The News & What it Means – Canadian Inflation Rates & Big South American Crops

 

By John DePutter and Dave Milne – February 27, 2017

 

The News: Inflation rate rises to 2.1%, fuelled by higher gas prices.

Statistics Canada released its monthly update on inflation Friday. A 6.3% increase in transportation costs was the main contributor to the higher inflation rate. From the Financial Post.

 

What it means:

Inflation in Canada is actually still low on most fronts, with consumer costs up only slightly from a year ago.

Take groceries for example. Statistics Canada said consumers paid 4% less at grocery stores in January compared to a year earlier. Farmers are shouldering some of this decline, as farm gate commodity prices are being held in check by ample production. The good news is, farmers don’t need to worry too much about consumers complaining about food costs.

Consumers might instead find themselves complaining about fuel costs. That’s the culprit in the higher inflation rate. Not counting gasoline, the inflation rate was actually a very mild 1.5%.

StatsCan pegged transportation costs up 6.3% from a year ago. Economists trace this back to higher oil prices but only in part.

New carbon levies get a large part of the blame. Gas in Alberta soared 33.9%, largely due to a new carbon levy, and Ontario gas prices jumped 20.4%, partly with the aid of a new cap-and-trade program, according to the Financial Post.

The messages: It serves farmers well to take note of the inflation rate. Right now, investors, farmers and business people can make plans based on a market landscape that features only mild breezes of inflation.

Same time, recognize the fact government programs can artificially raise certain costs. This is nothing new, of course. But again, it’s a burden. And it’s reality.

 

The News: Weather Conditions Favor big South American crops

“We continue to see very favorable conditions for harvesting soybeans and planting second crop corn in central Brazil,” writes DTN’s Mike Palmerino. “Progress is running ahead of last year.”

And… “Brazil analyst AgroConsult raised its corn production estimate to 93 million tonnes versus 71 million the past season. Its soybean estimate for Brazil is now 107.8 million tonnes, up from its previous estimate of 105.23 million.” That’s up sharply from 96.5 million last season.

 

What it means:

This DTN story and the latest forecast from the South American firm AgroConsult are addressing perhaps the biggest single factor in the prices and profits that Canadian corn and soybean growers will receive over the course of the next several months.

If farmers in South America manage to meet the full potential of corn and soybean production, Brazil and Argentina will shove record supplies onto world markets.

It’s not a done deal yet. But they’re getting closer, by the day, to achieving record production of both crops.

Corn and soybean futures are at key points. They still have a shot at pushing higher if weather turns tough. Last year, both whipped higher on sudden crop problems in South America, starting in March.

There’s also a chance China gets extra hungry to lay in supplies of US soybeans before shifting its mega-buys to South America. China’s demand for soybeans is immense and growing. Question is, will South American farmers produce even more than China can take in?

Barring a weather twist and/or sudden surge in China’s imports, markets will be vulnerable.

What to do: If you’re a corn and soybean grower, you can follow the DePutter team’s ongoing strategies to cope with the next weather twist, and demand uncertainty.

 

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