FarmLead Breakfast Brief
Monday, February 27, 2017
“It is no use walking anywhere to preach unless our walking is our preaching.”
– Francis of Assisi (Italian Roman Catholic Friar)
At 6:55 AM CDT in the North American Futures Markets (*not local cash prices*)
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3115 CAD, $1 CAD = $0.7625 USD)
May Corn: +0.3¢ (+0.05%) to $3.71 USD or $4.866 CAD
May Soybeans: +2.8¢ (+0.25%) to $10.27 USD or $13.469 CAD
May Soybean Meal (per short ton): +$2.00 (+0.6%) to $337.70 USD or $442.89 CAD
May Soybean Oil (cents per lbs): -0.02¢ (-0.05%) to 32.65¢ USD or 42.82¢ CAD
May Oats: -3.3¢ (-1.3%) to $2.468 USD or $3.236 CAD
May Wheat (Chicago): -2.8¢ (-0.6%) to $4.453 USD or $5.839 CAD
May Wheat (Kansas City): -3¢ (-0.65%) to $4.64 USD or $6.085 CAD
May Wheat (Minneapolis): -2.3¢ (-0.4%) to $5.515 USD or $7.233 CAD
May Canola: +1.8¢/bu / +$0.80/MT (+0.15%) to $8.949/bu / $394.59/MT USD or $11.737/bu / $517.50/MT CAD
Friday’s Winnipeg ICE Close
May Barley: unchanged at $2.274 USD or $2.983 CAD
May Milling Wheat: unchanged at $4.897 USD or $6.423 CAD
Preaching The Gospel
Grains this morning are quietly mixed as the market deals with futures deliveries, follow-up trading on the U.S.D.A. forecasts from last week, & South American weather. Looking to the skies, the forecast looks to be relatively the same as last week with some rains in central Brazil and needed dryness in Argentina which will persist for the next 2 weeks with some intermittent rainfall. Last week, hedge funds got longer in corn and wheat but sold soybean positions, albeit managed money is still sitting at more than 154,000 lots long. India still hasn’t granted an extension to pulse crop fumigation requirements for Canadian exports, meaning that the government and international industry players have less than a month to spin some magic to maintain the market worth more than $1 Billion annually to Canada. We saw this issue with canola and China last year so no need to trumpet the “trade is important” gospel but we’re cutting it close again.
On the logistical issues that Bloomberg was ranting and raving about last week, we researched the issue (AKA “the noise”) a bit more and it appears that the biggest problems really only are in Para, north of Mato Grosso. Regardless, given some of the yields coming off in Brazil right now, there are many who continue to view the U.S.D.A.’s export target as optimistic. While it’s widely known that Chinese soybean demand growth is slowing (it’s still growing, albeit at a smaller pace), Chinese buyers tend to return to American supplies at least once or twice from January to June due to harvest or logistical delays. Between this and domestic demand on the rise, there’s some sentiment across the market that soybean prices will stay strong, relative to the price of corn and its prospects.
Speaking of price prospects, we’ve made continuous suggestions that wheat values can head higher, albeit not by a huge amount that everyone is hoping for. While there was pretty decent quality that came out of the hard red spring wheat harvest in America this year, the bumper U.S. winter wheat harvest didn’t turn out so great, creating a lot of additional supplies for the feed market. While there’s likely to be a smaller carryout off U.S. hard red spring wheat and more winter wheat, the latter has to compete w/ all that corn (not just domestically, but pretty much everywhere in the world). The question to be asked is whether or not we see millers start to lower their standards as to what they’re willing to accept for protein. Such is the case in the durum market where we are seeing more international buyers willing to take of the lower quality product for, intuitively, a lower price. As per Greg Kostal, buyers from Peru, Morocco, and Italy are willing to take on #3 Canadian Durum product (AKA #1 US Durum), which in turn is putting pressure on higher quality prices since less people are willing to pay up for it.
This time of year, especially with the early spring temperatures, I often hear things like “are we at the highs?” or “how likely are we going to see a weather market this spring?”. Full disclosure: I don’t hold a crystal ball. What I do hold is an understanding of weighing the upside catalysts against the downside risks (something I talk about in a recent blog post on gambling versus managing price risk exposure). A producer recently asked me if he should plant more of a specific crop because of a few upside catalysts and whether he was “wishing” for a specific even price to become a reality. I told him the price is irrelevant if you don’t know what it means for profit / ROI and how much risk he’s putting into the market as it relates to production costs (something I also wrote about & gave a mathematical example of in Part 2 of the aforementioned blog post). There are plenty of downside risks in the market right now and in markets where funds are heavy speculators (like now), taking advantage of profitable pricing opportunities is gospel you’ll never hear stop preaching (and practice!).
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.