Feb 13 – Making Future Bets

FarmLead Breakfast Brief
Monday, February 13th, 2017

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
– John F. Kennedy (35th US President)

Good Morning!

At 7:15 AM CDT in the North American Futures Markets (*not cash prices*)
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3089 CAD, $1 CAD = $0.764 USD)

Mar Corn: -0.8¢ (-0.2%) to $3.738 USD or $4.892 CAD
Mar Soybeans: -5.3¢ (-0.5%) to $10.538 USD or $13.793 CAD
Mar Soybean Meal (per short ton): -$0.60 (-0.2%) to $341.50 USD or $446.99 CAD
Mar Soybean Oil (cents per lbs): -0.25¢ (-0.7%) to 34.36¢ USD or 44.97¢ CAD 
Mar Oats: +4.5¢ (+1.75%) to $2.59 USD or $3.39 CAD
Mar Wheat (Chicago): -4.3¢ (-0.95%) to $4.448 USD or $5.821 CAD
Mar Wheat (Kansas City): -2.8¢ (-0.6%) to $4.578 USD or $5.991 CAD
Mar Wheat (Minneapolis): -1.8¢ (-0.3%) to $5.708 USD or $7.471 CAD
Mar Canola: -3.9¢/bu / +$1.70/MT (-0.3%) to $9.121/bu / $402.17/MT USD or $11.939/bu / $526.40/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.246 USD or $2.939 CAD
Mar Milling Wheat: +2.7¢ (+0.4%) to $5.094 USD or $6.668 CAD

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Making Future Bets

Grain markets are mostly lower this morning as there’s no real new headlines to chase, South American weather remains relatively benign, and there’s been some opportunities on the futures markets for profits to be taken. While it’s a bit of a smoother ride compared to last week’s teeter-totter action, corn and wheat are touching 7-month highs on the Chicago futures board, with some psychologically-significant levels of $4 USD / bushel and $4.50 / bu respectively getting closer and closer. Managed money got a bit longer in corn and wheat last week to keep them net long in corn (+28,833 positions) but still net short in wheat (-82,547 lots), but did sell off some of their net long soybean positions as the USDA signaled last week that U.S. soybean exports are likely to slow in the coming months because of South American competition. That being said, 18% of Brazil’s soybean crop is in the bin, including 46% combined in Mato Grosso (the largest-producing state), which are well above the average pace for this time of year. Overall, the market continues to watch for more demand for all 3 major row crops, but right now, it seems like most optimists are betting on corn and wheat.

It’s an interesting bet to take though as there’s still a lot of policy questions that remain unanswered in this new President Trump government. Multiple American grain company and grower lobbying groups are trying to put pressure on the White House to prioritize action on the recent tariff hike on DDGs and ethanol imposed by China recently. On the flipside, there’s no complaints on the soybean side of the table as China imported 7.66M tonnes of soybeans in January, a new record for the month and 35% above last January’s shipments. In trade negotiations, you usually should be willing to give up something to get something else in return. This may become especially true if the NAFTA deal were to be reviewed by The Donald and Co., the Mexican ag industry may find itself compromising a lot more than than Canada’s, but if it’s being re-opened for negotiation, anything can be on the table.

Switching back into the reporting world, the Malaysian palm oil stocks report on Friday showed inventories dropping by 7.6% from December to January to a 5-month low of 1.54M tonnes, but that’s less than what investors were expected, which pushed prices lower. The consistent musings around traders is that production will start to pick back up across Southeast Asia in the coming months and that to capture more business from India or China, prices must fall anyways. There’s some bullish headlines that an El Nino event could impact this but I think that this headline is overblown as the tick to the El Nino side of the weather phenomena is too thin to be considered legitimately disruptive today (and I’m not the only one thinking this way). Most grain companies would hope for a little more volatility in the markets though as a recent Bloomberg piece looked at the trend of grain business / trading margins, which have been mostly negative lately.

Staying in finances, a couple of pieces last week in the Wall Street Journal touched on the “failing American farmer”, suggesting that “The Next American Farm Bust Is Upon Us”. Yes, the USDA’s data from last week showed that U.S. farm net income is onto its 4th straight year of decline and that it’s down nearly 50% from the record highs back in 2013.  2012/13 was when we saw some unbelievable prices so this decline is what a statistician or economist would call a reversion to the mean (comparable to someone saying “expected yields are likely to return to their long-term, trendline averages”). It obviously makes for a great headline, but it’s also suggested that U.S. farm production costs will decline to $350 Billion USD in 2017, stabilizing a bit after 2 straight years of decline and that, per the Purdue / CME Group Ag Economy Baromter, U.S. farmer sentiment is at an all-time high. Overall, we do continue to see some price pressure because of the gluttony of global grain supplies but there are profitable opportunities from a marketing standpoint. Without major weather issues on the horizon, betting the farm on one instead of taking profits when you can is something I’d advise against going into the next few months.

To growth,

P.S. I’m speaking this week in Lloydminster at the Agri-Visions event so if you’re around, come here me chat about why I think your farm is like a hedge fund.

Brennan Turner

President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
@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.

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