Dec 2 – Looking For Records?

FarmLead Breakfast Brief

Friday, December 2nd, 2016

“Adversity causes some men to break; others to break records.”
– William Arthur Ward
(US author)

Good Morning!
At 7:35 AM CDT in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3286 CAD, $1 CAD = $0.7527 USD)

Mar Corn: +3¢ (+0.9%) to $3.455 USD or $4.59 CAD
Jan Soybeans: +4.5¢ (+0.45%) to $10.343 USD or $13.741 CAD
Jan Soybean Meal (per short ton): +$2.70 (+0.85%) to $315.40 USD or $419.03 CAD
Jan Soybean Oil (cents per lbs): -0.17¢ (-0.45%) to 37.68¢ USD or 50.06¢ CAD  
Mar Oats: -0.8¢ (-0.35%) to $2.145 USD or $2.85 CAD
Mar Wheat (Chicago): +3.5¢ (+0.9%) to $3.99 USD or $5.301 CAD
Mar Wheat (Kansas City): +4.5¢ (+1.1%) to $4.075 USD or $5.414 CAD
Mar Wheat (Minneapolis): +0.5¢ (+0.1%) to $5.39 USD or $7.161 CAD
Jan Canola: -4.8¢/bu / -$2.10/MT (-0.4%) to $8.972/bu / $395.61/MT USD or $11.968/bu / $525.60/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.327 USD or $3.092 CAD
Mar Milling Wheat: +2.7¢ (+0.4%) to $4.896 USD or $6.505 CAD

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Looking For Records?

Grains this morning are mostly in the green with the Canadian Loonie back above 75 cents USD and a strong U.S. jobs report, as the market tries to recover its losses this week’s choppy trade ahead of next week’s reports. Next Tuesday, on December 6th, we’ll get Statistics Canada’s next estimates of this year’s Canadian crop, and expectations are that we’ll see a 30.7M-tonne total wheat number (would be +11% year-over-year) and a record canola crop of 18.8M tonnes (+2% YoY), despite more than a few acres still uncombined. A few days later, on Friday, December 9th, the USDA gives us the final WASDE report for the 2016 calendar year. Going into the report, with harvest basically done, most analysts aren’t watching at the supply-side of the tables, but moreso the demand in this December WASDE report. Export sales this marketing year are up 76% versus a years ago (12.5M tonnes versus 6.8M tonnes in 2015/16 by now) while soybean exports are also tracking ahead, up 27% year-over-year, at 24M tonnes versus 20.2M tonnes, while U.S. wheat commitments are up 31%. Overall, we know that next week’s report will still show record yields, but will it show record demand?

On the wheat demand front, we saw Algeria tender for another 120,000 MT of durum yesterday (most of it came from Canada) at a delivered price of $310 – $315 USD / MT (or $11.20 CAD / bushel). From a domestic standpoint, we’ve seen many buyers relax their bids off of those $9/bushel handles this week and move back into the $8s for #1 and #2 CWAD, low vomitoxin quality. While the we see those double-digit costs for the delivered overseas price, we have to admit that it’s very possible that the highs of the marketing year are now in with U.S. and export demand remaining subdued (remember that the US durum crop was its biggest in 7 years and one of the best ever in terms of quality). More generally speaking in the export game, ocean freight costs are rebounding from their recent lows, something to watch for with all these trade agreements on the table but not yet executed.

Vegetable oil demand is expected to remain strong as we head into the 2017 calendar year, growing about 3% year-over-year. Behind the growth is sustained demand from India, lower Chinese stocks (although the government there is importing AND encouraging more domestic production of soybean oil). Vegetable oil prices are likely to be supported through the 1st half of 2017, before pulling back as increased production is expected from Malaysian and other Southeast Asian producers as they recover from 2015/16’s El Nino. Adding in some pressure to the vegetable oil markets though is Argentina as the government there is encouraging investment there, at a time when record crops are already stressing the current infrastructure. Net-net, as we get into the planting season for the 2017/18 crop in North America, we are expecting soyoil and canola prices to pull back a bit from where they’re at today.

On that note, we talked yesterday about 2017 acreage estimates, but many are doubtful this year’s net income isn’t going to help pay for next year’s crop. Per the Agricultural Economic Insights blog, “Bankers see increased loan demand, loan repayment rates falling, & are adjusting collateral requirements accordingly. With harvest likely out of the way for you, now is the time (AKA before holiday season) when we need to work with our bankers and accountants and put pen to paper to fully understand where our break-even lies per crop and re-review what’s left to sell (AKA update your marketing plan). We think that there’s really 2 types of farmers when it comes to grain marketing – those who like to gamble more versus those who just plainly manage risk and their exposure to the market. A record yield or crop doesn’t necessarily translate into a record profit, especially if you don’t have a plan.

Have a great weekend!

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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