In today’s Breakfast Brief we look at China’s movement in the grain markets, the outlook for soybeans, and weather forecasts.
“Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.” – Stephen King (US author)
Grains this morning are mostly in the red as favorable weather conditions in the US are trumping weather events elsewhere.
On Sunday, April 17th, oil producers will meet in Doha, Qatar, where a production freeze will be discussed amongst major oil-producing countries (Canada, US, Norway, and Libya aren’t going to be there though). Oil World says that roughly 2 million-3 million metric tonnes of soybeans could be lost in Argentine due to flooding, adding that it could be even more if rains persists (supposed to rain into the middle of next week in affected areas), which would match the call from some local analysts are more aggressive, suggesting 3 million-5 million metric tonnes worth up to $2 Billlion USD to farmers there. On the other side of the world, EU rapeseed stocks are likely to fall to a 13-year of just 767,000 MT by the end of 2016/17, which appears good on paper for the likes of Black Sea & Australian producers but limited upside for Canadian canola as it really only gets imported by the EU for biodiesel purposes (maybe we see that change?)
China Corn Stocks Drop
Looking at China, the People’s Republic’s economy grew at 6.7% this year, coming in at expectations, but there were some eyebrows raised on the data that showed credit expansion in the country almost doubled year-over-year and home prices rose 71% over the 12-month period (bubble?). Separately, more discussion continues around the Chinese corn policy, with expectations that they may have to write off up to $10 Billion of corn this year as they try to rid themselves of inventory that is more than a few years old and too moldy to even feed to animals! Further complicating the matter is WTO trade rules, which would be breached if China tries to sell subsidized corn overseas. Whatever the case may be, Chinese corn stocks will fall for the first time in 6 years, with the USDA’s Beijing attaché estimating only 110 million metric tonnes (or half of the world’s total inventory) will remain in storage by the end of the 2016/17 marketing year.
Soybean prices continue to be supported by strong Chinese import numbers and talk about the amount of corn that’s still being planned in the US, although that conversation is starting to deviate more than a few acres to beans as the price ratio of December corn to November soybeans on the futures board sits near the ominous level of 2.5. If we were to see the 93.6 million acres of corn get planted this spring like the USDA suggested in their March 31st report, at average trendline yields, we’re likely to see another 14 Billion bushel crop and prices drop below $3/bushel (remember AgResource’s call that we discussed in Monday’s Breakfast Brief?).
That being said, there’s a few months between now and Harvest 2016 in North America so the smart risk management play today may be to look at protecting against downside risk for soybeans (we’re nearly 90 cents above the lows in March…) and getting more optimistic on corn upside potential, assuming we see less than the gargantuan & aforementioned 93.6 million acres.
Weather Worries Waning For Some
The US Southern Plains are expected to see “million dollar rains” over the weekend as parched land growing hard red winter wheat seeing 1-3 inches. Warmer/sunny conditions more north into the Midwest/Corn Belt though is allowing farmers to hit the fields in spades, with a lot of guys getting their first passes in during the optimal weather. Corn planting is a bit behind in France due to some rains while those in the southern half of Alberta are looking for a rain. In Brazil, dry weather cross their Corn Belt is creating yield concerns from the 2nd season safrinha corn crop, with up to 9 million metric tonnes (or nearly 10% of total corn production in Brazil this year) being the number suggested for losses. This is intuitively bad news for Brazilian livestock producers who are already facing a shortage of corn due to an aggressive export program this year, and what they can find is priced at record levels. The good news is that with the current Brazilian government under scrutiny for corrupt practices and possibly on its way out, the Brazil Real is getting stronger, making it cheaper to import corn (albeit not by much though!).
Have a great weekend!
At 7:03 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2882 CAD, $1 CAD = $0.7762 USD)
May Corn: -1.3¢ (-0.35%) to $3.728 USD or $4.802 CAD
May Soybeans: +2.5¢ (+0.25%) to $9.505 USD or $12.244 CAD
May Soybean Meal (per short ton): +$1.90 (+0.65%) to $292.00 USD or $376.15 CAD
May Soybean Oil (cents per lbs): -0.28¢ (-0.85%) to 33.41¢ USD or 43.04¢ CAD
May Oats: -0.8¢ (-0.4%) to $1.923 USD or $2.477 CAD
May Wheat (Chicago): -3¢ (-0.65%) to $4.568 USD or $5.884 CAD
May Wheat (Kansas City): -1¢ (-0.2%) to $4.54 USD or $5.848 CAD
May Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.273 USD or $6.715 CAD
May Canola: -2.5¢/bu / -$1.10/MT (+0.25%) to $8.432/bu / $371.80/MT USD or $10.864/bu / $479/MT CAD
Yesterday’s Winnipeg ICE Close
May Barley: unchanged at $2.
May Durum Wheat: +2.7¢ (+0.35%) to $6.295 USD or $8.11 CAD
May Milling Wheat: +5.4¢ (+0.85%) to $4.985 USD or $6.423 CAD
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.