November 16 – Who’s Paying For Better Grain Prices?

Good Morning!

Today we look at four potential catalysts for higher grain prices. It could be in the next months but also have longer impacts over as much as the next two years so we’re keeping an eye on these things. 

“Painful as it may be, a significant event can be the catalyst for choosing a direction that serves us – and those around us – more effectively. Look for the learning.” – Louisa May Alcott (American author)

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Grain prices this morning are trying to inch back into the green as the recovery from Monday and Tuesday’s losses continues.

Garrett noted in Grain Markets Today that soybeans led the complex yesterday. The NOPA crush data for October showed the use of 164.2 million bushels, a bullish figure for soybeans. That figure was just below the record set last October (so it’s positive for soybean demand).

Egypt’s battle with trade partners over tolerable ergot levels isn’t helping wheat prices again. [1] However, wheat prices this morning are recovering from some sharp losses yesterday.

After we discussed the potential impact of a non-NAFTA world this week, North American agricultural groups started to step up efforts to preserve the trade agreement. [2]

Harvest weather is co-operating, and the end is in sight for many American corn farmers. The problem is: where will farmers store all those record bushel? [3]

The answer is on the ground.

Here’s a question worth thinking about: what’s the difference between your elevator storing your corn on the ground and you storing your grain on the ground?

The answer is, you’re paying for storage at the elevator.

Higher Grain Prices? What are the Catalysts?

Most eyes these days are watching South America.

In Argentina, rainfall is expected to subside over the next week before returning toward the second-half of next week.  It’s been too wet in a lot of the major growing areas, but this dry pocket is a nice reprieve.

This also comes just as the soybean planting season is about to start up in Argentina.

Next door in Brazil, the time of the growing season for Brazilian soybeans would be like that of late May/early June in the United States and Canada.

Simply put, the first potential catalyst for higher grain prices in the short term is weather in Brazil.

If I give a quick recap, it’s been unusually dry in some of the central and northern Brazilian states, which is where most the country’s soybeans are grown.

However, rains in the past few weeks have alleviated a lot of fears, and the pace of planting is back in line with the five-year average. If we look further out though, the likelihood is dropping that we another consecutive year of big second-crop corn acres.

An interesting thing to note is that Brazilians are now making ethanol with soybeans. [4]

Let me repeat: Brazilians are making ethanol from soybeans.

It’s clear that the South American nation is looking to diversify its options as the ethanol fight between the U.S. and Brazil grows. [5]

Over the long-term, the second catalyst for higher grain prices will be U.S. ethanol demand, which is pretty decent as exports seem to be expanding. [6]

While the debate between the U.S. and Brazil is notable, other countries are welcoming American biofuels. Further, E15 and E85 use domestically continues to expand.

As a reminder though, we don’t think China’s ethanol mandate will help grain prices in the short term.

Read why we think it’s just “noise” for the market right now.

However, China is the third catalyst for higher grain prices, namely that of soybeans.

One of the state grain-buying entities, COFCO, says that soybean imports by the People’s Republic will hit 100 million tonnes in 2017/18.

Currently, the Chinese Ag Ministry thinks the number will be 96 million tonnes while the USDA is forecasting 97 million.

In yesterday’s Breakfast Brief, I discussed some of the headwinds those import numbers are facing. In addition to the large port stocks and tougher GMO certificates though, the Chinese government announced that the entire Chinese pig herd in October had dropped nearly 7% from a year ago. [7]

That’s the largest drop in nearly two years!

Both soy and hog herds have registered year-over-year declines every month since the start of 2016.

The real reason behind is that the government is closing smaller, inefficient pig farms as new regulations come into effect December. These new laws state that livestock production is banned near major population areas and water sources.

Will Feed Demand Save Grain Prices?

It’s worth noting that China produces about 55 million tonnes of pork per year or more than half of the world’s total production!

On the other side of the world though, the cattle herd size in America is at its largest since 2012. We know this because a few weeks ago we dug into whether “giving a cow” could save corn prices.

Cattle prices continue to impress, and with where feedstuff prices are, margins are decent compared to where things were a year ago. [8] As such, analysts right now are telling feed buyers to lock in supply because we’re at the lows and they’re not going to stick around forever. [9]

More specifically, Mike North of Commodity Risk Management Group says that with soymeal prices usually trend higher from here on out. [10]

Thus, the fourth catalyst for higher grain prices is American feed demand. This creates problems for acreage potentially next year though as soybeans continue to pay better than corn does. Right now, November 2018 soybean prices on the futures board are sitting at $9.87 USD per bushel compared to December corn prices of $3.83.

That ratio is above the pivotal 2.5 number. If the price ratio between these two contracts is below 2.5, it usually means it’s more profitable for the American farmer to plant corn. If above 2.5, it’s more profitable to plant beans.

Ultimately, these four factors are what I’m watching right now to help push grain prices higher.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2758 CAD, $1 CAD = $0.7838 USD)

Mar Corn: unchanged at $3.51 USD or $4.478 CAD
Jan Soybeans: +0.5¢ (+0.05%) to $9.878 USD or $12.602 CAD
Jan Soybean Meal (per short ton): +0.40 (+0.15%) to $313.80 USD or $400.36 CAD
Jan Soybean Oil (cents per lbs): -0.04¢ (-0.1%) to 34.84¢ USD or 44.45¢ CAD  
Mar Oats: -4.8¢ (-1.7%) to $2.755 USD or $3.515 CAD
Mar Wheat (Chicago): +1.3¢ (+0.3%) to $4.39 USD or $5.601 CAD
Mar Wheat (Kansas City): +2¢ (+0.45%) to $4.373 USD or $5.579 CAD
Mar Wheat (Minneapolis): +4.3¢ (+0.65%) to $6.435 USD or $8.21 CAD
Jan Canola: -2.7¢/bu / -$1.20/MT (-0.25%) to $11.748/bu / $518/MT CAD or $9.208/bu / $406/MT USD

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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