November 20 – 2018/19: The Great Acreage Rotation?

Good Morning!

Today we look at what acres in 2018/19 is setting up to be and how corn and wheat prices are starting to show a glimmer of hope.

“In cognitively demanding fields, there are no naturals. Nobody walks into an operating room straight out of a surgical rotation and does world-class neurosurgery.” – Malcolm Gladwell (Canadian journalist)

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Selling it for a bigger profit.
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Grain prices to start this shortened-trading week are in the red with the rest of the broader market.

The complex is pulling back from its strong Friday performance, as Garrett pointed out in Grain Markets Today.

However, the Commitment of Traders report out on Friday showed some bearish corn data from managed money. Hedge funds are now holding a record-short position in corn at more than 230,500 lots.

Soybean prices are lower as favorable weather conditions and the timelier planting pace in South America are seen as bearish. [1] However, managed money was net sellers last week, pushing down their net-short position to 22,500 contracts.

Also of note is that U.S. soybean export sales are normally 67% of the USDA’s target by now. Right now, this year, they’re only 53% of the target.

Canola prices and soyoil are taking a hit this morning after India raised its import tax on vegetable oils in crude form from 30%. Previously it was 15%. For refined palm oil, the tax was raised from 25% to 40%.

Corn Prices Find New Demand

One argument is that even marginal weather and corresponding growing conditions can’t stop a big corn crop from happening. [2] I would argue that weather always matters as it’s the one factor that farmers can’t control.

What is positive though is how grain markets have moved higher after a relatively bearish November WASDE report. However, $3 USD/bushel cash corn doesn’t work well on many farm balance sheets. [3]

Is it possible that we see some fringe corn areas pull back their acres next year? I know that at least in Western Canada and the Northern Plains where there are some other crop options, there is some serious pencil farming going on this fall. [4]

In fact, over the weekend, I took a deeper look at the rise of chickpeas production in the U.S.

As a reminder, Informa is expecting U.S. farmers to plant 91.42 million acres of corn and a new record of 89.63 million acres of soybeans next spring. Their previous estimate was 90.46 million acres of corn and 90.35 million acres of beans.

In 2017, the American farmer planted 90.4 million acres of corn and 89.5 million acres of soybeans, the latter being the current record.

What’s certain is that at these low prices, new demand is being found.

Despite corn export sales commitments running behind last year’s pace by about 7.3 million tonnes, we’re seeing more American corn and DDGs coming across the border into the Canadian feed market. [5] It’s not a huge amount; however, Canada imported 670,000 tonnes of U.S. corn last year and this number is expected to rise again in 2017/18.

Back in America, new data suggests that in October there was over 10% more cattle in U.S. feedlots than October 2016. [6] That’s also the largest October number since 2011.

Wheat Prices Improving?

Cash wheat prices in both Canada and the U.S. have improved as markets pull off the harvest lows. [7] Managed money last week got a bit more bullish in the futures market as fund managers were net buyers, leaving them in a net short position of nearly 108,600 lots.

In the Great White North, basis has improved compared to where it was a month ago, mainly thanks to a weaker Loonie.

In the U.S., the stronger basis is making the front-month futures contract and those at later dates start to converge. Translation: farmers who have not be able to capture the carry for premiums for deferred delivery are losing their window of opportunity.

This includes new crop (or 2018/19 crop), which has seen some decent prices. As the futures and cash markets start to close the gap, those deferred movements and new crop premiums will be lost.

In this tight margin environment, we’re in, hitting singles for both old and new-crop sales is a smart play.

Post old and/or new crop wheat on the FarmLead Marketplace today.

Informa came out last week with its estimate for 2018/19 American winter wheat acreage, just as the seeding campaign is practically complete. Informa is estimating 31.92 million acres of winter wheat was seeded this fall. Their total US wheat acreage estimate is 45.63 million acres, which suggests higher spring wheat acres compared to what 2017 was.

46 million total wheat acres were planted in America for the 2017/18 crop.

Futures Spring Wheat Prices Reverse, But Cash Prices Improving?

 

European Acreage Changes

Strategie Grains put a new estimate out for its EU soft wheat acres last week. They’re estimating just over 58 million acres to get planted. [8] This figure is 741,000 acres below their previous estimate and about 500,000 acres below last year’s acreage.

It’s still close to the record acreage of 60.3 million acres harvest in 2014 though.

Durum wheat area in Europe is expected to be like last year at a little more than 6.9 million acres.

In other crops, Strategie Grains is forecasting 2018 EU barley area at 30.6 million acres. This figure is 2% than last year’s 29.9 million acres.

Why?

The price of barley is better than that of wheat right now in Europe when you factor in the cost of production.

2018/19 EU corn acres are estimated at 21 million acres, down 494,000 from 2017/18.

The German oilseeds industry association is expecting the lowest amount of rapeseed acres in 14 years: 3.2 million. The drop is due to poor conditions in the fall to get the fall-crop planted, as well as rotational matters.

On the production side, Strategie Grains lowered its estimate for the 2017/18 EU soft wheat crop by 300,000 to 142.5 million tonnes. However, this is still a 5% jump from last year’s production number.

With the higher production and similar demand comes lower prices.  As such, in the United Kingdom, wheat sales are about 25% behind where they were a year ago. In fact, European soft wheat exports of just 7.63 million tonnes thus far this marketing season is also 25% lower year-over-year.

Digging deeper, there’s some pretty strong export competition in Europe right now, and the Black Sea is winning (like we didn’t know that eh!) FranceAgriMer is estimating that 9.9 million tonnes of French soft wheat will get exported to non-US wheat countries. [9] This means ending stocks in the country will sit closer to 3.3 million tonnes.

Overall, there’s some rumbling of usual crop rotation and acreage changes, but there shouldn’t be too many drastic changes in the major row crops mentioned above.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:35 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.278 CAD, $1 CAD = $0.7825 USD)

Mar Corn: -0.8¢ (-0.2%) to $3.543 USD or $4.527 CAD
Jan Soybeans: -2.8¢ (-0.3%) to $9.878 USD or $12.623 CAD
Jan Soybean Meal (per short ton): unchanged at $320 USD or $408.95 CAD
Jan Soybean Oil (cents per lbs): -0.46¢ (-1.35%) to 34.13¢ USD or 43.62¢ CAD  
Mar Oats: -1.8¢ (-0.65%) to $2.705 USD or $3.457 CAD
Mar Wheat (Chicago): -4¢ (-0.9%) to $4.395 USD or $5.617 CAD
Mar Wheat (Kansas City): -3.5¢ (-0.8%) to $4.36 USD or $5.572 CAD
Mar Wheat (Minneapolis): -1.8¢ (-0.25%) to $6.483 USD or $8.284 CAD
Jan Canola: -9.3¢/bu / -$4.10/MT (-0.8%) to $11.687/bu / $515.30/MT CAD or $9.145/bu / $403.22/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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