August 24 – Yields Dominating Grain Prices
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FarmLead Breakfast Brief
Thursday, August 24th, 2017

“To swallow and follow, whether old doctrine or new propaganda, is a weakness still dominating the human mind.”
– Charlotte Perkins Gilman (American author)

Good Morning!

Due to travel conflicts, there are no futures markets price data but you can review them yourself here.

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Yields Dominating Grain Prices

Grain prices are mostly in the green this morning with soybeans continuing to find a bid off some supportive biodiesel regulations (more on this later).

Wheat and corn prices fell yesterday on favorable weather and bearish corn yield estimates from the Farm Journal Crop Tour.

There’s the potential for a tropical storm to head north and bring some significant rain into the eastern Corn Belt but, right now, that’s entirely speculative.

For the crop tour, there doesn’t seem to be much lower corn yields like everyone was expecting. [1]

The question becomes, “is the market pricing in an average corn yield of 169.5 bushels per acre like the USDA says or is it closer to the 165 – 166 number that the Farm Journal Crop Tour is likely to show?”

Rabobank thinks that prices have dipped far enough though. They’re expecting an average corn price on the futures board of $3.70 USD/bushel over the last three calendar months of 2017. [2]

Conversely, Commerzbank is a little more bullish, thinking that futures corn prices could average $3.80 over the same period. [3]

On wheat prices, the firm expects values to increase moderately in 2018.

However, RJ O’Brien thinks that the Russian wheat glut is dominating the market and serving as a drag on corn prices. [4]

Farm Journal Crop Tour Day 3

Day 3 of the Farm Journal Crop Tour saw the western leg scouts head through western Iowa while eastern drivers finished up Illinois.

In Illinois, corn yields and soybean pod counts are both lower than their 3-year averages. [5] Across the Land of Lincoln, crop scouts found a corn yield average of 180.7 bushels per acre. That’s about 3.5% lower than the 3-year average of 187.37 bushels per acre.

For soybeans, scouts found an average of 1230.8 pods in a 3×3 square foot. That’s about 3% lower than the 3-year average of 1269.2.

Our own Doug Kirk is in the western troupe.

Yesterday he and his scouting cohort saw corn numbers that were slightly higher than expected but soybean pod counts were way lower.

In three crop districts toured, only one was lower than the three-year average. [6]

In crop district 7, scouts found an average yield of 185.65 bushels per acre, almost 10% higher than the 5-year average of 169.1.

For soybean pod counts though in Iowa, scouts found an average of nearly 12% lower than what has been seen over the past three years. We’ll get the final numbers for Iowa today as both western and eastern scouts finish up the state before traveling to Minnesota.

Direction of Soybean Prices

Canola prices pulled back from some highs yesterday, but soy oil continues to touch up near the $0.35 /pound level on the Chicago Board of Trade. As mentioned in yesterday’s Breakfast Brief, the impact of new tariffs on Argentinian and Indonesian biodiesel imports could result in more crush demand for US soybeans. [7]

What does this mean for soybean prices?

Considering how much biodiesel the imports from Argentina and Indonesia account for in America’s full-year needs, you could easily see a lot more soybeans head to the crusher. What I expect to happen though is while that scenario will play out, there will be imports from other countries that jump into the gap.

US domestic crush volumes could increase by 25 to 75 million bushels.

This uptick would mean that 2017/18 US soybean carryout would drop below 400 million bushels. As such, this is a bit bullish, but I would say that it would only add about a $0.30- to $0.50/bushel premium to the futures board.

Brian Basting of Advance Trading Inc. notes that the market is currently accounting for the ample supply that is coming off this year’s fields. [8]

Harvest pressures will start to kick in, and you could see prices dip down into the $8.50 USD / bushel range.

However, the Brazilian soybean growing season starts in late September, and we could see weather premium get added back into the market. We’re in line with Rabobank’s forecast of soybean prices average $9.50 USD / bushel in 4Q2017. [9]

Commerzbank is more bearish, calling for an average of $9.25. [10]

The other bullish factor is that soybean pod counts are lower on the Farm Journal Crop Tour. [11] The pods could fill out with some more moisture, but the plants can’t add any more pods at this point.

Overall, I think we’ll see bearish pressures on soybeans heading into September.

There might be some pops in the market due to private yield estimates and September WASDE report, but harvest pressures always dominate.


European Crop Yields Update

German farmer co-op DBV recently came out with some Harvest 2017 data points, and it seems that late-season rains haven’t helped. [12]

Their forecast of the German wheat crop dropped by 1.16 million tonnes to 23.35 million. Comparably, last year’s harvest 24.1 million tonnes. Average yields were pegged at 108.6 bushels per acre, again lower from last year’s average haul per acre of 114.5 bushels.

With the rains, German farmers are cognizant of the quality downgrade potential. With the risk of only being able to sell into the milling market, farmers are combining wet fields and taking on the cost of drying down the grain.

DBV also downgraded the German rapeseed crop by 350,000 MT to 4.31 million tonnes. Average yields were estimated at 56.2 bushels per acre, which is slightly above the European average of 55 bpa.

Last year’s crop was just 4.57 million tonnes, and the 5-year average is 5.3 million tonnes.

The EU’s MARS agronomy division downgraded the German corn crop too because of rains. [13] However, cooler temperatures of late have kept the average German corn yield estimate above 159 bushels per acre.

Hot temperatures didn’t help the Italian corn crop though. MARS is now forecasting average corn yields there to hit 140.5 bushels per acre. That’s 15% lower than last year’s yields.

Ukraine’s yields were also lowered by MARS, down below their 5-year average. This year, the EU’s agronomy division is estimating that Ukrainian corn farmers will yield an average of 92.9 bushels per acre.

This story is important to note as Ukraine is the world’s number four exporter of corn, after the US, Brazil, & Argentina.

However, MARS did increase yield estimates for Ukrainian wheat and barley yields at 42.2 and 74.6 bushels per acre respectively.

Over in Russia, wheat yields are seemingly only going higher. The stories and upgrades to production forecasts eerily echo what we saw in Australia last year when a 35 million-tonne crop seemingly came out of nowhere.

While the USDA pegged things at 77.5 million tonnes recently, more private estimates are pegging the number around 80 million.

There’s some discussion that with near ideal growing conditions, a great spring wheat crop could push the total Russian production number to 85 million tonnes! Russia clearly continues to dominate in the wheat game.

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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