August 28 – Weathering the Storm of Lower Grain Prices

FarmLead Breakfast Brief
Monday, August 28th, 2017

“If you want to see the sunshine, you have to weather the storm.”
– Frank Lane (former @MLB manager)

Good Morning!

At 6:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2464 CAD, $1 CAD = $0.8023 USD)

Dec Corn: -0.8¢ (-0.2%) to $3.528 USD or $4.397 CAD
Nov Soybeans: +0.3¢ (+0.05%) to $9.448 USD or $11.776 CAD
Oct Soybean Meal (per short ton): +$1.60 (+0.55%) to $299.50 USD or $373.30 CAD
Oct Soybean Oil (cents per lbs): -0.04¢ (-0.1%) to 34.68¢ USD or 43.23¢ CAD  
Dec Oats: +6.8¢ (+2.65%) to $2.598 USD or $3.238 CAD
Dec Wheat (Chicago): -4.5¢ (+1.05%) to $4.308 USD or $5.369 CAD
Dec Wheat (Kansas City): -3.3¢ (-0.75%) to $4.29 USD or $5.347 CAD
Dec Wheat (Minneapolis): -3.5¢ (-0.5%) to $6.658 USD or $8.298 CAD
Nov Canola (Winnipeg): +2.3¢/bu / +$1/MT (+0.2%) to $9.133/bu / $402.67/MT USD or $11.383/bu / $501.90/MT CAD

Friday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.533 USD or $3.157 CAD
Oct Durum Wheat: unchanged at $6.682 USD or $8.328 CAD
Oct Milling Wheat: +10.9¢ (+1.6%) to $5.481 USD or $6.831 CAD

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Weathering the Storm of Lower Grain Prices

While most of North America enjoyed nice weather over one of the last weekends of summer 2017, Texas was hammered by Tropical Storm Harvey. [1]

Many parts of Houston, America’s 4th-largest city, are under water.

Total accumulated rainfall has been between 30 to 50 inches in the last four days.

From a broader markets perspective, about 25% of natural gas and oil production in the Gulf of Mexico has been idled. Further, 10% to 15% of America’s gasoline refining capacity has also been shuttered. [2]

As a result, gasoline futures are trading near a 2-year high this morning.

Of course, there are many challenges for the agricultural sector as well.

The storm comes at a time that the Texas cotton harvest is ongoing. A lot of this year’s crop is being left in the field. From a numbers standpoint, Texas ports at the Gulf of Mexico account for 2% of total US soybean exports, 3% of corn exports, and 24% of total wheat exports.

Markets are challenging every Gulf of Mexico port (including those in Louisiana)  to run at full capacity with the storm. That’s significant, considering the region is responsible for about two-thirds of all US corn and soybean exports.

Overall, both broader and agricultural markets will weather the storm, literally and figuratively.

Some price premium will likely be added before anyone can understand the true damage of the storm.

This morning though, grain prices are mixed as the combo of harvest pressure and subdued managed money intent is keeping that premium small.

Final Farm Journal Crop Tour Numbers

As recapped by Garrett in Grain Markets Today, Farm Journal released its final crop tour results on Friday. [3]

Average US corn yields were pegged by the Pro Farmer team at 167.1 bushels per acre.

This figure would translate to a national production number of 13.95 Billion bushels.

Comparably, in their August WASDE report, the USDA pegged average US corn yields at 169.4 bushels per acre with a total production number of 14.26 Billion bushels.

In Friday’s Breakfast Brief, I had time stamped my forecast of what the final tour corn yield number might be at “167 point something”.

The title of best corn yield goes to Minnesota, whose farmers are estimated to average 184 bushels per acre.

From there, next in line went to Iowa at 183, Illinois at 181, Nebraska at 180.5, Indiana at 171, Ohio at 163, and South Dakota at 138 bushels per acre.

For soybeans, the Pro Farmer team estimated average national yields at 48.5 bushels per acre. They also raised total harvested acres by 500,000 to get a production number of 4.33 Billion bushels.

I was expecting something between 48 to 48.5 bushels per acre.

The USDA’s August WASDE numbers showed a 49.4 bushel per acre yield and 4.38 Billion bushels of total production. The output isn’t that much lower, but the difference is in the increase in harvested acres by Pro Farmer. The reason for that is the FSA indicated that soybean acres would be higher than estimated in the June Acreage report.

Highest to lowest, Nebraska is looking the best at 56.5 bushels per acre. After that, scouts saw 55.5 bushels per acre in Illinois, 54.5 in Indiana, Iowa at 53.5, Ohio at 53, Minnesota at 48.5, and then South Dakota at 40.5 bushels per acre.

Market Impact of Crop Tour Numbers

Last week, speculative money in fund managers moved their corn position to a net short of over 17,000 contracts.

Managed money is also sitting at a net short of nearly 67,000 lots in the Chicago soft red winter wheat futures market. Comparably, Kansas City hard red winter wheat futures still have fund managers sitting net long, but a lot of positions were lost last week.

Now that the crop tour is out of the way, we’re likely heading back to trading weather and looking at the USDA’s next WASDE report, released in about two weeks on Tuesday, Sept. 12.

As Brian Grete from Pro Farmer correctly points out, there are two “wet blankets” that are continuing to hang over corn and soybean prices. [4]

  1. Still, lots of old crop sitting around
  2. Not a lot of new crop priced out

I would add a third factor which is the total amount of unpriced grain in South America. It’s also worth noting that Brazilian soybean acreage is likely to climb by another 2% in 2018.

There’s lots of buzz across the web and social media as to why the Farm Journal Crop Tour numbers could be too high. However, as our Doug Kirk points out in his recap of his crop tour experience“I would have a harder time accepting them too if I hadn’t seen the crops in the western Corn Belt for myself.”

Like a lot of other farmers, Doug expects to bin a lot of unpriced grain this harvest on his 7,500-acre farm in central Illinois. He will make those bushels work for him though by:

  1. Selling option premium at prices where they’d be okay making sales; and
  2. Being proactive in the cash market and posting lots on the FarmLead Marketplace.

 An example of an options strategy on unpriced stored bushels can be found here. A guide to posting your grain on FarmLead can be found here.


Canola Prices Pressured

Canola Prices Pressured By Harvest
Canola Prices Pressured By Harvest

The larger soybean number out from the Farm Journal Crop Tour has certainly put some pressure on canola prices. The second factor is “positive harvest conditions,” which are showing some better-than-expected yields.

Canola exports from Canada are running a little ahead of last year. Last week, 461,300 MT were shipped out. That’s up nearly 15% year-over-year for one of the first weeks of the new crop year. Total domestic crush in Canada is sitting at only about 50% capacity as deliveries have been slow on the rationale that harvest is the focus for most producers.

This Thursday, on August 31st, we’ll get Statistics Canada’s production estimates. From a futures board standpoint,  AgChieve points out that the November contract hasn’t settled above $511.20 since mid-July.

Going into the report, there are some wide-ranging estimates but downward pressure at this time of year is expected. From a sales standpoint, one should be weathering the storm and delivering on those better prices seen last winter and this spring. I expect the next best pricing opportunities are likely to come in October / November.

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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