Aug 8 – Grain Markets Chasing the Bulls

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FarmLead Breakfast Brief

Tuesday, August 8th, 2017

“Chasing profits and building a long-term profit model are two different things.”
– Lewis Howes (US author)

Good Morning!

At 7:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2673 CAD, $1 CAD = $0.7891 USD)

Sept Corn: +1¢ (+0.25%) to $3.733 USD or $4.73 CAD
Sept Soybeans: +7.3¢ (+0.75%) to $9.713 USD or $12.308 CAD
Sept Soybean Meal (per short ton): +$2.60 (+0.85%) to $312.50 USD or $396.02 CAD
Sept Soybean Oil (cents per lbs): +0.30¢ (+0.9%) to 33.88¢ USD or 42.94¢ CAD  
Sept Oats: unchanged at $2.743 USD or $3.475 CAD
Sept Wheat (Chicago): +3.5¢ (+0.75%) to $4.67 USD or $5.918 CAD
Sept Wheat (Kansas City): +4.5¢ (+0.95%) to $4.713 USD or $5.982 CAD
Sept Wheat (Minneapolis): +6.5¢ (+0.9%) to $7.33 USD or $9.289 CAD
Nov Canola: +13.6¢/bu / +$6/MT (+1.2%) to $9.061/bu / $399.52/MT USD or $11.483/bu / $506.30/MT CAD

Friday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.491 USD or $3.157 CAD
Oct Durum Wheat: +10.9¢ (+1.3%) to $6.743 USD or $8.546 CAD
Oct Milling Wheat: +8.2¢ (+1.1%) to $5.949 USD or $7.539 CAD

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Grain Markets Chasing the Bulls

Grain markets this morning are mostly in the green on some less rain in the forecast, bullish crop ratings, and some decent Chinese soybean import numbers.

However, US corn exports are also slowing.

Weekly export inspections for the week ending August 3 came in at 979,000 MT. It’s similar to the previous week’s movement, but it’s more than one-third below what had been exported the same week a year ago in 2016.

For soybeans, the export pace has been decent with nearly 686,000 MT shipped out last week. That’s 40% better than the previous week.

It’s also worth noting that China imported 10.1 million tonnes of soybeans in July. That’s 30% higher than July 2016 and 31% higher than the 7.7 million tonnes imported last month (June 2017).

Karen Braun of Reuters points out that last week, hedge funds cut their long corn positions by nearly 21% to 84,644 contracts. [1]

For soybeans, she notes that managed money bullish enthusiasm halted for the first time in over 6 weeks. Last week, the speculative money dropped their long soybean positions by 22% to just under 40,000 contracts.

On wheat, Braun points out that the hedge fund manager’s holdings are similar to that of 2015 regarding both magnitude and direction. That year, the Chicago summer rally added 25% to wheat prices. This year, it’s 20%.

You’ll recall that back on June 28, I mentioned global wheat production was looking a lot like 2015/16’s numbers. It’s not surprising that price and speculative money direction is also similar.

Overall, there is still a fair amount of bullish sentiment out there for the grain markets. This week, Braun notes that funds have been sellers of wheat and soybeans but buyers of corn. With some drier weather, grain markets certainly are keeping the bulls nearby.


US Crop Conditions Decline

As Garrett mentioned in Grain Markets Today, drought conditions have worsened across the Northern Plains and are extending into the western Corn Belt.

As such, the USDA’s crop progress report out yesterday showed us that good-to-excellent (G/E) ratings of the US corn crop dropped one point week-over-week to 60%. [2] Considering that the market was expecting an improvement in corn G/E ratings, this is considered bullish.

For soybeans, rains last week helped most fields, as G/E ratings improved by one point from last week to 60%. Crops are at their normal stage of development with 90% blooming and 65% setting pods.

The US winter wheat harvest is practically finished with 94% of crops now combined. Comparably, the US spring wheat harvest is starting to cruise ahead of its 5-year pace with 24% of fields now cut.

With some of last week’s rains, US spring wheat crop ratings improved by 1 point to 31% rated G/E. Conversely, 43% of the crop is still rated poor-to-very poor (P/VP. This figure includes 53% of the Montana spring wheat crop rated P/VP, 40% in North Dakota, and 75% in South Dakota.

Same as last week, 51% of US oats are still rated G/E. The portion of fields rated P/VP did increase by 1 point tough to 23%. 50% of the US oats have now been combined, behind last year’s blazing speed of 66% and the 5-year average of 59%.

Finally, US barley crop conditions continue to fall as dryness is impacting yield potential. Just 45% of the crop is rated in G/E health, down 4 points from last week’s 49%. 20% of the crop is now rated P/VP, an increase of 3 points week-over-week. One-quarter of the US barley crop has been combined, slightly ahead of the 5-year average harvest pace (22%).

Drying Out In The Land Down Undaa?               

Extremely dry weather in Western and South Australia in the early parts of their growing season meant that many canola fields didn’t germinate and were thus replanted with cereals. [3] Currently, the Australian Oilseeds Federation is forecasting an average national yield of 23.7 bushels per acre (below-average) for a 3.12 million-tonne crop. That’s down more than one million tonnes from last year’s harvest.

The National Australia Bank downgraded its 2017/18 forecast of the Australian wheat harvest. [4] While some rains have fallen in the past few weeks in the Land Down Undaa, the NAB dropped their estimate to 22.7 million tonnes.

10 days ago, the International Grains Council dropped their Aussie wheat harvest to 22.8 million tonnes.

Citing clear drought stress on vegetation indices via satellite imagery, Lanworth is forecasting 22.5 million tonnes. Their range is 17.1 million to 26.1 million tonnes.

Despite some of the aforementioned decent rains, if below-average precipitation continues in Australia, a sub-20 million tonne wheat harvest wouldn’t be out of the question. Nidera is already in this camp.

This year’s crop might be the smallest since 2007/08. That year, the Aussie wheat harvest only came in at 13.6 million tonnes. Comparably, last year, farmers in the Land Down Undaa hauled in a record 35.1 million tonnes.

South American Wheat Prospects

As per Reuters reporting, frost effects in Paraguay will limit the amount of the production coming off the 1.06 million acres that were seeded this year. [5] As such, the USDA is only expecting an 850,000 MT harvest. This number is a down one-third from last year’s 1.284 million tonne wheat harvest in Paraguay.

This decline means that a more-limited-than-usual supply of high-protein wheat may have to stay in the country, versus getting exported into a global market where a premium is being paid. In the past, Paraguay has exported to Brazil, Chile, Uruguay, and even has been competitive in the Middle East, North Africa, and Southeast Asian markets.

Argentinian wheat planting season has been slowed by some untimely rains. [6] The USDA’s Buenos Aires attaché pegged the 2017/18 acres at 12.85 million acres, up more than 6% over last year.

The USDA’s official forecast is for 13.84 million acres of wheat to get planted in Argentina.

The Buenos Aires Grains Exchange is forecasting 13.34 million acres.

Net-net, this lower acreage adds up to a 16.65 million tonne crop for Argentinian wheat farmers. Again, because of the lower acreage, this is nearly 1 million tonnes below the USDA’s official forecast of 17.5 million tonnes. It is closer to the International Grain Council’s estimate of 16.5 million tonnes.

The record for wheat production in Argentina was set in 2007/08 when 18.6 million tonnes were harvested. Keep in mind that the crop year was behind North America’s meaning when high prices were sticking around at this time of year, allowing farmers in Argentina to choose to plant more wheat.

While the rain has hampered final wheat acres, it’s helping improve soil moisture conditions for corn seeding in Argentina, which starts in September. The USDA’s attaché is calling for, like wheat, 12.85 million acres of corn.

According to the USDA’s Buenos Aires office, this will add up to a 40.5 million tonne crop, nearly matching the record from this past 2016/17 harvest.

More Geopolitical Risk?

While we know that good-quality wheat has increased premiums, some heightened geopolitical risk may be coming back to wheat markets as well. Egypt is looking to cut government food and fuel subsidies. [7]

Considering that these subsidies extend to nearly 80% of Egyptian families, there’s a lot of people affected. As per the Wall Street Journal, “Every day, millions of Egyptians line up at government bakeries to buy five loaves of bread for less than 2¢ USD.” Yes, that’s $0.02 USD.

Add in that the Egyptian pound (their currency) was floated in the international currency markets, inflation has increased significantly. Since signing a $12 Billion loan deal with the IMF, the pound has lost half its value against the US Dollar. The subsidy cuts are just part of the loan deal.

If political tensions rise in Egypt, it gives way to more instability in a region that is the owner of a lot of wheat demand.

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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