Feb 1 – Pulling Back

FarmLead Breakfast Brief

Wednesday, February 1st, 2017

“Don’t expect to build up the weak by pulling down the strong.”
– Calvin Coolidge (30th US President)

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Pulling Back

Grains this morning are mixed as the market takes into account decent growing conditions in South America and with China being on holiday this week, there’s less outside action in the markets. The U.S. Dollar pulled back a bit yesterday but fundamentals weighed a bit too heavy and there’s been some strong farmer selling as of late, keeping things in check. CHS is forecasting that EU rapeseed production will climb almost 7% from last year to 21.5M tonnes (previous record of 24.3M tonnes was set in 2014). Commerzbank points out that there’s no signs of major winter wheat crop damage in the Black Sea thanks to sufficient snow cover. That being said, they think that “unlimited build-up of stocks cannot be expected” and so are expected wheat prices to clime about 10% this year (in line with our thinking here at FarmLead), but are pulling back on expectations of soybean prices to $9.50 USD / bushel as large South American supplies, combined with another likely large U.S. harvest, it’s hard to be bullish.

Via their daily CME Group South American report, AgResource is forecasting Brazil’s soybean exports for the month of January was a record 1.95M tonnes and almost 5 times the 395,000 traded in January 2016!  Given the pace of exports and ship lineups (almost double the amount compared to a year ago), AgResource is expecting February exports to come in at 4.5M tonnes, another record and more than double that of February 2016. In Argentina, drier weather combined with timely rains is helping crops with most analysts agreeing that growing conditions are becoming more favourable (AKA the hysteria around Argentina’s soybean crop being doomed is starting to fade).

The USDA came out and updated their US winter wheat crop conditions as rain and show over the past month have help stave out much quality concerns. While no one is expecting the big yields that came up last year, winter wheat crop conditions aren’t too far behind last year at this time of the growing season, with the northern Plains seeing a bump in good-to-excellent (G/E) numbers whereas only 29% of Texas’ crop is rated G/E, 33% in Oklahoma, and 44% in Kansas.  Something worth mentioning is that, as pointed out by Tregg Cronin of Halo Commodity Co., Minneapolis long positions held by funds are the 4th largest on record, meaning that things might be overbought and are poised to pull back.

Finally, in its first forecast of the 2017/18, Canada’s Ag Ministry, the AAFC, is expecting wheat production in Canada to hit 29M tonnes, technically down 2.6M tonnes from last year’s surprise but still the 4th-largest crop in the past 20 years. The biggest hit will be seen in durum though with production dropping 25% to 5.8% tonnes as acreage is expected to fall 15%, whereas spring wheat acres are expected to bump up 6%. While we all know soybean acres will be up, meaning another record year of production, oats acres also expected to be higher thanks to higher prices and decent movement. Canola will be the big one to watch though as the AAFC is expecting 21M acres to get seeded, meaning a record crop is very possible. While demand has been strong, expectations are that at least 2M tonnes will be carried forward by the end of the 2017/18 crop, and with other competition from increased palm oil and soy oil supplies, prices are expected to pull back from current levels.

To growth,

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.

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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