Aug 4 – Why Grain Prices Are Under Pressure

Grain markets took another hit Thursday, led by soybeans.

The sell-off continues to be blamed by hedge funds, who are getting out of their longs and starting to short crop contracts. Soybeans were the biggest loser, with the November contract losing 17 cents/bushel.

Brazil’s Storage

As Garrett mentioned in Grain Markets Today, corn storage and movement in Brazil has become a hot topic. [1] While it hasn’t been uncommon to see piles of corn dot the landscape of the US Heartland, as Bloomberg puts it, “outdated infrastructure is placing limits” on Brazil’s competitiveness.

Challenges have been exacerbated as local corn prices in Mato Grosso, Brazil’s largest growing region, are rumored to be well under $2.00/bushel for corn, and a protest by truck drivers has delayed corn loading and the haul of grain. [2] Protestors are blocking the key federal road out of the corn producing region which leads to both the Northern and Southern ports of the country. Reuters has also reported similar protests in the nation’s coffee producing regions.

While dry weather is limiting spoilage risk, heavy rains are expected to show up in 4Q2017. According to the United Nations’ FAO, Brazil’s grain storage capacity is only half of what is recommended.

Nowhere is the storage situation worse than in Mato Grosso, 29.5 million tonnes of corn got harvested in this year’s crop. That’s a 55% jump from last year’s drought-riddled crop. The state also has 33.5 million tonnes of storage capacity.

Endrigo Dalcin, the president of farmers group Aprosoja in Mato Grosso, told Bloomberg yesterday that they need to get at least five million tonnes of corn out of Mato Grosso every month through the end of 2017 to prevent storage problems for new crop heading into the soybean planting season.

The storage problems will likely grow worse if current trends continue. According to Bunge, Brazil will plant and harvest another big crop in 2017/18 as well. [3]

As the blockades will continue over trucker wage disputes. I suppose the one bright spot is that farmers there are using more grain bags.

Corn Playing Games?

The use of grain bags by South American farmers isn’t necessarily great for American farmers. Just like the US farmer has increased their on-farm storage capacity, they’re not forced as much to make sales if they don’t like the price.

There is some bearish sentiment behind that though as because of this reason, there’s a lot of old crop corn still left on farm.

If Informa has any say though, there’s going to a lot less than last year’s record crop.

Informa updated their forecasts for national corn yields to 165.9 bushels per acre. For soybeans, they’re forecasting 47.2 bushels per acre.

What to Expect from the WASDE Report

Next week, the USDA will release its highly anticipated WASDE report.

Many grain traders anticipate that the government agency is going to lower its yield expectations in the report. But as we mentioned yesterday, the USDA has only cut its yield expectations during August just nine times out of the last 20 reports for the month.

And – in the years that they did cut expectations – the downturn has not been significant.

That said, our eye has turned to the conditions of the spring wheat market and the critical importance of protein quality.

Yesterday, Ed White questioned whether the markets have priced in ongoing drought damage to the spring wheat crop. Unfortunately, he states that it may be weeks or months before we really understand the total impact of the hot, dry conditions that have pummeled the Northern Plains this year. [4]

Minnesota FarmFest Review

After 2 hot days and 1 cooler day in Minnesota at the FarmFest show, I have to conclude two things:

  1. Minnesota hospitality is up there my books
  2. Minnesota crops are looking really good
  3. Net cash prices are really bad, mainly because basis is terrible

Most farmers we chatted with at the show would mention how they could use a little more rain or have faced hail this growing season.

However, when I pushed, there was rarely any farmer who disagreed that their crop was looking really good and comparable to last year.

From a basis standpoint, we know that it’s not great.

It’s important to keep perspective. Chatting with one farmer from central Illinois recently, they’re piling old crop corn on the ground right now at River Terminals. What does this really mean? Well, it’s bearish.

Garrett is going to dig more into this next week though.

In terms of finding a better basis, you can easily post your basis deal on FarmLead by keeping price as $0.00 and then putting your basis target into the comments section (we’re close to providing seller’s the option to basis-only contract like verified buyers can). Many farmers over the winter took advantage of this type of posting and locked in some solid old AND new crop grain deals on FarmLead.

Overall though, myself and the rest of the FarmLead team enjoyed the Minnesota FarmFest. We’ve got a few more shows that we’ve love to see and chat with you at over the next couple weeks. Check out our list of events we’ll be at here. If you think there’s somewhere FarmLead should be but it’s not on the list, please send us a note!

To growth,

P.S. this week we just re-launched our Grain Unit Converter tool at www.grainunitconverter.com. Read up on Garrett’s perspective of why it can be your secret weapon when negotiating grain trade. Keep in mind that we do have a grain unit converter built-in on the FarmLead Marketplace new offer page AND any counteroffer page. Check any of these out today!

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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