Feb 23 – Lines In The Sand

FarmLead Breakfast Brief
Thursday, February 23rd, 2017

“It isn’t the mountain ahead that wears you out; it’s the grain of sand in your shoe.”
– Robert Service
(British-Canadian poet)

Good Morning!

At 6:55 AM CDT in the North American Futures Markets (*not cash prices*)
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.30122 CAD, $1 CAD = $0.7621 USD)

May Corn: -0.8¢ (-0.2%) to $3.775 USD or $4.953 CAD
May Soybeans: -4¢ (-0.4%) to $10.295 USD or $13.509 CAD
May Soybean Meal (per short ton): -$1.10 (-0.3%) to $338.40 USD or $444.04 CAD
May Soybean Oil (cents per lbs): -0.09¢ (-0.25%) to 32.91¢ USD or 43.18¢ CAD 
May Oats: unchanged at $2.528 USD or $3.316 CAD
May Wheat (Chicago): -1¢ (-0.2%) to $4.55 USD or $5.97 CAD
May Wheat (Kansas City): -0.8¢ (-0.15%) to $4.705 USD or $6.174 CAD
May Wheat (Minneapolis): +0.5¢ (+0.1%) to $5.528 USD or $7.253 CAD
May Canola: -5.9¢/bu / -$2.60/MT (-0.5%) to $9.003/bu / $396.98/MT USD or $11.814/bu / $520.90/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.273 USD or $2.983 CAD
Mar Milling Wheat: +2.7¢ (+0.45%) to $4.835 USD or $6.368 CAD

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Lines In The Sand

Grains this morning are mostly lower as the complex pulls back on light volume, profit-taking, and subdued bullish sentiment in South America. More simply, the battle between “is this this South American weather damaging enough?” and “there’s so much grain” continues in grain markets. Brazilian soybean producers continue to wait on a weaker Real or something else that’s going to push prices higher again as they remain less sold than they were a year ago and are selling only what they need to, to cover costs. With the harvest likely getting closer to 30% by this weekend (well ahead of the average pace), there’s still a fair amount of beans that are available for sale, both this first crop and the second crop (a very dangerous situation according to some). Goldman Sachs thinks that the higher soybean price won’t happen as they’re expecting a return to more normalized corn-to-soybean price ratio with corn prices staying where they are and beans falling back to $8.85 USD / bushel on the March 2018 contract). Rabobank is a bit more optimistic as they think soymeal will continue to enjoy strong demand in the U.S. and elsewhere. Conversely, it’s worth noting that another soybean byproduct, soyoil, touched a 5-month low this week and the next line of support is 31.5¢/lbs, albeit with palm oil prices forecasted to be much lower in the second half of 2017, that line might be even lower.

AAFC updated some of their Canadian grains supply and demand numbers this week, raising their domestic canola crush demand by 100,000 to 9M tonnes and exports by 500,000 to 10M tonnes. Of note is that Ag Canada figures that whatever’s still in the field that needs to get harvested will wind up as feed or waste and so they dropped their 2016/17 ending stocks number to 1.1M tonnes (was 2M tonnes previously). What I don’t really understand though is why they put 2017-18 Canadian canola ending stocks at 1.1M tonnes, because with likely record acreage in Western Canada get planted this spring, there will need to be a lot of demand to take on the very-possible record crop. Given the bigger than expected and better than expected quality, durum wheat stocks were raised by 200,000 to 2.8M tonnes and other wheat carryout was raised by 500,000 to 4M tonnes. Finally, the peas carryout number remained flat (and higher than a year ago) while lentil exports were increased by 200,000 to push ending stocks down to 425,000 MT (is AAFC not accounting for the risk of a new Indian fumigation policy exemption for Canada not getting done? It doesn’t appear so).

That being said, the rabi harvest is starting up here shortly and all conditions continue to point towards a decent crop, which is why you’ve started to see cash pulse crop prices pull back a bit. Separately, there are rumours in the market that India could raise its wheat import tax back to the previous level of 25%, which would intuitively put a curb on imports. Nearby in the Black Sea, the Russian Grain Union says that despite the stronger Rouble, Russia will still export 2.8M tonnes of grains in March, compared to the 2M tonnes it will likely ship out in February. Staying in the Black Sea, the U.S.D.A. just suggested that grain area in Russia and Ukraine will likely grow by 5-10% in the next decade, and the crop planted with oilseeds should expand by much more. What we do know is that there’s literally millions of untapped acres in Russia that haven’t been farmed in decades but as trade with Asia becomes more important, it would be dumb of Russia not to develop these areas (and the Kremlin isn’t as dumb as you think).

Speaking of acreage, today and tomorrow we’ll get the U.S.D.A’s first estimates for the 2017/18 crop and the  buzz is all about just how many soybeans will get planted. The average estimate from a Bloomberg survey of 25 grain market firms and analysts suggest soybean acres will climb 5.8% year-over-year to 88.3M acres (or almost a 5M acre increase) while corn acres will fall 3.6% to 90.8M from 94M in 2016/17. The most bearish soybean forecasts comes from AgriSource who after polling 2,000 Midwestern farmers, thinks soybean acreage could outpace corn, with 90.2M for beans and 89.7M for corn (more beans than corn hasn’t happened since 1983). The U.S.D.A.’s previous baseline estimates were for 85.5M acres of soybean, 90M acres of corn, and 48.5M acres of all wheat but everyone expects those numbers to change this week. Truthfully, with estimates ranging between the aforementioned 85.5M and almost 91M acres for soybeans, Societe Generale might have the most stoic perspective, in that “soybeans still makes economic sense, but corn remains the traditional crop for US farmers.” Overall, lines will be drawn by the U.S.D.A. and whether you think they’re accurate or not, that’s what the market will trade.

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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