FarmLead Breakfast Brief
Friday, December 16th, 2016
“If you can lessen the chance of a bad injury by being strong, you have to do it.”
– Joel Parkinson (Australian surfer)
At 6:50 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3344 CAD, $1 CAD = $0.7494 USD)
Mar Corn: +0.8¢ (+0.2%) to $3.573 USD or $4.767 CAD
Jan Soybeans: +3¢ (+0.3%) to $10.32 USD or $13.771 CAD
Jan Soybean Meal (per short ton): +$0.80 (+0.25%) to $314.80 USD or $420.07 CAD
Jan Soybean Oil (cents per lbs): -0.06¢ (-0.15%) to 36.68¢ USD or 48.95¢ CAD
Mar Oats: -0.3¢ (-0.1%) to $2.25 USD or $3.002 CAD
Mar Wheat (Chicago): -1¢ (-0.25%) to $4.083 USD or $5.448 CAD
Mar Wheat (Kansas City): -2.5¢ (-0.6%) to $4.103 USD or $5.474 CAD
Mar Wheat (Minneapolis): -0.5¢ (-0.1%) to $5.375 USD or $7.172 CAD
Jan Canola: +2.9¢ or $1.30/MT (+0.25%) to $8.836/bu / $389.61/MT USD or $11.791/bu / $519.90/MT CAD
Yesterday’s Winnipeg ICE Close
Mar Barley: unchanged at $2.317 USD or $3.092 CAD
Mar Milling Wheat: unchanged at $4.813 USD or $6.423 CAD
Likelihood of Lessening
Grains this morning are quietly mixed with corn and oilseeds trying to get some momentum going again after the U.S. Dollar touched a 14-year high yesterday. Cold weather continues to be expected for most of North America, and bulls are claiming this is supportive of winter wheat because of winterkill susceptibility, but I can’t recall any year that the crop was made or destroyed in December. Corn is being supported by domestic U.S. ethanol production hitting an all-time high of 1.04M barrels per day last week. This contrasts NOPA’s domestic soybean crush of 160.75M bushels used in November, below both pre-report guesstimates and October’s 164.6M, but 3% above last November’s 1561.M bushels used. Given yesterday’s bullish U.S. export numbers, corn sales are now 59% sold of the full-year USDA target (5-year average is 53% sold of the target by this time), soybean sales are clocking at 81% (76% 5-year average), and 76% of the wheat export target has been filled (73% 5-year average). However, with the stronger U.S. Dollar, and plenty of global crop to source from, the likelihood that this demand pace is sustainable Is lessening (especially for soybeans, considering prices of U.S., Brazil, or Argentinian soybeans are virtually identical right now).
Informa released new numbers yesterday, calling for average U.S. yields of 176.1 bu/ac for corn and 52.8 bu/ac for soybeans, both higher than their estimates last month. They also increased their 2017 soybean acreage number to 88.9M (still a record), while dropping their corn and wheat area forecast to 90.15M and 33.2M acres respectively. With the trend clearly favouring soybeans the last few years, one has to wonder if soybean acres will become #1 in America before 2020 (I think they can). On that note, the recent oil price spike has been supportive of oilseeds, especially with the biofuels mandate being raised a few weeks ago. This intuitively takes more supply away from the food market, which is why higher oil prices are also supporting higher vegetable oil prices. On that note though, SGS and Intertek say that Malaysian palm oil exports for the first half of December where 8-10% lower than the first have of November.
North Dakota farmers produced a record 500M bushels of corn this year, an increase of more than 50% from the 328M bushels produced last year, but now the problem is that these guys have no where to put it, and local demand isn’t exploding like production. In the past, about 40% of production has gone to ethanol but that would only represent about 25% of this year’s monster crop, while local feed demand will only account for about 1-2% of corn production this year. North Dakota isn’t the only state facing this problem as the likes of South Dakota and Michigan are in similar boats with larger-than-expected crops. All these mountains of grain (literally, there’s piles everywhere) can either move inland into other spots for ethanol processing and feed-use, or they can potentially get shipped across the border for Canadian options. Even with the currency exchange, with U.S. corn basis in this states giving U.S. farmers a $2 USD / bushel for their corn, there are more valuable options to ship across the border, which will continue to keep feed prices depressed. We’ve been seeing some decent corn movement on FarmLead and some good values remain in Saskatchewan, Manitoba, & Ontario to start a negotiation on.
Opposite of negotiation, yesterday the U.S. launched a challenged against China at the World Trade Organization for the use of tariff-rate quotas (TRQs) by the People’s Republic for rice, wheat, and corn, that hurt U.S. exports (albeit the USDA’s Beijing attaché does think China will import more wheat this year due to quality issues) . More simply put, TRQs offer lower duties on imported grains every year and China did not fully use their TRQ last year, which the Office of the U.S. Trade Representative says limited market access at a time when global prices were lower that China’s domestic prices. This comes after China launched a complaint at the WTO earlier this week on Monday against the U.S. and Europe, claiming they haven’t been treating China as a market economy and reduce how anti-dumping duties on Chinese goods are calculated. Meanwhile this is the 2nd complaint from America against Chinese agricultural policies in the past few months as they claimed in September that China’s domestic grain price supports are above what was agreed to in 2001 when Beijing joined the WTO. Ultimately, given some of the latest Donald Trump comments against Chinese trade, we should hardly expect the tension between the two largest economies to lessen (and it will likely hurt the U.S. more than China).
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