August 10 – Time Will Tell All For Grain Markets

FarmLead Breakfast Brief

Thursday, August 10th, 2017

“The two most powerful warriors are patience and time.”
– Leo Tolstoy (Russian author)

Good Morning!

At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2718 CAD, $1 CAD = $0.7863 USD)

Sept Corn: unchanged at $3.723 USD or $4.734 CAD
Sept Soybeans: +5.5¢ (+0.55%) to $9.715 USD or $12.355 CAD
Sept Soybean Meal (per short ton): +$1.70 (+0.55%) to $310 USD or $394.25 CAD
Sept Soybean Oil (cents per lbs): +0.17¢ (+0.5%) to 34.36¢ USD or 43.70¢ CAD  
Sept Oats: -0.5¢ (-0.1%) to $2.70 USD or $3.434 CAD
Sept Wheat (Chicago): unchanged at $4.595 USD or $5.844 CAD
Sept Wheat (Kansas City): +0.5¢ (+0.1%) to $4.643 USD or $5.904 CAD
Sept Wheat (Minneapolis): unchanged at $7.34 USD or $9.335 CAD
Nov Canola: +0.9¢/bu / +$0.40/MT (+0.1%) to $9.123/bu / $402.27/MT USD or $11.603/bu / $511.60/MT CAD

Yesterday’s Winnipeg ICE Close

Sept Barley: unchanged at $2.481 USD or $3.157 CAD
Oct Durum Wheat: unchanged at $6.719 USD or $8.546 CAD
Oct Milling Wheat: +5.4¢ (+0.7%) to $6.099 USD or $7.756 CAD

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Time Will Tell All for Grain Markets

Grain markets today are mixed ahead of August’s world supply and demand estimates.

There is some bearishness in the vegetable oil complex as Malaysian palm oil inventories were larger than expected.

However, Canadian canola production concerns are helping to support the oilseed complex.

More specifically, Oil World suggests that canola output in Western Canada could come in below 18 million tonnes. [1] Add in some dryness in Australia and a reduction in exportable supplies may create “an explosive situation,” according to the Germain oilseed firm.

Right now, we’re recommending that readers fill new-crop canola contracts and wait for crop size to be known before pricing out further sales.

Coming back to the report, one thing we can expect today is volatility. [2]

You can read my full pre-report analysis from yesterday’s Breakfast Brief here,.

The summation is that the market is expecting lower US yields.

Will the USDA lower demand as well though?

The agency has done that in many years when they lowered yields.

Ultimately, after 5 bearish years, Al Kluis says that global grain markets fundamentals are starting to improve. [3] What this translates to is that ending stocks are starting to shrink and demand is improving a bit. Both are healthy for grain prices to improve a bit.

Having expectations for 2011 or 2012 prices isn’t justified though for the corn-soybean-wheat major row crops. However, I will reiterate that protein premiums available in the wheat market can certainly help one get close to those 2011/12 levels.

One thing we’re also watching for in today’s August world agricultural supply and demand estimates is wheat production numbers from major players like Australia, the Black Sea, and Canada. Specific to the Great White North, expectations are that wheat crop will be lowered to something in the 24 – 27 million-tonne range from the USDA’s current estimate of 28.35 million tonnes.

While the July heat had an impact, North Dakota early spring wheat yields are average with no quality issues. Might we see similar results across the border in Western Canada?

Time will tell.

Corn Price Direction

Yesterday I gave some historical comparisons as to how much the UDSA has downgraded yields in past August WASDE reports. Todd Hultman from DTN recently gave a pretty solid look at 2011 when corn crop ratings were similar to what we see today. [4]

The key thing to note though that the 2011 market is not 2017. Mainly in the sense that 2011 wasn’t experiencing its lowest corn prices in seven years and one of the largest carryout figures in over a decade. That’s what we’re dealing with today.

The USDA dropped 2011 US corn yields from 158.7 to 153 bushels per acre in their August WASDE report that year, and harvested acres were downsized by 500,000. Accordingly, December corn prices jumped 25.5 cents higher on the Chicago Board of Trade.

A month later in the September WASDE, the USDA downgraded the American corn crop again, pushing yields down to 148.1 bushels per acre. Despite the bullishness of two consecutive reports, December corn prices peaked on August 29th.

Interpretation: even further downgrades to yield prospects didn’t rally prices to new highs, mainly because of bearish harvest pressures.

That being said, without 14-Billion-bushel corn crops every year in the United States, it’s pretty hard for corn prices to stay below $4 / bushel on the futures board (Basis is a whole other animal).

With this in mind, if corn prices do rally, levels of resistance worth looking at will be in the $4.20 to $4.40 range.

Soybeans Price Direction

Since yields aren’t excepted to drop too aggressively in today’s August WASDE report from the USDA, price optimism isn’t too high. Generally-speaking, it seems that corn prices have more potential upside today and over the next little while than soybeans do.

The American soybean crop is made in August though, and conditions are nearly ideal for the oilseed. The intense heat is out the door, and some decent rains are in the mix.

However, it’s worth noting that Accuweather is seeing some wetter weather during harvest in late September or October. [5] This might add some premium to the market, but that forecast is 7-8 weeks out.

I’m not sure how about your meteorologist but the 7- to 8-day forecast is barely ever right, let alone 7-8 weeks from now.

Stewart-Peterson was one of the most bullish players out there earlier this year. However, with better growing conditions, their soybeans price forecast has pulled back to a range of $9 to $10.50 on the Chicago Board of Trade. [6]

$11 is on the top end of Stewart-Peterson’s range.

If the August weather helps the crop and yields improve by the September or October WASDE reports, my expectation is to see soybean prices with an $8 handle on the futures board.

Meanwhile, if the weather sucks and the USDA downgrades yields again, there’s certainly an opportunity to for soybean prices to push up to that $10.50 level. However, there’s some resistance that lies up there, and I think it’ll be tough to push back above it.

Ag Business Busy-ness

While not related to the USDA’s August WASDE report, we got a couple of big updates on the business side of things this week.

First, as Garrett mentioned in Grain Markets Today yesterday, the Ag Committee Chairman Mike Conaway expects the 2018 farm bill to be completed on time. [7]

Second, Dow Chemical and DuPont announced that their merger would be finalized by August 31st, 2017.

The third is that DuPont bought our friends over at farm data management firm Granular for $300 million USD. [8]

Chris Narayanan of GA Capital (and previous head of Societe Generale Ag Research) thinks that the big-time mergers may be out of the way and now we’ll see more mid-level deals like the Granular deal. [9]

I would agree with Chris but to a point, as we know that Glencore is still looking to boost its agriculture portfolio to supplement its Viterra assets. In its most recent quarterly report, Glencore chose to pay down more debt, instead of increasing their dividend. [10] This is only the work of a company who wants to strengthen their balance sheet ahead of some mergers & acquisition activity.

Our COO & co-founder Alain Goubau is a former McKinsey consultant where he focused on global ag strategy. He says that consolidation may be needed to spark a new wave of biotech innovation. [11].

The downside, he argues, is that shareholders may be those who gain the most, not the farmers. [12] Conversely, there’s also the argument that companies selling off seed and chemical trait assets will have to compete more farmers’ crop input business. [13]

Much like waiting for today’s USDA August WASDE report at noon EDT, time will tell what impact agricultural industry consolidation has on grain and crop input markets. Be sure to check out Garrett’s Grain Markets Today column this afternoon for a recap of today’s USDA grain report.

To growth,

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

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