August 31 – The End or Just the Beginning?

FarmLead Breakfast Brief
Thursday, August 31st, 2017

“Every new beginning comes from some other beginning’s end.”
– Seneca (Roman philosopher)

Good Morning!

At 8:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2552 CAD, $1 CAD = $0.7967 USD)

Dec Corn: +0.8¢ (+0.1%) to $3.463 USD or $4.346 CAD
Nov Soybeans: +1¢ (+0.1%) to $9.343 USD or $11.726 CAD
Oct Soybean Meal (per short ton): +$0.20 (+0.05%) to $294.80 USD or $370.03 CAD
Oct Soybean Oil (cents per lbs): –$0.04 (-0.1%) to 34.40¢ USD or 43.18¢ CAD  
Dec Oats: -3.3¢ (-1.35%) to $2.40 USD or $3.012 CAD
Dec Wheat (Chicago): +2.3¢ (+0.5%) to $4.32 USD or $5.422 CAD
Dec Wheat (Kansas City): +0.3¢ (+0.05%) to $4.295 USD or $5.391 CAD
Dec Wheat (Minneapolis): -12¢ (-1.85%) to $6.438 USD or $8.08 CAD
Nov Canola (Winnipeg): +4.1¢/bu / +$1.80/MT (+0.35%) to $9.033/bu / $398.27/MT USD or $11.338/bu / $499.90/MT CAD

Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.515 USD or $3.157 CAD
Oct Durum Wheat: -2.7¢ (-2.3%) to $6.461 USD or $8.11 CAD
Oct Milling Wheat: -5.4¢ (-0.8%) to $5.269 USD or $6.613 CAD

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The End or Just the Beginning?

Grain markets this morning are mixed this morning after a mixed day of trading yesterday. Canola isn’t reacting as much as I thought it might to a bullish number from Statistics Canada this morning.

13,300 Canadian farmers were surveyed between July 19th and August 1st on their acres, yield and total production. As I mentioned in yesterday’s Breakfast Brief, there are certainly some healthy rains that have fallen since then, especially in Western Canada where the majority of grain is produced in the Great White North.

Hurricane Harvey, harvest pressures, and the second round of NAFTA renegotiations in Mexico City starting tomorrow are all influencing markets.

As pointed out on AgWeb.com (and as we’ve been discussing for the past 4 months or so), the continuous bearish factors are South America’s production and a number of available unpriced bushels in America.[1]

The only real bullish factor today is the potential for frost (which we’ve pointed a few times in the past week). The other is a production shock, especially for corn. Jarod Creed thinks that there will need to be less than 90 million acres to push carryout lower.[2]

Gasoline futures on the New York Mercantile Exchange are their biggest run since 2013, passing $2 / gallon yesterday. At least 23% of America’s refining capacity is now offline because of Hurricane Harvey and a lot of that could stay offline for another few months in the aftermath.

Further, the Colonial Pipeline, which transports fuel to the US east coast from Texas has now beingshut off.

As we wind down the month of August, a lot of things are ending. Summer for one which means there’s only a few days left on the boat or in the water.

Conversely, a lot of things are beginning – new classes for students and for some of you, the first time you’re sending of a child to school. Harvest 2017 is also starting up or ramping up for that matter.

Cognizant of historical lows over the harvest season, I’m getting a lot of questions this week at the US Farm Progress Show in Decatur, IL about if this is finally the end of this bearish cycle and the beginning of better prices?

Truthfully, the crops that are out there aren’t suggesting that it’s the end of low prices but harvest lows are usually seen around now.


Bullish StatsCan Numbers

Statistics Canada came out with the first forecast of the Canadian grain production and they surprised the markets with some of their numbers.[3] For once, this time it was the bullish side of things.  

Total wheat production in Canada is slated to hit 25.5 million tonnes. This is 22% lower than last year’s 31.7 million-tonne harvest and 17% below the 5-year average. Comparably, most of the market had been expecting a 26 – 26.5 million-tonne number. The harvested area will stay at 22 million but yields have bombed, averaging 42.5 bushels per acre versus last year’s 53.2.

The durum wheat number might be the most bullish thing I’ve seen in a while from StatsCan. They think that Canadian production should touch 3.9 million tonnes, which is 72% lower than last year’s haul and 34% than the 5-year average of 5.9 million tonnes. The market was expecting around 5 million tonnes.

This confirms our rationale to get your wheat tested, be it durum or spring, and wait for opportunities after harvest. Yesterday, Garrett discussed some of the most important factors to know for your wheat.

The hotly-contested canola number has been pegged by Statistics Canada at 18.2 million tonnes for the 2017/18 crop. This is about 7.5% below last year’s crop but still nearly 5% above the 5-year average. Total harvested acres will hit 22.8 million but average yields of 32.2 bushels per acre in Saskathcewan and 38.7 in Alberta are contributing to the smaller crop. Again, a bullish opportunity here in canola to wait a bit.

Corn and soybean production in Canada will climb year-over-year to 13.65 and 7.74 million tonnes respectively. For soybeans, this is an incredible 32% jump from the 5-year average. It probably could’ve been a bigger crop if yields weren’t expected to drop 11% from last year to an average of 39.3 bushels per acre. For corn, average Canadian yields are expected to come in at 153.4 bushels per acre, down 3.3% from last year. Like in the US, the corn and soybean numbers are generally neutral-to-bearish for prices.

For barley and oats, the 2017 Canadian output should come in at 7.2 and 3.7 million tonnes. For barley, this is down 19% over last year and 15% from the 5-year average. The decline is a combo of harvested acres coming in at only 5.2 million acres but more because of yields dropping 14% year-over-year to a little more than 63 bushels per acre. Harvest oats is up to 2.7 million tonnes with average yields very similar at 90 bushels per acre. For barley, this is bullish and again, it’s important to know your quality if you’re trying to push for malt (get it tested!). However, on oats, we think that the market is already pricing in the bigger crop.

Rounding out the StatsCan report, total flax production should only come in at 507,300 MT (-8.6% from last year, -30% from the 5-year average). The 2017 canaryseed harvest in the Great White North should touch 117,00 (about 16% lower than last year and the 5-year average) while fababean production should increase to 110,300 (+68.5%, +36%).

Lentil production hasn’t deviated from the 5-year average at 2.29 million tonnes but it is nearly 38% lower than last year’s crop. StatsCan says that total peas production in Canada will hit 3.79 million tonnes, again, barely a change from the 5-year average but about a third lower than last year.

For the smaller, less liquid crops, production numbers are mostly lower compared to last year. Triticale is the biggest loser at just 17,600 MT of production this year compared to last year’s 42,500 MT. Rye production is down nearly 40% from last year to 326,000 MT but that’s still 15% above the 5-year average. Mustard production is set to fall 86% from 2016 to 129,500 MT this year. That’s also 22% below the 5-year average.

The one bright spot in production is edible beans are up to 316,500 MT. This is 36% higher than last year’s production and 29% above the 5-year average.

Overall, we’d take this report as bullish and for many crops, it’s the beginning of better prices. The next question we’ll be answering is when to make your first sale in a bull market.

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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