FarmLead Breakfast Brief
Monday, August 22nd, 2016
“If you so choose, each day can be filled with even more joy than the one before. If you so choose, even the most seemingly random events can work in your favor.”
– Ralph Marston (US author)
At 7:00 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2922 CAD, $1 CAD = $0.7739 USD)
Dec Corn: -2¢ (-0.6%) to $3.323 USD or $4.293 CAD
Nov Soybeans: +2.3¢ (+0.2%) to $10.068 USD or $13.009 CAD
Oct Soybean Meal (per short ton): +$3.30 (+1%) to $330.70 USD or $427.33 CAD
Oct Soybean Oil (cents per lbs): -0.47¢ (-1.35%) to 33.81¢ USD or 43.69¢ CAD
Dec Oats: -0.5¢ (-0.25%) to $1.84 USD or $2.378 CAD
Dec Wheat (Chicago): -4.3¢ (-0.95%) to $4.405 USD or $5.792 CAD
Dec Wheat (Kansas City): -2¢ (-0.45%) to $4.428 USD or $5.721 CAD
Dec Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.26 USD or $6.797 CAD
Nov Canola: +1.1¢ / +$0.50/MT (+0.1%) to $8.244/bu / $369.40/MT USD or $10.653/bu / $469.70/MT CAD
Friday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.325 USD or $3.005 CAD
Oct Durum Wheat: unchanged at $5.497 USD or $7.103 CAD
Oct Milling Wheat: -2.7¢ (-0.45%) to $4.592 USD or $5.933 CAD
Making Sense of Randomness
Grains this morning are mixed with soybeans leading the way in the green on continued strong demand and mirroring China’s Dalian commodity exchange where the oilseed continues to make gains. While there’s a lot of bearish sentiment when it comes to the size of this year’s crop, the demand that soybeans have been getting should keep the market trading above $9 on the Chicago board. Today the Pro Farmer Crop Tour starts in the U.S. Midwest and it will be one that’s watched very closely given the average yield numbers that the USDA is currently calling for. In the past 15 years, compared to final corn yield estimates from the USDA, the crop tour has been too low in Ohio by 1.9 bu/ac, 2.1 bu/ac below in Indiana, 0.4 in Illinois, 3.7 bu/ac below in Iowa, 11.5 bu/ac too high in Minnesota, and 15.3 bu/ac too low in Nebraska. Ultimately, the Pro Farmer’s methodology is what I like to call “calculated randomness”, which is very good when doing statistical survey analysis.
Bayer is currently trying to do some analysis on Monsanto’s books butthe amount of access they’re getting has been a bit difficult, suggesting that maybe Monsanto isn’t interested in doing a deal. Meanwhile, ChemChina got the go-ahead from American security regulators to buy Syngenta, which makes the road to get approval in other countries a little bit easier to travel. Looking at the individual farmer’s books, the cost of doing business isn’t dropping anymore, and that’s especially true in Western Canada, notably Alberta where farmers hold a collective $20 Billion in debt. In the US, lower crop prices are definitely putting some pressure on the balance sheet, but farmland prices are dropping a bit, down 11% in the past yearwhereas cattle prices have dropped 22% and grain prices are 20% lower.
Canaryseed prices are in the bearish boat too as while Ag Canada is forecasting a 5,000 MT carryout, prices around 22-23 cents/lbs CAD suggest that the actual carryout could be at least 10 times higher than that at 50,000 MT. Tomorrow we’ll know more as Statistics Canada is coming out with this summer estimate of crop production, and after some very decent growing conditions since their last forecast, the new numbers are expected to be higher. Specifically, ahead of the report, the average canola production guesstimate by analysts is set above 18M tonnes (range of 15.9M – 20M) versus 17.2M tonnes last year. Even with some flooded and hailed out crops, the market is still expecting 4M – 5M tonnes of peas (3.2M last year) and 3M – 4M tonnes of lentils (2.4M tonnes last year). Total wheat production ranges from 28.5M – 30M tonnes (USDA at 30M) including a big bump in durum production (5.4M tonnes last year versus the range of 6.2M – 8.5M tonnes in estimates).
The question that I’m asking mostly though is where will the dust settle on the price front? As a risk manager, one must try and peg the likelihood of an event happening, versus speculating on a specific number as to where a number will land. For instance, the wheat market continues to be in a bearish position but with the large shot position held by managed money, some relatively decent demand numbers lately, and prices down significantly, one could suggest that the likelihood that wheat prices going lower is lessening. At the end of the day, there is randomness to any market and it can be pushed or pulled, violently and gently, and where the best risk managers perform is knowing when to let the randomness pass by and when to get back into the ring and take profits when they can (AKA make sales when you can, not when you have to).
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.