December 1 – Who’s Expecting Feed Grain Prices to Go Down?

Good Morning!

Today’s Breakfast Brief gives a lesson feed grain prices, if UK and Canadian crops are getting bigger, and how oil is supporting grain prices.

“Expecting something for nothing is the most popular form of hope.” – Arnold Glasgow (American author)


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Grain markets this morning are mostly in the green, playing follow-the-leader to oil’s strength seen in recent days.

OPEC and Russia agreed that they would extend oil output cuts until the end of 2018. [1] Over 40% of the world’s oil is produced by these players.

Yesterday, the EPA announced its biofuel quotas for 2018 and 2019 [2] at 19.3 Billion gallons of total renewable fuels. This includes 15 billion gallons of conventional biofuel, such as ethanol. These numbers are not the improvement that the industry was looking for, however. Various ethanol and biodiesel people suggested that the EPA is not interested in the growth of their industry. [3] At least the number didn’t go down.

Yesterday’s USDSA export sales announcements disappointed the markets with only soybean sales of 943,000 meeting pre-report expectations. As Garrett mentioned in Grain Markets Today, it was no surprise that China was the top buyer of US soybeans last week.

In yesterday’s Breakfast Brief I talked about the barley export game. I forgot to mention that Ukraine has been doing pretty good thus far in 2017/18, having shipped out over 3.5 million tonnes through October already. [4] This includes 1.5 million tonnes into China and another 790,000 tonnes to China. Last year, Ukraine shipped all of 300,000 tonnes to China, and the previous record was set in 2015/16 at 647,000 tonnes.

Quickly, on the weather front, Northern Brazil is expected to get a pretty solid dose of moisture over the next two weeks. Anywhere from 5 – 9 inches of rain should fall in key soybean production states of Goias, Minas Gerais, Mato Grosso, and Mato Grosso do Sul (they account for about 80% of soybean production in Brazil).

With those sort of conditions, you could easily thing that crop conditions are deteriorating because of too much rain. However, it will take some time for effects to show, meaning we could trade sideways for another couple weeks. [5]

Bigger Crops in UK, Canada?

While there’s been a much bigger crop taken off in Western Canada, there’s been another surprising factor: demand. Crush and exports are running roughly in line, if not a bit above last year’s record pace. We do tend to see some softening for canola prices through Christmas with support on the Winnipeg ICE futures board being seen at CAD 500 / metric tonne and resistance closer to $520. [6] In the next eight weeks, these will dictate any bullish moves, including:

• Stronger exports or crush numbers;
• A weaker Canadian Loonie; or,
• Issues with the South American soybean crop.

On Wednesday next week, December 6th, StatsCan will release its next production report. Average pre-report guesstimates for canola were pegged at 20.2 million tonnes, compared StatsCan’s September estimate of 19.7 million and last year’s canola crop of 19.6 million tonnes. [7] The market is expecting production to stay flat or increase for pretty much all crops in Canada from the September forecast. Only corn and soybean production numbers are expected to come down a bit.

Earlier this week, the UK’s DEFRA agency put out its first estimates of the 2017/18 supply and demand for cereals and coarse grains. [8] The main takeaways from the United Kingdom are that production surprised many. Specifically, wheat production was pegged at 15.2 million tonnes, up 6% from 2016 production, despite lower acres. It’s estimated that UK wheat acreage will be relatively flat in 2018 at 4.32 million acres (or about 100,000 acres lower). [9]

For UK barley, production was pegged at 7.36 million tonnes, up 11% year-over-year thanks to some better yields and expanded acreage. UK oats production is estimated at 933,000 tonnes, up 14% from 2016 because of bigger acres. Next year though, UK oats acreage is only expected to drop by 1% to nearly 4 million acres.

A Lesson in Feed Grain Prices

Over the past three years, the North American pork industry has been enjoying some success. [10] Producer profitability and expansion has been decent, which, in turn, can be supportive of feed grain prices. But it’s important to understand why really.

We’ll use Canada’s livestock industry for our example.

You should know that prices are a function of supply and demand. 2016 was a pretty big crop in Canada that brought a lot of feed grain to the market. However, a few million tonnes of feed grains had elevated disease issues and was only eligible for the cattle market. Nonetheless, that added more supply to the market than was expected. Thus, with demand not changing too much, we saw feed grain prices trade sideways to lower for most of last year.

Fast forward to today, we’ve been able to work through that plethora of poor-quality grain successfully and so far this marketing year, we’ve seen some better feed grain prices in Western Canada. However, the strength of the likes of feed barley easily creates an opportunity for other substitutes to replace them. At its very, very, very basic form, the demand factor of feed grain is a function of:

1. The price per bushel of a specific feed grain;
2. The amount of weight that bushel (or a lot of bushels) can add to the weight of the animal; and,
3. The total number of animals that need to be fed.

As such, with demand up modestly in 2017 thus far, and supply down a bit, prices have indeed increased. However, when you start to see the price of one feedstuff increase and others not following suit, the potential for substitution increases. Case in point, today’s feed barley prices, combined with the Canadian Loonie staying around USD .78, corn is being put into more rations.

As such, those who are optimistic that feed barley prices could head higher, they may be disappointed. Of course, I never say never. But I do weigh the bullish and bearish factors. While I’m not discounting the possibility of higher feed barley prices in Western Canada, I just think the chances of it happening are much smaller at today’s prices.

Accordingly, lock in some deferred delivery values in January/February that capture a bit more premium. Post that next 10% of feed barley today on FarmLead.

Have a great weekend!

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
@FarmLead (on Twitter)

At 7:35 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2794 CAD, $1 CAD = $0.7816 USD)

Mar Corn: +0.5¢ (+0.15%) to $3.564 USD or $4.558 CAD
Jan Soybeans: +2.8¢ (+0.3%) to $9.885 USD or $12.647 CAD
Jan Soybean Meal (per short ton): +$0.50 (+0.15%) to $327 USD or $418.37 CAD
Jan Soybean Oil (cents per lbs): +0.06¢ (+0.2%) to 33.91¢ USD or 43.385¢ CAD  
Mar Oats: +1¢ (+0.4%) to $2.643 USD or $3.381 CAD
Mar Wheat (Chicago): +0.3¢ (+0.05%) to $4.333 USD or $5.543 CAD
Mar Wheat (Kansas City): +1.5¢ (+0.35%) to $4.33 USD or $5.54 CAD
Mar Wheat (Minneapolis): +4.5¢ (+0.7%) to $6.263 USD or $8.012 CAD
Jan Canola: -1.1¢/bu / -$0.50/MT (-0.1%) to $11.546/bu / $509.10/MT CAD or $9.025/bu / $397.91/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, 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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