Feb. 10 – Putting on Some Pressure

FarmLead Breakfast Brief
Friday, February 10th, 2017

Good Morning!

Due to travel, there is no list of grain futures markets. Click here to check out where things are trading.

Putting On Some Pressure

Grains markets this morning are mixed as the market continues to digst yesterday’s USDA February WASDE report came without many changes except for in wheat, which saw inventories get cut, and accordingly a bit of a pop in the market, whereas corn and soybeans traded sideways to lower. More specifically, the U.S. soybeans balance was completely unchanged from January, with ending stocks staying at 420M bushels (more on the WASDE later). Jerry Gulke thinks that a new market dynamic may be emerging as despite the threat of a large South American crop, the market was able to hold up on small bullish wins (basically Jerry thinks the market might be already pricing this competition in). Not only may a different market rhetoric be evolving, but a new market player PIMCO, the largest bond investor in the world, is saying sell soybeans, buy corn as they think supplies will continue put pressure on the market (they aren’t finding returns elsewhere so why not get into commodities, right?).

Digging into the WASDE report, U.S. corn inventories for the end of 2016/17 were dropped by 35M bushels from January to 2.32B bushels, mainly thanks to ethanol used being increased by 25M bushels (exports were unchanged at 2.23B bushels). Season-average prices were lowered by 10 cents USD / bushel to $3.20 – $3.60 while the soybeans target stayed put at $9.10 – $9.90, because, as mentioned, the U.S. soybeans balance sheet did not move whatsoever. This disappointed many of the bulls who were hoping for an increase in exports but the USDA said that US shipments would be well-below last year’s levels because of South American production, levelling out the strong start to this year (as mentioned in yesterday’s Breakfast Brief, US soybean exports thus far are up 21% year-over-year). US wheat exports were pushed higher by 50M bushels to 1.03B bushels but 2016/17 ending stocks are still sitting at 1.14B bushels, the largest in nearly 30 years. Accordingly, season average prices are still sitting under $4.00 USD / bushel.

On the international front, most grain market participants were watching what South American numbers came up, but it was a bit more bearish than expected. Argentinian production was finally dropped to 55.5M tonnes (still above the private market estimates of 52.5M-54.5M tonnes).while Brazilian soybean production remained at 104M tonnes (worth nothing that the combined South American crop is 6.2M tonnes bigger than last year). While CONAB increased their estimate of the Brazilian crop yesterday, in the last 10 years, Ag Resource points out that CONAB has underestimated the total harvested area every time!. On the wheat front, global stocks were dropped by 4.7M tonnes to 248.6M total mainly because a smaller Indian crop, a smaller Kazakhstan crop, and less available supplies out of Ukraine due to increased exports there. The market was expecting a number above 250M tonnes so the bullish surprise pushed a lot of short-sellers to cover their positions, hence why the market moved higher.

Speaking of India, their wheat imports are already above 5M tonnes thus far this year, which means that they could be in competition with the 2006/07 season when they imported 6.7M tonnes. The headline that more Canadian producers are watching is the methyl bromide fumigation policy that the country has towards agricultural commodity imports, which requires all goods to be fumigated at the country of export. However, because it’s often too cold to properly fumigate in Canada, the Great White North has had an exemption on this issue since 2004 but India recently announced that it will not extend the exemption. With concerns over the ability to export, combined with the impending rabi winter harvest starting up soon, lentil markets in Western Canada have gone quiet. Overall, if the fumigation issues persists, the cost of doing business to export to India will likely increase, and this will put pressure on prices.

Have a great weekend!

To growth,

Brennan Turner

President/CEO | FarmLead
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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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