February 27 – Long vs. Short-Term Expectations of Grain Prices

Good morning!

Grain markets this morning are again in the green as new forecasts for acres and weather are keeping the bulls in charge.

“Wait for the end with joy. It is the end which characterizes everything and which tests a man’s expectations.”
– Thomas Beckett (British Archbishop of Canterbury)


Long vs. Short-Term Expectations of Grain Prices

Grain prices this morning are mixed as canola prices and soybean prices are being steadied by fewer shorts to cover on the futures market. Soymeal prices continue to rally though, which is supported feed grain prices.

We’ve seen some healthy gains in feed grain prices this past month, but there are some downside factors we’re watching. Read my thoughts on why we’ve seen a rally in feed grain prices and how long we can expect these values to stick around for.

As Garrett mentioned in his regular Grain Markets Today afternoon column, winter wheat prices led all grain prices yesterday and continue to so this morning. Globally, most analysts agree that total global wheat acres will fall in 2018/19, with winter wheat planted being noticeably lower thanks to lower prices in Europe and places like Ukraine. However, we do know that the amount of spring wheat planted in North America will be up in 2018/19.

What’s Pushing Wheat Prices?

Coming back to yesterday wheat prices gains, we have seen some colder temperatures in the Black Sea that prompts the usual questions of survivability for a winter wheat crop. However, most of the wheat market’s focus is on the U.S. right now. Specifically, Garrett stated,

“Forecasts suggest that there won’t be too much rain shortly to help support a very thirsty crop. We saw red flag warnings across the Texas Panhandle, and parts of Kansas as higher winds and drier forecasts are sparking fears about wildfires. But in other regions of the U.S., there is too much water. Flooding is affecting some SRW wheat acres in the southeastern Midwest.”

Late yesterday, the USDA updated their winter wheat crop conditions for the end of February. The most notable changes are in the Northern Plains where a spell of cold weather in the Dakotas pushed more of the crop out of the good-to-excellent (G/E) column.

Here’s a breakdown, accompanied by change month-over-month and year-over-year:

• Montana: 66% G/E (+26 percentage points MoM, -31 points YoY)
• North Dakota: 30% G/E (-7, -51)
• South Dakota: 19% G/E (-5, -38)
• Nebraska: 43% G/E (-5, -1)
• Illinois: 45% G# (+7, -27)
• Colorado: 34% G/E (-6, -9)
• Kansas: 12% G/E (-2, -37)
• Oklahoma: 4% G/E (unchanged, -37)
• Texas 4% (-32% from November’s reading, -30)

Drought Impact on Corn Prices

While this is going on, we’re cognizant of the increase in the size of the US cattle herd, which increased for the fourth consecutive year in 2017. This has supported the grain prices for the likes of corn and wheat, despite their relatively large supply. However, with drier conditions in the US Southern Plains, Garrett asked and answered the question if the US cattle herd could shrink because of the drought?

I dug into the recent strength of US corn exports – last week they hit 1.63 million tonnes which is pretty strong. While we know that Argentina continues to be the big driver of both corn prices and soybean prices, there is certainly some question marks about the relatively stable US corn demand that we are currently experiencing.

That in mind, I looked into how Mexico and Brazil have the potential to disrupt the corn demand structure. Garrett also took a pass from a different angle, looking at ethanol production and the impact of the EU extending anti-dumping measures on US ethanol exports.

South America’s Impact on Grain Prices

Argentina continues to be the most talked about the subject as it relates to the direction of grain prices. And rightfully so! There’s more buzz about the size of the crops there and how yield potential continues to fall. From an agronomy standpoint, the crop is unlikely to get any benefits from precipitation falling after the middle of March. The frustrating thing for Argentine growers is that there isn’t much moisture in the forecast for the next two weeks.

Last week I took a mathematical look at Argentine soybean production and these levels, we would surely expect an impact on export potential. Since Argentine is the world’s #1 exporter of soymeal and soy oil, there’s more impact on those values. Soymeal has moved more than soy oil, mainly because there’s a lot of vegetable oils in the world, including canola (Hence, why vegetable oil substitution effects is a canola prices factor that we watch for our GrainCents readers)

While Argentine farmers are hoping for higher grain prices domestically, Brazilian farmers are not afraid to pull the trigger. It’s been estimated that they sold more than 3 million tonnes of soybeans last week! With currency volatility, a bigger factor to deal with in Brazil and Argentine, short-term gains in grain prices are more important than a long-term strategy for those farmers.

To growth,

Brennan Turner
President | CEO
TF: 1-855-332-7653
@FarmLead or @GrainCents on Twitter

At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2712
 CAD, $1 CAD = $0.7867 USD)

May Corn: +0.5¢ (+0.13%) to $3.78 USD or $4.81 CAD
May Soybeans: +2.5¢ (+0.24%) to $10.49 USD or $13.33 CAD
May Soybean Meal (per short ton): +$0.025 (+0.01%) to $382.80 USD or $486.61 CAD
May Soybean Oil (cents per lbs): -1.7¢ (-0.05%) at 32.69¢ USD or 41.56¢ CAD  
May Oats: +1.5¢ (+0.56%) to $2.69 USD or $3.42 CAD
May Wheat (Chicago): +3.3¢ (+0.70%) to $4.76 USD or $6.051 CAD
May Wheat (Kansas City): +7.3¢ (+1.47%) to $5.01 USD or $6.37 CAD
May Wheat (Minneapolis): +1.5¢ (+0.25%) to $6.115 USD or $7.77 CAD
May Canola: unchanged to $11.84/bu / $521.90/MT CAD or $9.31/bu / $410.56/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.

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