Dec 7 – Friendly Musical Chairs?

FarmLead Breakfast Brief

Wednesday, December 7th, 2016

“The facts are always friendly, every bit of evidence one can acquire, in any area, leads one that much closer to what is true.”
– Carl Rogers (US psychologist)

Good Morning!
At 6:13 AM CDT in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3264 CAD, $1 CAD = $0.7539 USD)

Mar Corn: -2¢ (-0.55%) to $3.585 USD or $4.755 CAD
Jan Soybeans: -2.8¢ (-0.25%) to $10.45 USD or $13.861 CAD
Jan Soybean Meal (per short ton): -$0.80 (-0.25%) to $321.10 USD or $425.92 CAD 
Jan Soybean Oil (cents per lbs): -0.16¢ (-0.4%) to 37.66¢ USD or 49.95¢ CAD 
Mar
 Oats: +2.5¢ (+1.15%) to $2.21 USD or $2.931 CAD
Mar Wheat (Chicago): -3¢ (-0.75%) to $4.038 USD or $5.355 CAD
Mar Wheat (Kansas City): -1.3¢ (-0.3%) to $4.038 USD or $5.355 CAD
Mar Wheat (Minneapolis): +1.3¢ (+0.25%) to $5.353 USD or $7.10 CAD
Jan Canola: -1.6¢ or $0.70/MT (-0.15%) to $9.028/bu / $398.06/MT USD or $11.975/bu / $528/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.30 USD or $3.092 CAD
Mar Milling Wheat: unchanged at $4.883 USD or $6.477 CAD

We’ve been in a period of low-grain prices…

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Friendly Musical Chairs?Grains this morning are mostly lower as the market pulls back on some saturation / overbought effects, farmer sales, and traders taking profits. Yesterday’s StatsCan report was a bit more bearish as some big numbers were published, but more than a few people are questioning the validity of the Canadian crop size, given the amount of unharvested acres that remained when the survey was done. Not to be left out of the action this week (including ABARES’ surprise report), the Australian Bureau of Meteorology says that the likelihood that an La Nina event occurs in the next few months is extremely low, with conditions relatively “inactive” further into 2017. This comes at a time though when everyone and their mother is speculating on the Argentinian crop again as conditions in the south and eastern areas of the country look dry for the next 2 weeks or so (it’s more a lack of rain though, than hot temperatures). Staying in LATAM, there’s rumours floating around that with Venezeula’s inflation issues (they’re now weighing money, instead of just counting it), Russia has cut a deal to start exporting wheat there early in 2017. Why does this matter? Venezuela usually imports about 120,000 MT of wheat from Canada and the U.S. each month. More simply put, all this substitution going on suggests that isn’t a friendly game of musical chairs.

Yesterday we got Statistics Canada’s crop production estimates for the Canadian haul this year, and, similarly to the Australian report on Monday, the report skewed to the high side. Despite the clearly disruptive harvest weather, Canadian farmers were still able to pull off a 31.7M-tonne wheat crop (+15% year-over-year & +8% from the 5-year average) and a-very-questionable 18.4M tonnes of canola (similar to last year’s record crop of 18.5M & 12.6% above the 5-year average). The big difference in 2016 that despite harvested area for wheat and canola being down 7.3% and 6.6% respectively from last year to  21.9M acres (lowest in 5 years) and 19.2M each, average yields were up substantially to 53.2 bu/ac (+24.3% YoY) and a record 42.3 bu/ac for canola. Corn production dropped slightly from last year to 13.2M tonnes while Canadian soybean production saw its 8thstraight year of record output (a trend we don’t expect to slow down), this year it being 6.46M tonnes. Getting deeper into wheat, total durum wheat production came in at a monster 7.76M tonnes (+44% YoY & 50% from the 5-year average), including 6.18M tonnes from Saskatchewan (+35% YoY, +40% from average) and 1.58M tonnes from Alberta (+94% YoY and +113% from 5-year average).

Speaking of record crops, a record 3.25M-tonne lentil crop was produced in Canada this year (+28% YoY, +64% of 5-year average) as, despite average yields were down 10% from last year, acres were up 43%.  Peas production fared better as 4.84M tonnes were combined across Canada this year (+51% YoY, +44$ from 5-year average) but chickpeas not so much as just 75,200 MT are expected to be produced this year (-10% YoY, -40% from 5-year average). Rounding out some of the lesser-known crops, there’s expected to be 119,800 MT of canaryseed this year (-19% YoY, -12% from average), 54,400 of fababeans (-33%, -43%), 233,900 of mustard (+90%, +61%), and 229,000 MT of beans (-6%, -1%). For other cereals, barley production is up to 8.78M tonnes (+7%, +6%), oats output is down a bit to 3.15M tonnes (-8%, -3.5%), while triticale and rye production soared in 2017 to 53,900 and 408,600 MT (+117% and 81% higher year-over-year, respectively).

Overall, we expect this report to see revisions for oats, barley, wheat, and canola, especially the latter two as Kelvin Heppner of RealAgriculture.com points out that the difference between seeded and harvested acreage is huge (1.29M acres for wheat, 1.16M acres for canola). This doesn’t mean that the price for this products will jump when those revisions happen but the market is earmarking some expected changes. With ABARES & StatsCan out of the way, the attention no turns to Friday’s December WASDE report from the USDA. Despite the aforementioned drier weather in Argentina, Brazilian conditions are looking pretty deluxe and with more than 100M tonnes of soybeans coming up, Karen Braun of Reuters notes that pressure is mounting for the US to meet its projected record 55.8M-tonne export target for soybeans (26.1M tonnes shipped as of December 1st). With domestic crush margins at record levels right now, China is certainly holding the play/pause button on the soybeans export record player: will Brazil or America be the last to sit down?

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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