In today’s Breakfast Brief, we discuss UK’s referendum and its impact on the grain markets.
“You cannot dream yourself into a character; you must hammer and forge yourself one.”
– James Anthony Froude (English historian)
Grains this morning are all lower thanks to the US Dollar jumping after it was announced that the majority of the UK voted to leave the European Union (or “Brexit” – more on this later).
Russia’s Ag Ministry is saying that their earliest harvested fields this year are showing a 8% increase in average yields compared to last year. In Argentina, the Ag Ministry bumped their soybean production estimate up to 58 million metric tonnes, a solid step up from the doomsday losses predicted back in April that helped spur the last 2 months’ rally.
Overall, the grain markets continue to get slapped in the face as they’re being forced to wake up from the dream that’s been higher prices for which no fundamentals can really justify (especially in soybeans!).
Brexit Weighing Down Markets
In a shock to most markets, the U.K.’s referendum held yesterday on whether or not to leave the E.U. resulted in “Brexit”, and the British Prime Minister, David Cameron, promptly resigning. The vote was incredibly close, with 51.9% (~17M votes) voted in favour of leaving, whereas 48.1% (15.86M votes) wanted to remain. Scotland and Northern Ireland were in the camp of staying in the E.U., as was major city centres like London, whereas the rest of the U.K. was against staying with the European Union, especially those on England’s east cost. Looking deeper into the vote, the youth wanted to stay in the EU (64% voted remain), whereas the elderly chose not to (58% in favour of leaving), meaning the older generation basically voted for a future that the younger don’t want. Ironic.
With the Brexit move, this is putting central bankers on edge as it doesn’t really fit in with their plans. Markets are all in the red this morning, as European stock exchanges and currencies plummet (the British Pound plunged as much as 11% overnight to its lowest level since 1985 before recovering a bit), whereas the US Dollar is soaring, along with precious metals and bonds.
To help to stave a complete sell-off across the markets, central bankers are scrambling to prop up the market with more “easy money” to try and keep things together, with interest rate cuts in the future for Europe, instead of raises. The move by the UK now creates uncertainty for the EU as a whole, with other countries effectively thinking about getting out. While the process to effectively leave the E.U. will take (likely) more than 2 years, the psychological damage is done but the economic impacts are quite unknown though.
What does this mean for the grain markets?
Welp, there’s much uncertainty for the EU/UK ag landscape now, but EU grain prices are lower while UK grains just got easier to buy thanks to their currency dropping like a European soccer player (purchasing power from everywhere else is stronger against the British Pound now). With the US Dollar pumping, the Canadian Loonie is flirting with a 76 cent handle again, and futures markets are all feeling some pain with soybeans close to dropping below $11/bu USD in Chicago and canola back below $11/bu CAD in Winnipeg.
Corn is likely going to see its largest 1-week loss in the last 3 years, thanks to the better weather and the recent UK referendum. With the Brexit vote out of the way now though, all eyes turn to next week’s numbers from the USDA for quarterly stocks and acres.
We’ve been making the call to contract your remaining feed grains before the July long weekend, and it’s proving to be a profitable call, especially with rains on the horizon for some drier areas over the weekend and next week. If you’re dreaming for higher prices over the next 6 weeks before new crop supplies start to come online, remember that hope is not risk management. Post on the FarmLead Marketplace and let’s give your grain a chance to find the best possible price.
Have a great weekend!
At 5:30 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.281 CAD, $1 CAD = $0.7806 USD)
Sept Corn: -8.3¢ (-2.1%) to $3.843 USD or $5.007 CAD
Aug Soybeans: -11.8¢ (-1.05%) to $11.118 USD or $14.486 CAD
Aug Soybean Meal (per short ton): –$5.30 (-1.4%) to $378.70 USD or $493.446 CAD
Aug Soybean Oil (cents per lbs): -0.63¢ (-1.95%) to 31.27¢ USD or 40.75¢ CAD
Sept Oats: -3.4¢ (-1.8%) to $2.02 USD or $2.632 CAD
Sept Wheat (Chicago): -6.3¢ (-1.35%) to $4.595 USD or $5.987 CAD
Sept Wheat (Kansas City): -6.8¢ (-1.5%) to $4.388 USD or $5.717 CAD
Sept Wheat (Minneapolis): -4.3¢ (-0.8%)
Nov Canola: -2.7¢ / -$1.20/MT (-0.25%) to $8.424/bu / $371.42/MT USD or $10.977/bu / $484/MT CAD
Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.865 USD or $3.734 CAD
Oct Durum Wheat: unchanged at $6.182 USD or $8.056 CAD
Oct Milling Wheat: -2.7¢ (-0.45%) to $4.678 USD or $6.096 CAD
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.