FarmLead Breakfast Brief
Wednesday, December 21st, 2016
“When we are no longer able to change a situation – we are challenged to change ourselves.”
– Viktor Frankl (Austrian neurologist)
At 6:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3358 CAD, $1 CAD = $0.7486 USD)
Mar Corn: -0.3¢ (-0.05%) to $3.50 USD or $4.675 CAD
Mar Soybeans: +3.5¢ (+0.35%) to $10.193 USD or $13.615 CAD
Mar Soybean Meal (per short ton): +$0.30 (+0.1%) to $313.30 USD or $418.69 CAD
Mar Soybean Oil (cents per lbs): +0.10¢ (+0.3%) to 36.45¢ USD or 48.69¢ CAD
Mar Oats: +1¢ (+0.45%) to $2.248 USD or $3.002 CAD
Mar Wheat (Chicago): –1.3¢ (-0.3%) to $4.02 USD or $5.37 CAD
Mar Wheat (Kansas City): -2¢ (-0.5%) to $4.108 USD or $5.487 CAD
Mar Wheat (Minneapolis): -0.5¢ (-0.1%) to $5.403 USD or $7.217 CAD
Mar Canola: +2.9¢ or +$1.30/MT (+0.25%) to $8.869/bu / $391.07/MT USD or $11.848/bu / $522.40/MT CAD
Yesterday’s Winnipeg ICE Close
Mar Barley: unchanged at $2.314 USD or $3.092 CAD
Mar Milling Wheat: +8.2¢ (+1.3%) to $4.849 USD or $6.477 CAD
Holding on A Bit Longer
Grains are trying to pare back losses this morning as with the speculators worried about their P&L (and their bonuses) ahead of the Christmas holidays, markets headed lower yesterday, especially soybeans, as profits were taken. Oilseeds have rebounded a bit on the support of vegetable oil and, more broadly, the general oil markets, both in the green this morning. From a technical perspective,there’s a lot of $10 puts held in the January soybean options market that are set to expire this Friday, which could catalyze further downside pressure. The weather in Brazil remains favourable, although, as we’ll point out later in this column, Argentina still has some concerns (but it is early). As Tregg Cronin of Halo Commodities accurately points out, we know that, given where basis levels have pushed cash prices down to across most of the U.S. and Canada, futures markets have been overpriced. As such, speculators may be able to keep beans above $10 on the Chicago board, but without consistent bullishness news, those double digits will be eventually lost and a return to more average relationship with cash values is expected.
All things being equal though, there are a lot of different factors that are pulling the commodity markets right now: monetary policy from the world’s major central banks, weather, geopolitical risk, OPEC, and from an immediate, in-your-face perspective, President-Elect Donald Trump. China could also be a driver of the commodity complex heading into the new year as they are easily the largest consumer of commodities and their policies regarding their supply and demand, both domestically and abroad can easily influence the global market. With Dow 20,000 seemingly imminent, investors may start putting more money back into equities as they chase returns there, but the commodities complex does provide a bit of a hedge against inflation, albeit this intuitively drives the volatility of the markets and easily mask the fundamentals of a market.
Case in point, two-thirds of Argentina’s soybeans production is grown in the 2 provinces of Buenos Aires & Cordoba, both of which are pretty dry and hedge funds and other speculators have used this to make more bets that soybean prices are going higher. The Cordoba province is faring a bit better than the Buenos Aires region, but vegetation indices show that Buenos Aires’ density is at a 15-year low, albeit, given the point in the growing season, and as Karen Braun of Reuters points out, it’s still too early to cry “crop failure”. More definitively, more rainfall is needed and it’s needed on a more consistent basis. The challenge though is that although it’s effects are weak, La Nina’s ocean water temperature influence is expected to bring average to slightly-below average precipitation through February, per Argentina’s state weather agency. The rain that falls then though, is likely to be more impactful than the water falling this and next week, as in February & March, soybean crops will be setting and filling pods.
Staying in Argentina, Egypt tendered yesterday for another couple boatloads of wheat, and the surprise was the Argentina offered the cheapest option to the G.A.S.C.. At a price of FOB port price of $173.50 USD / MT ($6.31 CAD / bushel), this was literally $13 USD / MT cheaper than Russian FOB port prices, and even with the extra freight costs of shipping across the Atlantic (and the equator), the G.A.S.C. bought from Argentina (technically, they also bought loads from Russia & Romania for a total of 360,000 MT purchased, but Argentina’s was still the cheapest). While there’s still plenty of grain available to sell in the Northern Hemisphere from the likes of Canada, Russia, & Ukraine, the Argentinian-origin purchase by Egypt is a bit of an indication that with supplies coming online from the Southern Hemisphere, global wheat prices are likely to remain pressured for a bit longer.
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.