November 28 – Grain, Corn Markets’ History Is Worth Noting

Good Morning!

Today’s Breakfast Brief looks at what forward-looking grain prices are doing (namely corn), what would happen to commodities if there was a sell-off in the stock market, and why cash is king again in grain markets.

“There is nothing new in the world except the history you do not know.” – Harry Truman (33rd President of the United States)

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Grain markets this morning are mixed with winter wheat prices trying to bounce on the USDA showing some crop conditions that were worse than expected.

As noted by Garrett in Grain Markets Today, grain prices retreated yesterday on some lower-than-expected export shipments of US grain.

The USDA’s crop progress report showed the most of US corn fields are now harvested. It also showed that the portion of the US winter wheat crop rated good-to-excellent (G/E) dropped to 50%.

This is the lowest rating for the end of November in the past five years and obviously behind the five-year average of 54%.

The stock market continues to find new highs, leaving the question of, “when will this bubble pop?”[1] If the stock market were to crash, two possible scenarios could play out.

First, investors could pull their money out of every asset class they’re long in. This would suggest a potential sell-off in the futures markets for grains and/or a build-up of even more short positions. The good news is that last week; investors pared down their record short position in corn futures and options. [2]

Second, those investors leaving the stock market would put their money in commodities. We saw a similar transfer of wealth from equities into the commodity sector in 2008 and 2009. That was the start of a bull run for most commodities.

While other factors were supporting the move (i.e., US ethanol mandate), history is worth noting.

South American Weather Update

AgResource is expecting about 20-25% of fields in Argentina to see 1 -2 inches of rain over the next couple days. [3]

Into the weekend, another 1 – 2 inches could fall in really dry areas of Cordoba (one of the largest grain-growing states in the country). While this rain will help things, analysts are noting that Argentinean crops will need more rain in December still.

Across the border in Brazil, major soybean-producing states in the central and northern parts of the state will get decent moisture through the weekend. Southern Brazil is the only place that is seeing some weather threat that’s bullish for grain prices.

Thanks to the slower start to the planting season in Brazil though, some farmers there are worried about production potential and a late soybean harvest. [4] Furthermore, at today’s prices in Brazil, production costs aren’t covered. This is leading to more financial concerns for Brazilian farmers in 2018.

Forward sales of new crop soybeans by Brazilian farmers are still behind what is normally sold by now better prices are being waited for.

USDA Reports to Show Cash is King

Later today, the USDA will release its 10-year estimates for production, consumption, and prices for major US crops and livestock.

These projections assume no changes to farm policy (i.e., the ethanol mandate) and normal growing conditions (does such a thing exist anymore?). This will give us a first look at the USDA’s expectations for the 2018/19 crop year, with forecasts beyond that less reliable.

Also this week, the USDA will announce both its farm income forecast (Wednesday) and quarterly update for farm exports (Thursday). Currently, US grain exports are running behind the pace from last year. This is okay for corn and wheat but not soybeans.

Specifically, the USDA is expecting US wheat exports to be 5% lower in 2017/18 than the year previous, corn exports should be 16% lower than last year, and soybeans are the only bright spot, seeing a 4% increase year-over-year.

Today though, US wheat export sales are down 8% compared to this time a year ago while shipments are also 8% behind. [5] Corn export sales are down 27% while shipments are 37% below last year’s pace! Finally, soybean export sales are lagging 17% behind last year with actual beans sailed sitting 13% below last year at this time.

Globally, the International Grains Council is forecasting “new peaks for food, feed, and industrial uses.” [6] The IGC expects food demand to be the big driver for wheat while feed and industrial use (read: ethanol) will support corn prices.

It’s good that demand for corn and soybean domestically is very strong, as it’s keeping stocks-to-use ratios from being super bearish.

If you do some futures market hedging, call options are relatively inexpensive for corn and soybean deferred delivery for old crop, as well as new crop December 2018. [7] There are two strategies to consider:

1. If you’ve sold some grain at less-than-ideal prices, re-owning that grain on paper through March or May; and,
2. Selling new crop corn or winter wheat. How many times have you just finished your harvest and looked at those attractive forward prices and wished you had done something, but didn’t?

Post those new crop corn or winter wheat bushels on the FarmLead Marketplace today.

After all, we think that at today’s grain prices, cash is king.[8]

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@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 = $1.278 CAD, $1 CAD = $0.7825 USD)

Mar Corn: -1.3¢ (-0.35%) to $3.505 USD or $4.479 CAD
Jan Soybeans: -4¢ (-0.4%) to $9.92USD or $12.667 CAD
Jan Soybean Meal (per short ton): -$2.90 (-0.9%) to $326.40 USD or $417.13 CAD
Jan Soybean Oil (cents per lbs): +0.11¢ (+0.35%) to 33.85¢ USD or 43.26¢ CAD  
Mar Oats: -0.3¢ (-0.1%) to $2.675 USD or $3.419 CAD
Mar Wheat (Chicago): +0.8¢ (+0.2%) to $4.29 USD or $5.482 CAD
Mar Wheat (Kansas City): +0.5¢ (+0.1%) to $4.258 USD or $5.441 CAD
Mar Wheat (Minneapolis): -2¢ (-0.3%) to $6.25 USD or $7.987 CAD
Jan Canola: -1.4¢/bu / -$0.60/MT (-0.1%) to $11.503/bu / $507.20/MT CAD or $9.001/bu / $396.88/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 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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