October 20 – Bullish Grain Prices (Just Not Right Now)

There’s a bullish argument for grain prices – it’s just that they’re not happening right now.

“One of the frustrating things for people who miss the first rally in a bull market is that they wait for the big correction, and it never comes.”
– Martin Zweig (American investment analyst)

Good Morning!

At 7:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2553 CAD, $1 CAD = $0.7966 USD)

Dec Corn: +0.8¢ (+0.2%) to $3.498 USD or $4.391 CAD
Jan Soybeans: +4¢ (+0.4%) to $10.01 USD or $12.566 CAD
Dec Soybean Meal (per short ton): +$0.30 (+0.1%) to $321.70 USD or $403.84 CAD
Dec Soybean Oil (cents per lbs): +0.32¢ (+0.95%) to 34.15¢ USD or 42.87¢ CAD  
Dec Oats: +2.8¢ (+1%) to $2.723 USD or $3.418 CAD
Dec Wheat (Chicago): +1.8¢ (+0.4%) to $4.345 USD or $5.454 CAD
Dec Wheat (Kansas City): +2.5¢ (+0.6%) to $4.318 USD or $5.42 CAD
Dec Wheat (Minneapolis): +1.3¢ (+0.2%) to $6.17 USD or $7.745 CAD
Jan Canola: +2.9¢/bu / +$1.30/MT (+0.25%) to $9.212/bu / $406.19/MT USD or $11.564/bu / $509.90/MT CAD

Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.567 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.049 USD or $7.593 CAD
Dec Milling Wheat: +5.4¢ (+0.85%) to $5.03 USD or $6.314 CAD

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Bullish Grain Prices (Just Not Right Now)

Grain markets this morning are moving higher this morning, despite a firmer U.S. Dollar.

The American Greenback is catching some legs thanks to the U.S. Senate approving a new budget. [1]

The market views the budget as a positive because it’s a sign that things are starting to get done in Washington.

Passing a budget also paves the road for Trump’s slightly divisive tax reform which has been labeled by Democrats as “Robin Hood in reverse.”

Overall, the market continues to monitor harvest activity in North America and weather maps in South America. For the latter, La Nina continues to be on the mind of many as multiple agencies put the likelihood that we see an event at roughly 60%. [2]

The National Weather Service recently called for above-average temperatures across most of the U.S. through January. [3] Coupled with the recent rains, conditions are looking pretty decent heading into the 2018/19 crop year in most of America (more on this later).

Of course, we’re hoping for a lot of moisture in the US Northern Plains and southern regions of Western Canada. Without it, the market might get a little more bullish on crop prospects in 2018/19.


Troubling Canadian Pulses

Demand for Canadian pulses continues to be slow. According to the Western Producer, this is namely thanks to slower sales to India. [4]

In fact, the Indian government is considering putting an import tax on yellow peas to prop up domestic demand. Prices in the second-most populated country in the world are dramatically lower, thanks to record production last year and likely the second-largest crop ever this year.

Further, Black Sea competition is getting pretty serious. Peas from the likes of Ukraine and Russia are being sold and delivered to India as much as CAD $50 per metric tonne cheaper than Canadian product can get there.

And that doesn’t include the new cost of fumigating at the point of origin, now that India hasn’t extended the fumigation exemption for Canadian pulses.

As such, every analyst and their mother expects Canadian inventories of pulses to grow. This trend is not bullish for pulse prices.

Marlene Boersch thinks that thanks to the lower prices and lower demand will keep Canadian farmers at roughly 30% sold going into the new calendar year. Usually, they’re closer to 60%.

We started advocating for yellow peas sales back in September. There still is some action happening on those, as well as all colors of lentils on the FarmLead Marketplace.

Accordingly, we think it’s appropriate to consider posting 10-20% of your pulses’ production on FarmLead today.

 

Yesterday’s Grain Markets Action

As Garrett mentioned in Grain Markets Today, December 2017 corn continues to flirt with $3.50 on the Chicago Board of Trade.

Yesterday, the November 2017 canola futures contract closed above CAD $500 per metric tonne for the first time in nearly two months. Part of the reason for this though is the roll of November holdings into the January contract (the former is set to expire soon).

Rapeseed values in Europe continue to trade sideways with ODA calling the lack of volatility “unsurprising.” [5]

However, they also note that it’s likely that Europe will import more canola/rapeseed this year.

You’d think that this would be bullish for canola values in Canada or Australia. However, the problem is that Canadian and Australian canola values are too expensive today to make imports work. As such, the likes of Ukraine become a preferred option.

Speaking of trade, US export sales last week were announced yesterday and corn and wheat did well, but soybeans came in below expectations.

As reported by Allendale, to date, US corn sales are tracking 5% behind the 5-year average for this time of year. [6]

Comparably, the USDA’s total marketing year goal is about 6% above the 5-year average.

For soybeans, US export sales are sitting at about 4% below the 5-year average. The USDA is expecting 2017/18 American soybean exports to climb 26% year-over-year though.


Changing 2018/19 Acreage Estimates

Informa came out with some acreage estimates yesterday for the 2018/19 crop year.

For corn, the firm thinks that there will be 90.5 million acres planted in the US. That would be about 1.4 million tonnes lower than what the USDA is saying the 2017 crop will end up at.

Informa took those 1.4 million corn acres and flipped them into soybeans. They think that there will be 90.3 million acres of soybeans seeded across America in 2018. That’s 1.3 million acres higher than the 2016/17 crop, as per the USDA’s estimate.

One of the factors that could influence corn acres next year would be ethanol demand. The problem is that there remains a lot of uncertainty over its direction as the EPA has indicated it’s looking to change some things. [7]

President Trump has told the EPA to “boost biofuels” after the American ag / Big Corn community were up in arms over proposed changes. [8]

However, our view is that regardless of what the EPA decides, it looks like ethanol’s demand for corn is going to stay flat or possibly increase. As such, the University of Missouri’s 2018/19 US corn acreage estimate of 93.2 million acres discussed here two weeks ago might be more realistic.

Mind you, if China continues to import soybeans like it’s been doing, there’s certainly an opportunity for soybean acres to compete again in 2018. And this is across all of the United States of America, but Canada as well.

However, a few analysts are thinking more long-term: soybean production in China continues to grow. [9]

The problem, from my view, is that the growth of said soybean harvests in China will be unable to keep up with China’s demand for meat (and soybeans get made into meal which feeds said meat products like hogs and cows)).

Ultimately, I continue to be bullish on oilseeds in the long-term (the next 5-10 years) for many reasons, including my point on China.

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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