February 23 – Acreage, Weather Keep Bulls in Charge

Good morning!

Grain markets this morning are again in the green as new forecasts for acres and weather are keeping the bulls in charge.

“You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself. That is something you have charge of.” – Jim Rohn (American author)


graincents-trial

 

Grain markets this morning are again in the green as fresh weather and acreage forecasts for South America and the U.S. Plains are keeping the bulls in charge and bears in check.

For U.S. winter wheat, conditions are getting fairly bleak. Rain will be needed soon, or shortly after the crop exits dormancy to avoid large yield losses. [1] The most recent U.S Drought Monitor report puts 100% of Oklahoma in moderate, severe, or extreme drought. In Texas, that percentage is 99%. It’s 72% in Kansas and 42% in Colorado.

New 2018/19 production forecasts out from the International Grains Council are also having an impact. [2] The IGC is calling for more barley, corn, and rapeseed, but less wheat to get harvested for the 2018/19 global crop.

For Acres, King Corn or King Soybeans?

Not one to create too much drama, at the USDA’s Outlook Forum yesterday, projections for 2018 acreage were released, and soybeans came out at 90 million acres. Corn’s 2018 US acreage was also forecasted at 90 million acres.

Comparably, a Reuters poll had soybean acres at 90.6 million and corn at 89.9 million. In the Bloomberg survey, 90.7 million acres of soybeans and 90.1 million acres of corn were forecasted.

Except for the USDA, it seems, the market (including farmers) are thinking that more soybeans will get planted into American soil in 2018. With a price ratio of about 2.6 to 1 for soybeans to corn, this is above the inflection ratio of 2.5, suggesting soybeans are more profitable to plant. In many fringe areas, soybeans and spring wheat are clawing back area that’s been mostly planted to corn the past few years. [3]

This is especially true in places like the Dakotas, where dry soils have farmers a bit concerned about producing decent yields on a crop like corn, which tends to need more moisture.

That being said, the USDA is forecasting US wheat acres in 2018 to climb to 46.5 million acres. This is the second-lowest total wheat number on records, and up 500,000 acres from last year’s 46 million acres, which is the record low for history books.

Making Sense of Your Grain Markets in GrainCents

Yesterday in GrainCents, we dug into a few different topics. First, we looked at China’s dependency on Canadian canola imports (and if this is going could change soon). We also looked at the rise of oats production in Canada, namely Saskatchewan, and quality is being rewarded at the elevator or not.

We also looked at the changing of the guard for Australian wheat exports, first as it relates to low protein/winter wheat, and second, from a spring wheat/higher protein standpoint. Comparably, high protein wheat is lacking in Russia,  and with the strength of the Russian Ruble lately, wheat prices are increasing lately. Despite this, the 2018/19 wheat crop in Russia is expected to be quite large for the fourth straight year.

Finally, thanks to a few of the $1 Billion US worth of barley purchases that Saudi Arabia, I dug in a bit more into the numbers. Barley prices are certainly higher than they’ve been in the past few months, and so between China and Saudi Arabia, I asked and answered if these feed barley prices are sustainable or not.

We’ve seen some solid feed barley activity again this week on the FarmLead Marketplace – feed barley prices are paying pretty well when compared to the price and movement (if any) of malt barley contracts.

Selling Canola, Soybeans on South American Silliness

AgResource reported that “farmers in Brazil sold more than 1 million tonnes” of soybeans on Wednesday alone, with the hope that China will return from their New Year holidays and buy even more from them.

That being said, the soybean harvest in Mato Grosso – the country’s largest ag-producing region – is only sitting at about 9% complete nationwide, thanks to rains slowing field activity. Last year at this time, 31% of the record crop was harvested. [4] The slow speed of the Brazilian soybean harvest has also slowed second crop safrinha corn getting seeded. Just 16% of the expected area has been planted thus far, well below the 48% seeded by this time a year ago.

Next door in Argentina, farmers are much more hesitant to sell, despite prices being quite profitable. The hesitation is partially due to the gamble that prices will continue to go higher, but also due to the resounding question, “can I produce a crop to honor those soybean sales?”

In yesterday’s Breakfast Brief, I talked about a few reductions in soybean production in Argentina. Specifically, the Rosario Grains Exchange is now pegging the Argentine soybean crop at 46.5 million tonnes, while Agripac is at 47 million tonnes, and Agritrend is hovering between 47 and 48 million tonnes.

Joining the forecast declines this week, Buenos Aires Grain Exchange lowered their soybean harvest estimate for Argentina by 3 million to 47 million tonnes. Comparably, the USDA seems steadfast at 54 million tonnes, as per the last WASDE report a few weeks ago (although the market largely expects this number to fall in the March WASDE, which is published on Thursday, March 8th).

From a rain standpoint, wester western parts of Argentina is expected to see some moisture in the next week. The bulls are entirely focused though on the 75-80% of Argentine production areas that are expected to receive nothing. Combined with temperatures in the mid-to-high 80s, and even some 90-degree Fahrenheit hours, there is certainly the potential for further downgrades to Argentina’s soybean crop.

Earlier this week, I gave my perspective on the range of production potential for the Argentine soybean crop, but also what this would mean for soybean prices going forward. There’s also the geopolitical risk that you have to consider in Argentina. Specifically, the government depends on revenues from export taxes to make up a large share of their balance sheet. Thus, we asked and answered the question of how do politics play a role in lower soybean production in Argentina?

The real question one must ask is if the market has baked in these reductions or not into soybean prices? Moreover, have they accounted for the additionally negative weather in the forecast? Our answers are in these links above, as well as how we think about our sales position in canola, and price target recommendations in soybeans relative to South America’s troubles.

Have a great weekend!

To growth,

Brennan Turner
President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2695 CAD, $1 CAD = $0.7877 USD)

Mar Corn: +1.3¢ (+0.34%) to $3.678 USD or $4.63 CAD
Mar Soybeans: +6.5¢ (+0.64%) to $10.175 USD or $12.917 CAD
Mar Soybean Meal (per short ton): +$0.027 (+0.01%) to $370.80 USD or $470.72 CAD
Mar Soybean Oil (cents per lbs): +.2¢ (+0.01%) at 31.80¢ USD or 40.37¢ CAD  
Mar Oats: +1.5¢ (+0.56%) to $2.673 USD or $3.393 CAD
Mar Wheat (Chicago): +4.3¢ (+0.94%) to $4.568 USD or $5.798 CAD
Mar Wheat (Kansas City): +4.5¢ (+0.96%) to $4.725 USD or $5.998 CAD
Mar Wheat (Minneapolis): +0.8¢ (+0.12%) to $6.035 USD or $7.661 CAD
Mar Canola: 13¢/bu / $0.003/MT (0.03%) to $11.408/bu / $503/MT CAD or $8.986/bu / $399.23/MT USD

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.

Most Recent Posts
Dec. 10 - Grain Markets Reverse Ahead of WASDE
December 10, 2018 Brennan Turner
Grain markets this morning are mostly lower ahead of tomorrow’s December WASDE report, with wheat prices the most notable, pulling back from its significant gains on Friday.
October 4: Corn Prices Edge Higher With October WASDE in Focus
October 04, 2018 Garrett Baldwin
Corn prices ticked higher Thursday as traders and analysts began to speculate on next week’s release of the October WASDE report.