Feb 9 – Intense Sparring

FarmLead Breakfast Brief 

Thursday, February 9th, 2017

“You’ll never find a better sparring partner than adversity.”
– Golda Meir (former Prime Minister of Israel)

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 = $1.3116 CAD, $1 CAD = $0.7624 USD)

Mar Corn: -1.3¢ (-0.35%) to $3.695 USD or $4.847 CAD
Mar Soybeans: -5.5¢ (-0.5%) to $10.533 USD or $13.815 CAD
Mar Soybean Meal (per short ton): -$1.90 (-0.55%) to $339.30 USD or $445.04 CAD
Mar Soybean Oil (cents per lbs): -0.04¢ (-0.1%) to 34.65¢ USD or 45.45¢ CAD 
Mar Oats: -0.8¢ (-0.3%) to $2.533 USD or $3.322 CAD
Mar Wheat (Chicago): -2.3¢ (-0.5%) to $4.303 USD or $5.643 CAD
Mar Wheat (Kansas City): -2.5¢ (-0.55%) to $4.395 USD or $5.765 CAD
Mar Wheat (Minneapolis): +1.8¢ (+0.3%) to $5.593 USD or $7.335 CAD
Mar Canola: +0.2¢/bu / +$0.10/MT (+0.02%) to $9.062/bu / $399.57/MT USD or $11.886/bu / $524.10/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.241 USD or $2.939 CAD
Mar Milling Wheat: +5.4¢ (+0.85%) to $4.959 USD or $6.505 CAD

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Intense Sparring

Grains this morning are mostly in the red as the market positions itself ahead of the USDA’s February WASDE, discounting some benign weather in South America as updated supply and demand tables become the focus. Canola got nice bump yesterday as it continues to be supported by strong demand fundamentals (especially on the Canadian domestic crush front) while soybeans have been holding on to this weather premium but depending where you farm, soybeans may not be the clear winner from a profitability standpoint in 2017 (although another soybean processing plant just got announced for North Dakota which is a good thing for area, which would include Manitoba). The big datapoint out yesterday was in ethanol, which showed production slightly down week-over-week but inventories are growing, which pushed corn down from the 6-month high it was trading near. The ethanol debate continues to rage in Washington as the Association of American Railroads (of which Warren Buffett’s BNSF is a member) is digging in against any changes in the ethanol mandate, for which refiners (including those owned by President Trump special advisor Carl Icahn) are saying costs are too big and the costs should be pushed further down the supply chain to consumers. Overall, I think that this is a boxing match could go on and on and I’m doubtful that the status quo will prevail.

Later today we’ll get the USDA’s February version of their world agricultural supply and demand estimates and what the market is watching closely for is US demand numbers (AKA how quickly is grain disappearing) and what production out of South America is looking like. Argentina’s crops are likely to fall a bit as the USDA catches up with private estimates who are accounting for about 5% loss of soybeans due to flooding. Conversely, Brazil’s corn and soybean crop is likely to be upgraded a bit (CONAB, the Brazilian USDA, just increased their forecast to 105.6M tonnes compared to their previous estimate of 103.8M tonnes, while Informa Economics is the most bullish at 106.5M tonnes). On the domestic front, US corn exports are heading about 65% ahead of last year’s pace compared to the USDA’s call for just a 17% increase, while soybean shipments are clocking in at 21% ahead of 2015/16 versus the forecast of a 6% increase. While exports are likely to slow (they always do at this time of year), it’s likely that USDA updates the demand side of the table, which will likely drop ending stocks a bit (many bulls hoping to see a US soybeans carryout of less than 400M bushels).

Speaking of exports, Brazil is already on a record pace for shipping out soybeans with estimates calling for more than 4.5M tonnes shipped in February, or double what it did last February! However, farmer sales have been slowed by the fact that the Brazilian Real is touching 19-month highs, pushing domestic prices down to less attractive levels. This is being viewed optimistically by the market for the American farmer as international buyers may come back to the US at a time of year when export sales slow. Heading north across the 49th Parallel, Canadian wheat exports continue to drag behind last year by more than 21% (and the lowest for all wheat including durum since 2011) as Tregg Cronin of Halo Commodiites points out shipments to Peru, China, Indonesia, and Bangladesh are down 33%, 36%, 36%, 62% respectively. Meanwhile, China’s Ministry of Agriculture dropped their corn import forecast for 2016/17 to just 800,000 MT, coming at a time when ag policy of the People’s Republic is getting more focused on domestically meeting consumer demand, instead of just producing as much grain as possible.

Russia likely won’t be producing as much grain as last year’s 73.3M-tonne bumper crop as yields reverse back more trendline levels, with IKAR calling for a 67.5M-tonne crop in 2017/18. However, IKAR is expecting exports to stick at the 28M-tonne level. The war of words between Ukraine & Russia on the political front is boiling over into physical action (unfortunately), giving way to thoughts of spring 2014 when Russia annexed Crimea and wheat prices climbed $1.50 USD / bushel on the futures boards on concerns of wheat shipment disruption. However, nothing really got disrupted and I’d expect that to be the same in 2017 so any wheat rally should be viewed as a lucky marketing opportunity and should be taken advantage of to sell on the rumour and profit on the fact (one of key grain marketing themes here at FarmLead). Kicking those grain sales down the road and hoping for a summer rally (like some analysts are suggesting) is, in fact, not a good risk management strategy and we want you to avoid the internal sparring of shoulda, woulda, coulda.

We continue to see strong contracting of grain before road bans come on. Consider locking something up before weight restrictions eat up any seasonal spring rally benefits and post your next 10-20% on FarmLead. Also, a couple great soybean, corn, and metcalfe malt barley bids recently have been posted on the Marketplace – start a discussion!

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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