Apr 13 – Diversifying Things

fl_hubspot_logo_456x57.pngFarmLead Breakfast Brief
Thursday, April 13th, 2017

“There’s a pure and simple business case for diversity: Companies that are more diverse are more successful.”
– Mindy Grossman (US businesswoman)

Good Morning!

At 6:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3226 CAD, $1 CAD = $0.7561 USD)

May Corn: +0.2¢ (+0.05%) to $3.708 USD or $4.903 CAD
May Soybeans: +8.5¢ (+0.9%) to $9.563 USD or $12.647 CAD
May Soybean Meal (per short ton): +$3.60 (+1.15%) to $316.30 USD or $418.33 CAD
May Soybean Oil (cents per lbs): +0.11¢ (+0.35%) to 31.35¢ USD or 41.46¢ CAD  
May Oats: -0.8¢ (-0.35%) to $2.238 USD or $2.959 CAD
May Wheat (Chicago): +1.3¢ (+0.3%) to $4.345 USD or $5.747 CAD
May Wheat (Kansas City): +1.3¢ (+0.3%) to $4.313 USD or $5.704 CAD
May Wheat (Minneapolis): +3.3¢ (+0.6%) to $5.32 USD or $7.036 CAD
May Canola: -0.9¢/bu / -$0.40/MT (-0.1%) to $8.481/bu / $373.97/MT USD or $11.217/bu / $494.60/MT CAD

Yesterday’s Winnipeg ICE Close
May Barley: unchanged at $2.238 USD or $2.983 CAD
May Milling Wheat: +2.7¢ (+0.45%) to $4.671 USD or $6.178 CAD

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Diversifying Things

Grains this morning are well into the green as the bulls are running hard on a lower U.S. Dollar and concerns over slightly wet conditions for Plant 2017 for North American producers and about 2.5M acres affected in Argentina by heavy rains in the last 2 weeks. Harvest is behind schedule in the South American country but the Buenos Aires Grain Exchange thinks it’s still early and the corn crop has the potential to average 140 bu/ac and 53.8 bu/ac for soybeans! While there’s still lots of time to plant and the rain is considered generally good for soil moisture conditions, it’s still perking up the bulls attention to help rally things in corn. It’s a similar thought by some analysts in the spring wheat market as wetness in Western Canada and parts of North Dakota have them optimistic we’ll see bit of pick-up ahead of drills hitting the fields. Regardless, The bears continue to trumpet the amount of grain out there (literally still piles of it!) and because there isn’t much room to make margin in grain trading, traders are diversifying into things like fruit, vegetables, nuts to find a buck.

Staying in America, Chuck Penner from LeftField Commodity Research reminds us that the U.S.D.A. is forecasting a drop in U.S. peas acreage for the first time 6 years, down 17% from last year to 1.14M acres in 2017, with more area likely going into greens. On the flipside, the U.S.D.A. says area seeded into lentils will again increase, up 13% from 2016, to another new record and the first time over 1M acres. More interestingly is American chickpea acreage is forecasted to jump an incredible 53% to almost 500,000! Staying in pulses, prices in India continue to pull back, down almost half in 2017 with some prices 20% below the official government minimum support price (the government only buys so much supply, with the rest going into the private market at different values, sometimes higher, sometimes less, as in now). While the Indian government says they’re creating a 2M-tonne buffer of pulse crops but in fact they haven’t started stockpiling because there’s a lack of storage space! While the agricultural policies of the Indian government support more volatility than stability, the good news is that all the additional production in 2016/17 has helped domestic food prices ease, which is significant for a population of 1.2 Billion people, of which about 1/3 live in poverty.

Switching continents, the U.S.D.A.’s attaché in Brasilia says that while this year’s Brazilian corn crop should be big (U.S.D.A. at 93.5M tonnes, C.O.N.A.B. at 91.5M), domestic carryout for the coarse grain is expected to jump some 70% year-over-year after last year’s 2Q-3Q2016 drought left supplies scarce. Accordingly, the attaché expects Brazilian corn acres next year to fall 6% to 39.5M as prices fall back towards minimum government-set values in June-July. C.O.N.A.B. says that yields in major-producing state Mato Grosso are up 42% year-over-year and the region is likely to take off 24.2M tonnes, while 2nd-largest producing state , Parana, is  set to take off 12.7M tonnes. While there’s certainly supply, AgResource is suggesting that based on Chinese crush margins and imports through the first half of the year, the U.S.D.A. could be underestimating Chinese demand by 1-3M tonnes (the U.S.D.A. upped their estimate of Chinese soybean imports on Tuesday by 1M tonnes to 88M for 2016/17).

However, soybean oil values on the Dalian Commodity Exchange in China have fallen 15% in the past 2.5 months, due to higher vegetable oil imports and consistent state rapeseed oil reserve auctions. Looking deeper, soybean crush margins were deeper between September & February, peaking in December, before having gone back into negative territory in the past few weeks. Worth mentioning as well is that since palm oil owns more than 70% of Chinese edible oil imports (~5M tonnes / year) and palm oil prices are falling as production is rebounding from 2 years of El Nino issues. While demand for soybeans should remain strong because of soymeal needs by the exploding livestock industry, there’s a shared bearish sentiment across the industry, which in turn means Chinese canola oil demand is likely to pull back as well. Lastly, worth noting is that the Chinese government is going to map 174M acres of major farmland areas in the country as the government hopes to diversify away from just price support policies and instead manage their production in a more technology-driven way.

Have a Happy Easter Weekend!

To growth,

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

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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