazy on the, on the Denis farm. It's been a window that it opened and has not closed since May 19th for us for planting and, and so we are on our fingers crossed. Big day today would finish our Canola acres, have us 99% seeded, essentially. We'd be left with a quarter of barley to do tomorrow or down the road here. Yes, we have unseeded acres. Yes, the crew's been going in circles. It has not been an efficient year at all. But there my brother's in the chat. 95% done, which again, the crew has been phenomenal just getting this, getting this crop in the ground. So I know Saskatchewan had a good run. Missed a lot of the rains here in the areas that were behind.
And so there we go. Canola price is great, but everything else sucks. Our other price is going to catch up. We will get to that in the show here today.
Headlines before we get to John, US Crop conditions, the first ones for corn, beans and spring wheat for the year came in a little bit disappointing. It didn't really matter though. The markets are not trading that, that couple, you know, percentage points lower. They're not trading that. They are trading the forecast and the US weather, you know, you look at the forecast for the next week or so, even for the prairies I'll throw this in the mix too. Yes, it's brutal and devastating for portions of northeast Alberta and other areas.
But overall as a whole, some rains coming for Saskatchewan, some rains coming for Manitoba. As a whole, folks, it looks pretty darn good. And then that includes the U.S. the U.S. weather improving as well. War premium that seems to be coming out here today. Again, a halt between the, the offensive between Israel and Lebanon. Again, I can't keep up. But, but there we go. Canola prices higher. Higher Rins higher being oil higher. Pardon me, higher crude higher Rins higher being oil higher canola. So that's all I have for headlines here. Let's bring in John. He's been waiting patiently.
On the, on the sidelines here. So let's bring in John. John, welcome to a cup of coffee, man. How you doing?
[00:05:40] Speaker B: I'm doing great, Brian. Thanks for having me.
[00:05:43] Speaker A: Now, folks, just give a slow clap to John when you get a minute because John and I, we tested yesterday, two cameras, two different WI fi, three different Internet providers. It took John tremendous effort to be on the show here today. So I appreciate that effort, man. You're, you're.
Yeah, it's great to see.
[00:06:04] Speaker B: Glad to do it. And it ended up I'm using my cell phone.
[00:06:08] Speaker A: Hey, man, whatever it takes.
[00:06:10] Speaker B: Whatever.
[00:06:10] Speaker A: Whatever it takes.
So. So John, we're going to tackle wheat basis here because it's a bit of a follow up from last week's episode with, with Quentin. And before I get to that, you are a man that has been in this, in this space for a long time and often what happens is I have you on the show and then I don't ask all the questions and then you're like, oh, I had an opinion on that. Or oh, I could have said.
And so. So before we get into we bases here, these are our themes for today. So we've got so peas, you know, a lot of guys asking about peas the last couple days here. Even last week, Colin says, what the futures is up with peas?
He's not having a good time with them. Not fun to plant. Price isn't doing anything. Ian, same thing. What's your thoughts on yellow peas? So that's one of the themes.
Morris is asking about canola carryout. You know, is it going to be tight this year? I know you've been in that camp of tight carryout. Martin's wondering about brokerage account. You know, who should I open a brokerage account with? I've got some comments on that. You might as well. And then, yeah, lots. Four People asked about diesel, so we talked about that a bit. Already unseated acres. Is it a big deal? Question mark.
That also came in. So anything there, John, that before we talk wheat basis you want to get
[00:07:28] Speaker B: into, while you talk about peas, I was thinking I should just grab the phone and call Chuck Penner, but I'm using my phone right now. That's off my, off my radar altogether. But, but yeah, Canola carry out. Absolutely. Unseeded acres. Absolutely.
We can talk, we can talk about all that.
[00:07:46] Speaker A: Unseeded acres. What I want to say about this is if you are, if you're a farm that's experiencing this current delay in planting, in this current moisture event, like, is it a big deal? Like 100%, it is a big deal.
Localized, it is a big deal. You take 5%, 10%. I'm curious to see where we sit on our farm for unseeded acres, what that percentage is going to be. Because you start to take those numbers away and it raises your, your break even scenario. It gets to be quite stressful. So it is a big deal for those going into it. But John, from a big scale prairies, you know, millions of acres, is it a big deal to rally markets?
[00:08:26] Speaker B: Oh, yeah, absolutely.
You know, we need the production and if you're not putting it in the ground, then that's going to have an effect. Do we know what the situation is right now? No, no. I was talking to a senior guy with one of the grain companies last week. You're just talking about the lay of the land. And he said they don't get too concerned until toward the end of June.
That's the perspective from, from a grain handler who has assets across the, across the country.
So we still have time. But yeah, it's, it's all about production, man. So if you're not putting it in the ground, you're not going to take it off the field.
[00:09:03] Speaker A: Yeah. In the wet years of like 2016, 2017, like in my backyard here, we saw folks go all the way into that June 20, 21, 22, 23, like all in there. If you're staring down, you know, 17, 50 canola, maybe a path to $18 here, that is incentive, right? Like that's incentive. If to put something in there, like that's an incentive. Even if it comes in as a 2 Canada or a 3 Canada, like, it's still a very good number. So, yeah, we'll see. I'm with you. Let's see where it shakes out at at the end of June. Been doing surveys every, every Sunday with Lunchbox Crew. But you know, essentially after this week, the way the forecast was looking like June 3rd, 4th, 5th, a small percentage of our growers would be planting after that date. Now, with the rain, they're certainly going to be delayed a little bit longer, so we'll keep an eye on that. All right, so last week we had Quinton on with from JGL Capital. We were talking about wheat. And so you sent me an email and you said, ryan, you say Patterson is more transparent than others. Is that because they present basis after converting the futures to. The futures to Canadian? And then did you compare their bids to others on equal metrics, flat price? Were they competitive? And I'll leave the other portion out for a second.
Yeah. So the reason that I say that, for me, it's more transparent is that it is futures converted to, to Canadian dollars. So that to me, they, when I bug Patterson about a basis update, they laugh at me. They laugh at me because they're like, dude, it hasn't changed in six weeks. Like, why are you bugging us every, like every week or two? Like, just leave us alone. It's not changing. To me, it just feels more predictable. I think transparent might be a dangerous word though, in that cause. Is it transparent? I don't know if it actually is, but to me it's predictable. It's probably a better one, but where do you want to go? Where do you want to start?
[00:11:05] Speaker B: Well, I guess for me, I guess Patterson is one and I'm told there's another company that, that sets it their wheat bed that way as well. But most of them do it like, they've done it in eastern Canada on wheat, beans, corn, forever.
And from my experience, and it's, it's really a foreign exchange management issue when it comes down to it, the net price is still the same. You can. And I do this on my app, the trading floor.
I show charts on week basis, both ways, whatever, you know, whatever whichever way you want. But where I get concerned is when people start saying that it's the grain companies just trying to pull the wool over your eyes or gaslight you on price.
And although it could be used for that, that is not the purpose. It is just we don't have time today, nor do I have.
I've taught courses on this, on why they do this, but it is, it all has to do with how they manage their foreign exchange.
[00:12:04] Speaker A: I think for, I think for me, and it might be the space entirely right now. So as I was going through examples a couple weeks ago, when, when it was a good time to sell wheat. I noticed the pretty big difference just using, you know, a budgeted basis. Even worse, I raised the cost of transport diesel, like how to discussion. We even raised it and even with that we saw a pretty large discrepancy.
And so, you know, is it currency related? Not necessarily, but it just really highlighted like I talked to farm, you know, it's like a four hour drive to deliver CPS wheat to Patterson. And I was like, this is the story, man. Like this is the setup. This is my expectation. This is worst case, best case, we'll see. And it was, it was a couple bucks a bushel. Like it was crazy. The difference with that drive, like you could go a long ways and deliver that wheat. So I think it's a tool that is used at times maybe.
[00:13:06] Speaker B: Do you just find that on wheat or other, other crops as well, that discrepancy?
[00:13:11] Speaker A: We will find that on, on other crops as well. Yeah, that's right. Like we will, we will find that there's, you know, one company or two companies step up and lead.
They have the demand, right. And then another company kind of sits back and, and then we don't have time to go through all the quotes from some of the merchants out there.
[00:13:32] Speaker B: But anyways, you're touching on something that's kind of a pet peeve of mine. It has to do with basically with competition. I think targets play into this. Every company puts out a posted price, but we all know that most business is done at targets or specials and not the posted price.
So to me it's a competitive issue. I won't name names if company A comes out with a price with a special or triggering targets. Company B doesn't know that. They say, well, we like to keep our prices close to the vest, you know, because we don't like guys shopping around or whatever. But the, the other issue is their competition doesn't know, so they're flying, flying blind. And so say one company gets some business and they, they've got a great price.
Well, right, right next door, the company doesn't even know or down the road they don't know that that company's got some business on. They hear about it, but then they have no reason to compete. So to me it's a competitive issue as, as opposed to an information or price publishing issue.
Okay. And you know, I'm all for better price information, price transparency and all that. So that, that kind of opens the door into a whole nother conversation that, that needs to be had.
[00:14:46] Speaker A: Well, let's take just the 30 seconds or a minute because you were on a show last week talking about some transparency. Just give us a Cole's notes of that.
[00:14:57] Speaker B: Yeah, it was Marlena Borsch done some work for. I think it was APAS and SAS weed about export sales reporting. The US has had it since 73 where exporters sell sell grain and they report it to the USDA each week. The USDA compiles it and reports it.
No prices, just no names of who sold it or bought it. But they also mentioned the destination.
We'd like to see the same thing in Canada. There's a lot of good reasons for it.
On that call I mentioned that I go back as far as 84, 1984. We actually ran out of Canola. I was working for Cargill at the time and we had to cancel contracts. We had trucks going to one elevator to pick up eight tons because that's all they had and go to the next elevator to make load quantities.
We were really scraping the bottom of the barrel. We ran out of Canola. Our prices were around 350 to 400 that year. The June Canola we had a June contract went to 720 and huge inverse.
And so it was costly to the industry.
And it's only because we ran out, we sold more than we had because each company didn't know what the other companies had sold. And so I think it's good information. Grain companies think that it's anti competitive. It's a competitive issue. So there's a bit of a disagreement on it. But export sales reporting I think is important.
More transparent pricing at the farm gate level or the elevator I think would make it more competitive.
And also there's an issue that we don't have time to talk about today, but cash pricing relative to futures and at delivery, I think that's really sloppy as well. And it shows up in things like spreads and poor convergence to futures.
[00:16:59] Speaker A: Well, more trans. I'm big for transparency, right. That's why the show exists, is about transparency. So yeah, like I don't know what it's going to take to get that across the line, John. But like we get crush data every week, right? Yeah, like that's as transparent as can be. I don't know, reporting some wheat sales sounds kind of nice. So anyway, all right, Riley did ask a question here. He says with increased crush capacity, removing tons from line companies, less weed acres and a poor crop winter wheat crop in the U.S. is there a bullish case for new crop CW R US basis? John, can we can we be bowled up here on, on wheat basis for new crop? What do you think?
[00:17:41] Speaker B: Yeah, based on, based on what? The comments there. Yeah, absolutely. In terms of elevator, shipping, handling capacity, we've got more capacity than we needed, I think. And this is just an opinion, but I think that's why Louis Dreyfus sold their elevators.
They just saw that there was far too much competition and maybe that's why grains connect sold to pnh, same reason, who knows?
But you just do the numbers. We have over capacity and that's a good thing in terms of, of prices. And you add that to a smaller crop, a more need to handle wheat because there's less canola. Yeah, absolutely. That's a, that paints a firm, a firm scenario.
[00:18:27] Speaker A: And I'd add to that too, that came from, from Riley and I'd say, you know, what's the scenario? We know there's feed barley demand out there, so that'll take some capacity. But what about peas? You know, it's been so quiet on peas. What's that going to do? So John, do you think, like I said last week, my high, I got like a high. If I built a highlight reel, like some wheat sales would pop up on there, you know, time and time again.
Separating futures and basis decisions, you know, going to Riley's comment, going to. Maybe your comment about capacity, like line companies, the way it's been working in Western Canada the last couple of years is I have cars to fill. Here's my price. We get to the price that buys those bushels tons to fill, those cars, they go away. They come back a couple weeks later, boom, another special, whatever, fill my cars go away. That's why this darn thing works so well, because I can sit there and like cherry pick that as it comes. Anyways. Comments on that, John, I know we're running a little bit late here, but comments on that?
[00:19:26] Speaker B: Yeah. Okay, well, you guys were talking about separating wheat. Sorry, Separating futures and basis, which, you know, I've been behind that ADF for, for years. I think it's a, it's, it really creates benefits. The thing is we don't spend enough time talking about basis. And I think it's just more fun to talk about futures. And you know, you can trade futures and there's a, there's a bit of glamour to that.
Basis is boring. And also, you know, the trade, you know, green companies that call them the trade often I've heard this, they'll say, don't worry about basis. Doesn't change much. And there's nothing you can do about it. And I disagree with that. It does change quite a bit. I've got some charts over here. I'd look at the range in futures for a year and the range in basis for the same year. And there are times on wheat that the basis change in basis over the year is greater than futures. So there's some movement there. And, and the other thing is, that gets to me was when they say, and there's not much you can do about it. Basis is all about farm marketing behavior. That's all it is.
You know, it's, it's local balance. Whether farms are selling grain or not has a profound effect on basis. To say that, oh, there's nothing you can do about it is kind of arrogant. We said it, you know, you don't, well, guess what? You know, if farmers aren't selling, guess what they do.
They raise their basis. And you use the example they've got cars to load and they're not getting enough. Guys selling well, they raise the price, they raise the basis. A lot of my time is spent on helping explain what drives basis.
There's so many guys out there that are smarter than me that will tell you what they think about futures, have at it. And I listen to them, but on basis I think that's kind of my wheelhouse. So the thing is, the other thing you have to think about is grain companies are basis traders, farmers are flat price traders.
So they're playing a different game. And so when futures are really strong, often we'll see basis fade because the futures are doing the heavy lifting. Farmers have price ideas. 15, 16, $17, a bushel on wheat. On canola. And so as a futures rally, we saw this this year in spades. The basis really faded because you know they're going to hit targets. If they're going to hit targets because the market's higher, not because they need them. They're going to do it with a better basis for them. So they widen their basis if the futures are really low.
And it depends on the time of year, but if the futures are really low, there may be a need to raise the price to, you know, get the, get the canola or wheat out of strong hands, get some incentive. So it all has to do with farm behavior, farm marketing behavior, that's the thing. So you know, that's why in the fall basis is so weak. Why? Because there's so many guys that want to, they need to move green off the farm for cash flow or for storage, whatever.
And of course the basis is going to Be lousy. That's the thing you got to watch. But it pays dividends to know those two markets. And the beauty of it that whoever designed this system was genius. The, the beauty of it is you can do them separately.
And so why, why wouldn't you? I mean, grain companies do. We're looking at 780 on the nav right now. And I don't know what new crop basis is. I haven't looked at it. I think it's like 70 under.
Give me a break.
So that's a great flat price, but allows you basis. And then we don't have time for this. But then there's the impact on spreads. Basis and spreads are really the same thing. And so if you, if you're really going to focus on basis, you got to look at spreads as well and, and work them to your advantage.
[00:23:14] Speaker A: All right, John, fair enough. Appreciate that. And of course you can check out John's great work on the, on the trading floor. I, I follow along. I'm, I'm fortunate to be able to access this and of course we put some content out there as well. So just quick comments on the trading floor as well, John.
[00:23:30] Speaker B: Sure. I started a year ago, a little over a year ago. Yeah, I work with some farmers, I do some hedging for them with a broker and it was a way to, as I say, toss the newspaper, get, get news out to them. And I, I wanted it to be quick. You know, I was writing a weekly thing and by the time I'd finish it, information was a week old and I didn't think that was very good.
So I provide content on there. My view on basis and what's driving it. It's more educational than anything, but I've got some great minds on there. A guy by the name of Ryan Denis is on there. Brian Cuomo, Trent Clarenbeck, all provide good content as well.
Harvey Jackson and so on. I started it to make available information to the guys I work with and I thought, well, let's open it up to others as well.
And so it's the trading floor, all one word circle. So. And you can take a look at it.
[00:24:22] Speaker A: Thanks for coming on this week. And coincidentally, John, I started my farm consulting, like my crop marketing career 15 years ago this week. Been in the space for 17 years, but 15 years working with farms. The first company I worked with, I think we even made T shirts that said don't worry about basis.
We were going to farmers. Don't worry about basis. Don't worry about basis. I think we did that. I did that for like four years. Don't worry about basis.
[00:24:45] Speaker B: I know the company.
[00:24:46] Speaker A: Anyways, this week's cup of coffee is brought to you by Land for Rent. Find new acres. Manage every lease in one place. Skip the paperwork headache. Land4rent.com Transforming how farmland is rented. I'm out of coffee, folks. That's it for this week. Thank you, John.
Friday. We do have a brand new strategy room meeting.
Brittany with all bushel consulting. Ryan Bonnet is going to join us. Allison from the Money Farm. Dwayne from Grain Metrics. It's a webinar format. Register to attend. The link is on our socials. That's it, folks. Have a good one. I'm out of here.
