August 16 – Grain Markets Are Easier Said Than Done

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FarmLead Breakfast Brief

Wednesday, August 16th, 2017

“Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.”
– Lao Tzu (ancient Chinese philosopher)

Good Morning!

At 7:15 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2723 CAD, $1 CAD = $0.786 USD)

Dec Corn: +0.8¢ (+0.2%) to $3.693 USD or $4.698 CAD
Nov Soybeans: +2.8¢ (+0.3%) to $9.27 USD or $11.794 CAD
Oct Soybean Meal (per short ton): +$0.30 (+0.1%) to $297.60 USD or $378.63 CAD
Oct Soybean Oil (cents per lbs): +0.23¢ (+0.7%) to 33.06¢ USD or 42.06¢ CAD  
Dec Oats: +1¢ (+0.4%) to $2.578 USD or $3.279 CAD
Dec Wheat (Chicago): +3¢ (+0.65%) to $4.59 USD or $5.84 CAD
Dec Wheat (Kansas City): +3.5¢ (+0.75%) to $4.575 USD or $5.821 CAD
Dec Wheat (Minneapolis):+15¢ (+2.25%) to $6.855 USD or $8.721 CAD
Nov Canola: +6.8¢/bu / +$3/MT (+0.6%) to $8.865/bu / $390.88/MT USD or $11.279/bu / $497.30/MT CAD

Yesterday’s Winnipeg ICE Close

Sept Barley: unchanged at $2.481 USD or $3.157 CAD
Oct Durum Wheat: unchanged at $7.166 USD or $9.117 CAD
Oct Milling Wheat: -21.8¢ (-3.05%) to $5.433 USD or $6.913 CAD

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Let buyers come to you. Post your grain on FarmLead!

Grain Markets Are Easier Said Than Done

Yesterday, FarmLead had a great first day at the Dakotafest show in Mitchell, SD (stop by our booth in one of the big tents if you’re around).

But farmers headed home when the rain showed up in the late afternoon.

Much like those farmers, speculative money has also been going home when the rain starts falling.

It’s estimated that funds sold 13,000 contracts of corn, further downgrading bullish bets on the coarse grain. From a technical standpoint, corn dropped below Monday’s support level of $3.70/bushel on the Chicago Board of Trade. Corn prices are now at a 10-month low.

Yes… Blame it on the rain.

Precipitation hit areas of the Northern Plains, Nebraska, and Iowa, all areas that had been looking for some moisture. The system is expected to move east, helping crops across the Corn Belt catch a surely-needed drink.

This morning, grain prices are rebounding.

Perhaps there’s less market group think than what Karen Braun of Reuters recently discussed. [1] She writes that “the market should avoid the mob mentality approach to estimating both USDA’s moves and the final numbers because it will reduce the shock effect.”

That’s easier said than done.

Pressured North American Oilseed, Wheat Prices

Outflows of money from the wheat complex continue to weigh heavy on prices.

All three exchanges saw double-digit losses yesterday as speculative fund money looks to pull out of their bullish positions. As Garrett explained in Grain Markets Today, the USDA’s numbers didn’t drop far enough to make the bulls to stick around.

Further, Russia’s production and export numbers mean big competition.

It’s estimated that funds were big sellers yesterday in wheat and soybeans.

When the dust cleared, 7,500 wheat contracts and 10,000 soybean positions were sold, further pressuring prices. While the next level of support for November soybeans is $9.07, technical indicators are suggesting the oilseed is oversold (and perhaps why it’s rebounding a bit this morning). Canola also dropped below $500 CAD / MT yesterday and several key moving averages.

Soybean prices continue to be held at mercy by the aforementioned forecasted rains in major growing regions and Brazilian competition. Thus far in 2017, Brazil has exported 53.4 million tonnes of soybeans. That’s already higher than the entire 2016 soybean export campaign, and there’s still a few months left in the calendar year!

Yesterday we also got the NOPA soybean crush report for the month of July which showed 144.72 million bushels getting used up (or 3.94 million tonnes if you were using the FarmLead Grain Unit Converter). This was about 1.7 million bushels above the market’s pre-report expectations. The figure also represents a 4.8% bump from June and is 0.7% higher than July 2016.

With only August left in the 2016/17 soybeans marketing year, it’s widely expected that the USDA’s total-year target crush volume of 1.89 Billion bushels.


China’s Corn Prices Are Rallying, Wheat Prices Are Not

As per a recent USDA report, domestic corn prices in China are hitting 10-month highs. [2]

Currently, Chinese corn spot prices are sitting at roughly $6.35 USD / bushel or $8.10 CAD/bushel. The reason for the price increase is what the USDA is calling a “perfect storm of policy shifts, adverse weather conditions, and logistical bottlenecks.”

While drought conditions have affected parts of central and growing regions in the People’s Republic, corn production is pegged at 210 million tonnes in 2017/18. This figure is about 4% lower than production in 2016/17 a year ago. Average yields are estimated to be just under 98 bushels per acre across 86.5 million harvested acres.

China’s corn imports though have been halved as the selling of domestic reserves is limiting the need for international trade. China recently announced plans to sell another 1.2 million metric tonnes of corn from its state reserves followed by another 804,000 MT auction tomorrow. The only problem is that it’s three- to four-year-old corn.

With these ongoing state reserve auctions, the USDA halved their expectations for corn imports to just 1.5 million tonnes.

Wheat imports by China will also remain thin at just 3 million tonnes thanks to higher yields in this year’s harvest. Wheat production is pegged at 130 million tonnes, which has pressured spot wheat prices in the People’s republic to fall to $9.44 USD/bushel or $12 CAD/bushel. However, there remains a limited supply of high-protein wheat. Sounds familiar, eh?

Food for thought though: American hard red winter wheat accounted for 15% of China’s total imports in 2016/17. Australia was the leading exporter to the People’s Republic, shipping more than half of the 3.6 million tonnes that they bought overseas.

Worth noting is that Kazakhstan has been shipping 40,000 MT of wheat per month to China, but they’re doing it by rail! Further, COFCO, one of China’s state-grain buying agency says that it intends to import up to 2 million tonnes of wheat from Russia every year, with more and more of it coming by railroad.

 

NAFTA 2.0

Today is when NAFTA 2.0 negotiations are supposed to start up and our guess, like many others, is that it won’t be over quickly. [3] There’s plenty on the line with Mexico, America, and Canada all vying for some better positions after nearly 24 years of “free trade” within North American borders. Despite US President Donald Trump calling NAFTA “the worst trade deal” during his campaign, many in the North American agricultural industry are looking for the status quo. [4]

Shaun Haney of RealAgriculture.com does an excellent synopsis of what Canada is hoping to get out of the new deal. [5] For most ag industry groups, more standardization across borders is the big ask.

At least 130 American agricultural associations and food groups have expressed their support for the current NAFTA to President Trump. After all, US food and ag exports to Canada and Mexico have more than quadrupled to nearly $40 Billion / year since NAFTA was signed in 1993.

Looking a breakdown of industry players, the US National Corn Growers Association is owning a “no harm” position. [6] Basically, they don’t want to lose Mexico as American corn numero uno importer! That being said, it’s possible that Mexico does take a number 2 position in 2017 as they diversify away from the US and more American corn is sold to Japan.

The American Soybean Association also doesn’t want to go backward, but it does want to add a biotech provision to facilitate trade with other countries outside of North America. [7]

From a grains perspective, the most aggressive may be the wheat people. The National Association of Wheat Growers says that they’d like to see new rules to modernize phytosanitary standards (read: grain grading standards). [8]

Make sure to check out our new tool, GrainTests.com, where you can order both US and Canadian grading tests to ensure you can market your grain most effectively.

On the livestock side of things, America’s National Pork Producers Council says that “NAFTA has been a resounding success, and we don’t want to go backwards.” [9]

Mexico is the number #1 destination for US pork, while Canada constantly sits in the Top 5. For the US National Cattlemen’s Beef Association, the status quo is fine as they see “no room for improvement” from the current language. [10]

The US dairy industry is the most aggressive though as they’re looking squarely at Canada’s supply management system. [11]

The US National Milk Produce Federation thinks that Canada is having its ice cream and eating it too.

The northern dairy crew thinks that the current NAFTA deal works well for Canada in areas that its competitive but is trying to keep US dairy goods out of the Great White North.

That said, the US dairy industry has also benefited from the deal as Canada is the number 2 consumer of American dairy product while 75% of Mexico’s dairy imports come from the U.S. [12]

I don’t expect a few days of simple conversation.

Given the Trump administration’s hard stance on many issues, this renegotiation will be easier said than done.

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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