December 19 – The 2018 Acreage Game

Good Morning!

With South American weather headlines subsiding, today’s Breakfast Brief looks at wheat acreage in 2018 and where wheat prices could go if dryness remains.

“Every day is a new opportunity. You can build on yesterday’s success or put its failures behind and start over again. That’s the way life is, with a new game every day.” – Bob Feller (US baseball player)

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Grain markets this morning are mixed, with the soybeans complex leading the green side of the table on a lower US Dollar.

Crop agency IMEA says that less than 6% of the 2017/18 Brazilian soybean crop – the one that just got planted – has been sold thus far. Usually, by this time of the Brazilian growing season, nearly 40% of the new crop has been forward contracted.

Next door in Argentina, farmers are waiting for this week’s rains before moving more planters. However, it’s a bit of a catch-22 as soybeans planted in Argentina after mid-December tend to have see lower yields. For reference, the Argentine soybean crop is usually completely planted within the first week of January. The drier conditions though are keeping things behind schedule.

Despite some drier conditions, the portion of the Ukrainian fall-seed cereals in good condition is the highest it has been in the past 4 years![1] For the stuff that’s already off (the 2017/18 crop), Ukraine has exported 3.73 million tonnes thus far, down 6.5% compared to where things were at a year ago.

We’ve mentioned in the past how Canadian barley exports (and barley prices) are tracking well in 2017/18. This could be supportive of more acres in 2018.

EU Acreage Changes

The European Commission says that rapeseed acres in the EU bloc will soon start to wane, reversing the trend of the last decade. The EU bloc has planted an average of about 16.1 million acres of the oilseed in the past five years. However, by 2030, the European Commission thinks that this number will be closer 14.8 million tonnes.

In another GrainCents deep dive, I looked at why this is happening and what lower EU rapeseed acres means for Canadian canola prospects. Conversely, the area lost to rapeseed will likely go to wheat, or as Garrett puts it, EU wheat farmers are looking to pick a fight with Russia.

It’s worth mentioning that the current EU wheat crop is heading into winter in a “delicate” situation according to MARS, the agronomy division of the EU.

Read more of our thoughts on the EU wheat crop here.

Romania is also in the mix there as the USDA’s attache in Bucharest says that a new record of 7.1 million tonnes of wheat exports will be seen in 2017/18. [2] This is off a harvest of 9.1 million tonnes (+5% year-over-year) taken from 5.2 million acres, or about a 64.4 bushel per acre average yield. It could’ve likely been bigger, if not for subpar yields in the southeast, which was affected by drought.

For other crops, Romania’s corn crop is forecasted at 11.9 million tonnes off 6.25 million acres, or about 75 bushels per acre. For barley, Romanian farmers harvested 1.75 million tonnes off 1.14 million acres, or an average yield of roughly 70.7 bushels per acre.

Eyeballing 2018 North American Wheat Acres

Last week, Informa Economics updated its estimate for the 2018 US crops.[3] They raised their soybean acreage number to nearly 91.4 million, making it the number one crop in America in terms of area seeded. It would also be an increase of nearly 1.2 million acres – or 1.3% – higher than 2017/18 US soybeans acreage.

Corn acres were downgraded to 89.675 million acres, which would be a decline of 725,000 acres, or 0.8% lower than 2017/18.

Area seeded to winter wheat in the US was lowered again by Informa, this time to 31.09 million acres. That’s nearly 5% below last year’s already-low 32.7 million acres.

Read our thoughts on the impacts of lower US winter wheat acres in 2018.

One thing that we do know is that the US winter wheat is in drier condition than this time a year ago. Some snow is the short-term forecast but it is expected to get fairly cold in the next few weeks, which can have varying degrees of impact, as mentioned here.

What we also know though is that there isn’t much of a correlation between December crop conditions and final yields 6-7 months later. Although, there is some interesting data out there that makes this year possibly a bit different.

Moving north, Ag Canada says that as of the end of November, anything south of the #1 Trans-Canada Highway is in severe extreme or exceptional drought. Further, the Manitoba government says soil basins in the province are drier than in the past three years, meaning that the flood risk in the province is down notably.

Regardless, dry conditions is a factor that we’re watching across multiple crops, including in Western Canada.

It’s arguably bullish but read up on where I think durum prices will top out and how it could affect 2018 acreage. Further, there’s a component for spring wheat prices that most people are ignoring, but I’ve highlighted here.

Ultimately, with South American weather headlines starting to disappear, the market is trying to find something to talk about and it seems the easiest thing in 2018 acreage.

To growth,

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

At 8:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2868 CAD, $1 CAD = $0.7771 USD)

Mar Corn: +0.5¢ (+0.15%) to $3.475 USD or $4.472 CAD
Mar Soybeans: +0.8¢ (+0.1%) to $9.733 USD or $12.524 CAD
Mar Soybean Meal (per short ton): +$0.30 (+0.1%) to $322.80 USD or $415.39 CAD
Mar Soybean Oil (cents per lbs): +0.09¢ (+0.25%) to 33.27¢ USD or 42.81¢ CAD  
Mar Oats: -2¢ (-0.8%) to $2.495 USD or $3.211 CAD
Mar Wheat (Chicago): +0.8¢ (+0.2%) to $4.213 USD or $5.421 CAD
Mar Wheat (Kansas City): +1.3¢ (+0.3%) to $4.205 USD or $5.411 CAD
Mar Wheat (Minneapolis): -0.5¢ (-0.1%) to $6.18 USD or $7.953 CAD
Mar Canola: -0.9¢/bu / -$0.40/MT (-0.1%) to $11.304/bu / $498.20/MT CAD or $8.784/bu / $387.31/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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