Aug 3 – What Do We Know About Grain Markets?

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FarmLead Breakfast Brief

Thursday, August 3rd, 2017

“Do you know what my favorite part of the game is? The opportunity to play.”
– Mike Singletary (NFL coach)

Good Morning!

At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2588 CAD, $1 CAD = $0.7944 USD)

Sept Corn: -2.9¢ (-0.75%) to $3.623 USD or $4.56 CAD
Sept Soybeans: -14¢ (-1.45%) to $9.568 USD or $12.044 CAD
Sept Soybean Meal (per short ton): -$3.50 (-1.1%) to $307.80 USD or $387.46 CAD
Sept Soybean Oil (cents per lbs): -0.58¢ (-1.7%) to 33.68¢ USD or 42.40¢ CAD  
Sept Oats: -4¢ (-1.4%) to $2.855 USD or $3.594 CAD
Sept Wheat (Chicago): -2.5¢ (-0.55%) to $4.583 USD or $5.769 CAD
Sept Wheat (Kansas City): -4.5¢ (-0.95%) to $4.60 USD or $5.791 CAD
Sept Wheat (Minneapolis): -7.3¢ (-1%) to $7.15 USD or $9.00 CAD
Nov Canola: -12.7¢/bu / -$5.60/MT (-1.1%) to $8.925/bu / $393.55/MT USD or $11.235/bu / $495.40/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.508 USD or $3.157 CAD
Oct Durum Wheat: +5.4¢ (+0.65%) to $6.702 USD or $8.437 CAD
Oct Milling Wheat: +10.9¢ (+1.45%) to $6.01 USD or $7.566 CAD

How much of a rally is enough for the next sale?
How many buyers do you call to stay on top of prices?
Let buyers come to you. Post your grain on FarmLead!

 

What Do We Know About Grain Markets?

Grain markets are mostly in the red Thursday as improving weather outlooks trump any bullish runs.

Rains are still in the forecast for most of the Midwest, but Iowa and South Dakota are praying for precipitation maps to hold true. [1] The rains are not only crucial to crops still in the field, but our thoughts are also turning to next year’s production potential.

As Garrett mentioned in his Grain Markets Today recap yesterday, corn harvest is cruising along in Texas. 22% of the crop there is already cut, well above last year’s 14% pace and the five-year average of 9%.

Naomi Blohm thinks that it’s anyone’s guess at this point, but be ready to take advantage of better prices. [2] With prices holding to a 35 cents/bushel trading range since October 2016, Blohm suggests that a 162-bushels per acre yield average could result in 2017/18 ending stocks below 1.6 Billion bushels of corn.

“That would be a game-changer heading into 2018,” she says.

Terry Reilly from Futures International thinks that managed money could move into a neutral or net short position over the next month. [3] The clear dictator as to which way hedge funds position themselves will mostly be based on next Thursday’s August WASDE report from the USDA.

On the policy front, new Congressional sanctions on Russia were signed into law by US President Donald Trump yesterday, although with some resistance. [4] This Is pushing down the value of Russian Ruble and intuitively, making their exports more competitive. [5]

What we do know is that this could potentially hurt markets that U.S. wheat is trying to enter.

 

Can North American Wheat Prices Compete?

While the Black Sea owns the lower-protein market, Japan is looking for some higher quality product. They recently put out a tender for about 133,000 MT from Australia, Canada, and the U.S. From America, the Japanese are specifically looking for almost 12,000 MT of western white spring wheat, nearly 25,000 MT of dark northern spring wheat, and 13,300 MT of hard red winter wheat.

This request comes as we continue to see news stories of more producers in the Northern Plains bailing their cereal and corn fields. [6] Regardless of who you talk to in South Dakota, North Dakota, or Minnesota, farmers are making quick comparisons to the drought in 1988, and even some to the Dirty Thirties. [7]

While the drought in a few of these areas are clearly of historic proportions, we’ve been getting a few questions from farmers at the Minnesota FarmFest of “why aren’t prices at record highs?”

The answer is that the market is pricing in what it knows right now. What they don’t know is how much of the American and Canadian spring wheat will fall in the 12% – 13%, 13% – 14%, or 14%+ protein ranges.

Sue Marting of Ag & Investment Services thinks that while most weather issues have been priced in, she’s not discounting one more rally. [8]

To be specific, $8.42 is the number that she’s looking for on the Minneapolis spring wheat futures board.

Durum wheat prices are in a similar boat as production wanes and prices rise. [9]

Tougher growing conditions in North America, Europe, and parts of the Black Sea are certainly supporting higher values. However, decent crops in North African regions may result in fewer imports needed by these countries. Double digit prices are available in Canada and nearing that in the U.S.

However, they won’t stay around forever.

On the FarmLead Marketplace, we’ve seen #2 quality trade above $10 CAD per bushel for the last month and just now we see $11 handles as harvest starts.

Check out some of the current bids or post your offer.

Vegetable Oils Reeling

Canola and soybeans did see some “bargain buying” yesterday helping the oilseeds complex rebound from Tuesday’s sell-down. However, these prices will continue to compete heavily with palm oil.

Prices for the vegetable oil in Malaysia continues to pull back from the four-month high set on Monday. Palm oil production is rebounding as the growing conditions are relatively ideal (and a stark contrast to last year’s El Nino-battered output).

However, the USDA attaché in Indonesia is forecasting a record export year for the country. [10] The Jakarta Bureau is expecting Indonesia to ship out 26.5 million tonnes, 1 million above the official USDA forecast. The increase is due to greater production and stronger demand after prices dropped in the spring.

With output pegged at 36.5 million tonnes in Indonesia, the country’s export tax at zero for August is creating a viable environment for international purchasers.

Malt Barley Needs

The dry weather across the majority of cereal production regions will likely mean some higher protein available this harvest. Obviously, the downside here is that there will be fewer bushels.

This factor is certainly going to impact the malt barley crop. From Idaho up through Montana and into parts of southern Saskatchewan, heat will likely be a downgrading factor for malsters this year. [11]

Malsters usually only take a maximum 11.5% – 12% protein, they might get selective like they did last year.

That being said though, you might see some blending going on, both on-farm and at the commercial level. Product that was left over from last year might have had some higher vomitoxin levels but lower protein. Since disease pressures aren’t that significant this year, you could easily see a mash up of high-protein, low-disease 2017/18 crop with the higher disease, lower protein crop from 2016/17.

Combine this with some lower acreage from last year and abandoned acres from this year’s heat, there might seem to be some upside potential to malt barley prices. However, those price gains will likely be limited by the blending mentioned above.

Today, most pricing is for deferred delivery as malsters are still working through 2016/17 contracts. We do expect more US buyers to be looking for Canadian supply, given the drought conditions in western North Dakota and Montana. However, the stronger Canadian Dollar can negatively impact higher price expectations that you have.

As always, we suggest as soon as your combines roll, get those samples sent in and tested so you have a strong marketing plan by showcasing exact specs.

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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