July 06 – Reviewing The Chaos

In today’s Breakfast Brief, we review the USDA quarterly stocks and acreage report and look into the future, considering what you should keep in mind for your grain marketing plan. 

“Don’t fear failure so much that you refuse to try new things. The saddest summary of a life contains three descriptions: could have, might have, and should have.”

– Louis E. Boone (US author)

Good Morning!

I promised myself that I would catch up on some sleep this week at the cabin and put a hiatus on writing the daily Breakfast Brief but given yesterday’s massive move to the downside, I couldn’t stay away. Coming back from the long weekend, funds liquidated long positions after a wet weekend that alleviated moisture concerns any many areas across North America. Sure, there were a few places under review that have gotten too much but I (and you) should take this with a grain of salt entering the 2nd half of the growing season.

USDA Reports

Ahead of the weekend, the market did get a shot in the arm with the USDA quarterly stocks and acreage report on Thursday, June 30th. Going into the report, the market was expecting about 2 million more soybeans than the 82.2 million forecasted in their March 31st report, and about 600,000 less acres of corn from the 93.6 million March estimate. However, the U.S.D.A. seems to believe that there will be no “Prevent Plant” acres and that American farmers are literally only planting corn, wheat, and soybeans this year.

Why? Every estimate for the 3 major crops went higher. For wheat, total area planted was pegged at 50.8 million acres, above both the 49.6 million estimate in March and the pre-report average guesstimate of 49.9 million. However, this is still 7% below last year’s acreage. American durum acres are up 11% year-over-year to 2.15 million, but winter wheat and spring wheat are both lower by 2.9 million and 1.1 million acres respectively. On the inventory front, stocks of the cereal were in line with estimates (+30% year-over-year to 981 million bushels), reminding us with subtlety that there’s a lot of wheat still available, in addition to potential of another record crop globally. In no surprise, wheat is down 18% in the past month, 14.5% since the beginning of 2016, and down 32% since this time a year ago.

The 94.1 million acres of US corn that the USDA forecasted in the report is up from the 92.9 million expected and the 93.6 million forecasted back in March. This would represent a 7% increase from 2015 and the 3rd-largest area planted to the coarse grain since 1944. Stocks were a little more bearish as the 4.72 billion bushels still available as of June 1st was higher than the 4.53 billion guesstimated by the market ahead of the report, and 6% higher than June 1st, 2015’s numbers. With the aforementioned rains coming at a time when the crop is pollinating, growing conditions in most places are pretty much ideal (as confirmed by yesterday’s good-to-excellent crop ratings remaining at 75%). As such, the market has been bullying corn, literally down 20% in the past month, only down 8% since the beginning of 2016, but 25% lower than a year ago.

Soybeans are poised to take the cake to the downside in my opinion, as fund buying has been aggressive since the March 31st estimate of just 82.2 million acres of the oilseed. According to the USDA, despite the $3/bushel increase by early June, only 1.5 million more acres were apparently bought for a total of 83.7 million acres. This would still, in fact, represent a 1% increase of 2015’s numbers, but a record number of acres are forecasted for fringe areas like Michigan, Minnesota, New York, North Dakota, and Pennsylvania. On the stocks side of things, 870 million bushels supposedly were still available at the beginning of June, which represents a 39% increase compared to last June’s stocks (very bearish when the market was expecting 829 million bushels). Overall, given weather conditions, higher acres, and higher available stocks, soybeans are down 4.5% in the past month, but it’s still up 24% for 2016, and 7% from this time a year ago – gains that we expect to see erased with a few more weeks of the forecasted ideal weather.

To round out our comparative analysis, canola is down 6.4% in the past month, about 2% lower since the beginning of 2016, but about 12.5% lower than where we were a year ago when the highs of the 2015 growing season were seen. We ultimately think that soybeans will continue to get pressure to the downside as funds move out of the market and weather premium gets erased, but that canola downside won’t be as large. We’ve been calling since the spring that La Nina is highly unlikely to affect North American crops this year, and the closer we get to taking the crop off, this call is getting validated.

Overall, if you haven’t done so already, it may be worthwhile to think about what you saw in 2013 and did (or didn’t do), but keep in mind that prices then were still coming down from the 2012 U.S.-drought-driven highs. One comparison we could make is that the bullish bias from funds piling into the commodity complex helped create some highs that were hard to ignore. If you didn’t price something in, namely in wheat or oilseeds, you may not see that opportunity again until winter.

Moving Forward

Things to keep in mind moving forward will include, the U.S. Dollar because as weather premiums start to move out of the market as the crop gets made, a stronger Greenback would put pressure on all commodities, and it’ll be harder for money managers to stay in their bets. While we’re likely to stay in a low-interest rate environment because of the poor global economic growth story, the first major country to raise interest rates could very well be the US Federal Reserve some this fall or winter, which again would appreciate the US Dollar and hurt commodities.

With the start of a new month now though, it’s more than worthwhile to take a fresh look at your grain marketing plan. Remove the cognitive bias of the negative/bullish commentary being trumpeted around you at coffee row and, like the analysts with all their fancy vegetation satellite tools, recognize what sort of crop potential is out there. Further, and probably more important, you need to seriously understand what sort of cashflow needs you’ll have through end of January 2017.

Accordingly, we think that oilseeds and pulse crops have the best option to make sales on in the next 3-6 months, but, as we continue to preach, this should be spread out in 10% intervals. Cereals will continue to stay pressured with a bigger global crop likely coming off than what was originally predicted, but instead of piling stuff on the ground this fall at Harvest, look at moving your lower-quality old-crop stuff and make some bin space. If you didn’t price anything out in this past rally (or maybe not enough), we think that there’s still good opportunities to do so (as confirmed by activity on the FarmLead Marketplace).

With this in mind, we’re happy to walk you through the various opportunities, but, this ultimately begins with you. Start the 2nd half of 2016 off on the right foot and get the grain that needs to move before Harvest or even new crop oilseed and pulses posted on the FarmLead Marketplace today.

To growth,                                                                                           

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
1-306-665-8740 (Office)
@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.

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