November 2 – Good Grain Prices Risk Management

Good Morning!

Today’s FarmLead Breakfast Brief looks at wheat prices in Australia, some rainfall in Brazil, and if grain markets are accounting for ongoing delays in North America’s Harvest 2017.

“Management is all about managing in the short term, while developing the plans for the long term.”
– Jack Welch (Former General Electric CEO)

Please consider providing some feedback about the Breakfast Brief by taking this short survey.

If you’re looking for grain futures prices, please scroll down to the bottom. 

 

What’s next in your grain marketing plan?
Set a target with more than 500 verified FarmLead buyers
Post your next block of your grain on FarmLead!

Good Grain Prices Risk Management

Grain markets Thursday are mostly in the green as the market tries to follow-on from yesterday’s positive day.

On Wednesday, grain markets found some support on short-covering and some fund re-positioning. [1]

However, gains faced pressure from two factors.

First, the crop is still coming off the fields in North America, and higher yields continue to surprise. [2]

I will admit, however, that crops are much more susceptible to yield loss at this time of year.

The second factor is an improving forecast for rain in Brazil.

The next week of grain markets will likely be affected by pre-WASDE report estimates from private firms.

Bearish on Canola, Corn, and Soybean Prices?

INLT FC Stone expects next week’s USDA November WASDE report to show an average corn yield of 173.7 bushels per acre. The October forecast showed 171.8 bushels per acre.

For soybeans, FC Stone estimates the USDA will upwardly revise average American yields to 49.9 bushels per acre. The USDA is currently at 49.5 bushels per acre. Both estimates are bearish for the commodities.

Meanwhile, weather forecasters are bullish on snow right now. They expect some of the white stuff for most regions near the 49th Parallel (AKA the Canada-USA border). However, the Corn Belt should see decent harvest weather. Snow in the Peace region in northern Alberta has slowed harvest down.

This delayed harvest has supported canola prices a bit, albeit the Canadian Loonie seems to be the major driver right now.

Another factor affecting canola prices may be Australia’s smaller canola crop. Currently, the USDA is forecasting 3 million tonnes of canola production in the Land Down Undaa.

This is the highest estimate though.

The International Grains Council (IGC)) and Rabobank both dropped their estimates recently to 2.7 and 2.6 million tonnes, respectively.

That’s a significant drop from last year’s 4.14 million-tonne canola harvest by Australian farmers. Currently, ABARES (the USDA equivalent in Australia), expects a 2.75-million tonne harvest. This includes 2.04 million tonnes of exports, but that would be a 43% decline in exports year-over-year.

We’ve seen some decent uptick in canola prices as of late, and it’s important to think about the next sale opportunity in the coming days and/or weeks.

Brazil’s Weather Improving?

According to AgResource, soybean planting in Brazil should reach 44% by Friday. [3]

If realized, that would be a 14-point jump in one week and slightly behind the 5-year average of 47%.

Last year, 52% of the soybean crop had been planted though.

There is rain in the forecast, which is incentivizing most farmers to run planters 24/7. About 1-3 inches of the wet stuff is expected in the next week, followed by as much as 4-5 inches from November 8 to 15.

Again, if realized, total August-November rainfall would be closer to the average.

Switching into corn, INTL FCStone is forecasting Brazil’s 2018 safrinha corn crop at 23.6 million tonnes, about 400,000 MT below their previous forecast. The late soybean planting pace is the reason they’re blaming.

The Rise of Russian Wheat and Australian Wheat Prices

As of last week, Russia had exported 15.8 million tonnes of grain thus far in the 2017/18 marketing season.

That’s up 27% from a year earlier.

After looking at the numbers, 12.3 million tonnes of wheat have been exported. That’s up 21% year-over-year. This just reiterates our sentiments from back in September on the rise of Russian grain production and exports.

Russia is likely taking the business in Asian markets since Canada, America, and Australia aren’t that competitive.

Commonwealth Bank of Australia says that Australian prices are extremely divided. [4] The harvest this year in southern Australia went fairly well.

As such, Australian Premium White (minimum 10% protein) wheat prices at Adelaide are sitting at about $175 USD/metric tonne (or $4.75 USD and $6.10 CAD per bushel).

For comparison, US soft red winter wheat prices at Gulf of Mexico ports are currently trading around $183 USD per metric tonne (or $5 USD and $6.40 CAD per bushel).

The harvest in the New South Wales wasn’t that great because of the drought conditions. There, APW wheat prices at the port are being bid at $218.70 USD per metric tonne (or $5.95 USD and $7.65 CAD per bushel).

At these prices, it’s hard to be competitive in the export market. As such, Rabobank has lowered its forecast for Australian wheat exports to 17 million tonnes. [5]

This coincides with the Dutch firm dropping its estimate of the Aussie wheat harvest to 20.9 million tonnes. Rabobank’s estimates compare to:

– USDA: 21.5 million tonnes of wheat production, 18 million tonnes of wheat exports;
– ABARES: 21.6 million tonnes of production, 18.15 million tonnes of exports; and
– IGC: 20.5 million tonnes of output, 19 million tonnes.

Heading even further north into the major cattle-feedings state of Queensland, wheat prices are even higher. For Australian Soft White Wheat (maximum 9.5% protein), prices are trading around $250 USD per metric tonne (or $6.80 USD and $8.75 CAD per bushel).

At those prices in the north, if you have the product, hoping for a higher price would be the opposite of good price risk management.

Australian Wheat Prices Higher on Drought
Australian Wheat Prices Are Quite Divided

 

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

At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2844 CAD, $1 CAD = $0.7786 USD)

Dec Corn: +1.5¢ (+0.45%) to $3.498 USD or $4.492 CAD
Jan Soybeans: +3.5¢ (+0.35%) to $9.948 USD or $12.776 CAD
Dec Soybean Meal (per short ton): +$1.80 (+0.55%) to $315.40 USD or $405.09 CAD
Dec Soybean Oil (cents per lbs): -0.16¢ (-0.45%) to 34.74¢ USD or 44.62¢ CAD  
Dec Oats: unchanged at $2.715 USD or $3.487 CAD
Dec Wheat (Chicago): +3.5¢ (+0.85%) to $4.215 USD or $5.414 CAD
Dec Wheat (Kansas City): +3.8¢ (+0.9%) to $4.195 USD or $5.388 CAD
Dec Wheat (Minneapolis): +4.8¢ (+0.75%) to $6.188 USD or $7.947 CAD
Dec Canola: +0.9¢/bu / +$0.40/MT (+0.1%) to $9.209/bu / $406.04/MT USD or $11.827/bu / $521.50/MT CAD

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.

Most Recent Posts
Dec. 10 - Grain Markets Reverse Ahead of WASDE
December 10, 2018 Brennan Turner
Grain markets this morning are mostly lower ahead of tomorrow’s December WASDE report, with wheat prices the most notable, pulling back from its significant gains on Friday.
October 4: Corn Prices Edge Higher With October WASDE in Focus
October 04, 2018 Garrett Baldwin
Corn prices ticked higher Thursday as traders and analysts began to speculate on next week’s release of the October WASDE report.