November 6 – Grain Prices Nearing Bottom?

Will grain prices be impacted by this week’s November WASDE grain report? We look into several scenarios, fresh wheat demand, and bullish indicators for canola prices and soybean prices.

No one learns more about a problem than the person at the bottom.” 
– Sandra Day O’Connor (former US Supreme Court Justice)

Grain prices on the futures board are mostly in the green this morning.

The market is trying to battle back from Friday’s sell-off, something Garrett captured in Grain Markets Today.

As noted in the chart below, corn prices continue to face resistance. Over the last two months, corn prices have struggled to get out of this sideways range.

Blue Line Futures notes that if corn prices move above the key resistance pocket of $3.513 to $3.553, hedge funds may start to cover their shorts. [1] As of last week, managed money is holding an unusually large net short position in corn of nearly 203,000 contracts.

With grain prices continuing to trade sideways, will this week’s November WASDE grain report spark push us off the lows?

december-corn-prices-turning-higher
Can December Corn Prices Push Past Resistance at $3.55?

 

Got your grain posted on FarmLead yet?
Set a target with more than 500 verified FarmLead buyers
Post your next block of your grain on FarmLead!

Wheat Prices Seeking Demand

Wheat markets are looking for direction as it sits in a precariously bearish position, fundamentally and technically.

We’ve talked in the past about the Black Sea and how Ukraine has ramped up wheat production alongside Russia’s explosive wheat exports.

As Reuters points out though, it could be worse, if not for shipping complications. [2]

Also impacting things is final fall acres seeded in Russia.  SovEcon thinks that total acreage of all fall-seeded crops will surpass the official Russian government target of 43 million acres. [3]

However, they don’t’ think it will touch last year’s record of 44 million acres.

Later this week, on Thursday, Nov. 9, we’ll get the USDA’s November WASDE grain report. Perhaps the USDA will match its Moscow office who says Russia will produce 83 million tonnes of wheat and export 33.5 million tonnes of wheat? [4]

That would be a 1 million-tonne increase for both factors from the current official USDA forecast.

One positive might be that US wheat won sold 450,000 MT of hard red winter wheat to Australia. [5] Normally, that tonnage would’ve gone to Australia.

What’s Bullish for Soybean and Canola Prices?

The area planted to rapeseed in Europe for 2018 continues to be forecasted around 16.5 million acres. However, Agrimoney points out that acreage is expected to decline for three of the EU’s top 4 producing countries: Germany, Poland, and the United Kingdom.[6]

This means that the fourth EU rapeseed horseman, France, will likely be looked to for direction of European prices in 2018.

Over the weekend, we dug into what is the most bullish thing about soybean prices.

You can read that piece separately, but as a teaser, soybean imports by China are expected to slow in 2017/18 for three main reasons:

1. Slowing demand growth for soymeal (the main reason China imports so many soybeans);
2. Relatively high carryover in stocks from 2016/17; and
3. High domestic production of soybeans.

Another factor is that Brazil will likely own a greater share of China’s soybean imports. [7] It’s likely that Thusrday’s WASDE will show an increase in Brazil’s soybean exports anyways.

On the canola/rapeseed front, we do know that the USDA’s attaché in Beijing is forecasting a 2017/18 harvest of 13.1 million tonnes. [8] Comparably, CNGOIC’s estimate is 14.3 million tonnes off an average yield of nearly 34 bushels per acre.

Total rapeseed acres in China are forecasted to be about 3% lower year-over-year at 17.7 million.

The attaché estimated 2016/17 Chinese rapeseed production at 13.5 million tonnes. The official estimate from China’s National Statistics Bureau (NSB) was 14.55 million tonnes.

An aside is that USDA attaché interviews with feed mills in a couple growing regions suggests that soymeal could replace canola meal. But this only happens if the soymeal price is no more than $77 USD/metric tonne more than the price of rapeseed meal.

On that note, the USDA’s attaché in Beijing is forecasting total rapeseed imports at 4.3 million tonnes.

For vegetable oils, China is expected to import 7 million tonnes. This was a little more than 3% below last year’s 7.23 million tonnes of vegetable oils imported.

Palm oil continues to be the number one option for vegetable oil imports by China. In 2017/18, estimates show that China will import 4.7 million tonnes. That represents 67% of all vegetable oil imports, and it’s up from its 64% ownership stake in 2016/17.

Regardless, China’s reserves of vegetable oil will fall to 4.3 million tonnes by the end of 2017/18. This decline is mainly because the government sold the majority of its 6.4 million tonnes of reserve rapeseed oil over the course of 18 months, from December 2015 to June 2017.

Currently, it’s estimated that China’s rapeseed oil reserves are sitting at somewhere around 1.25 to 1.5 million tonnes.

With said reserves only getting older, it’s not as optimistic as it is uncertain about the direction of the Chinese vegetable oil market.

Big Ag Optimistic About China But…

ADM’s CEO Juan Luciano is optimistic that China push into more ethanol production is positive. [9] He thinks that US ethanol exports to China could grow, much like they have the past few years into Brazil.

That might be a short-term fix but China we continue to think that the Chinese ethanol headline is just noise for the corn market.

Until US ethanol starts shipping there, we don’t expect corn prices to reflect any potential premium. Instead, we’ll continue to look for quick pops and sell into strength in 10% – 20% increments.

After all, there’s still a lot of grain out there.

The gluttony has had a negative impact on how big grain companies are faring as well. While they’re talking about signs of recovery, the likes of ADM and Bunge are all cutting costs after seeing the poor performance the past few quarters. [10]

With grain prices unlikely to spike to 2012 or 2008 levels, it’s quite clear that grain trading giants see a more difficult situation. [11]

Bunge’s CEO Soren Schroeder thinks that the ag sector is “at or near the bottom of the cycle.” [12]

To growth,

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

At 6:55 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2753 CAD, $1 CAD = $0.7841 USD)

Dec Corn: +1.3¢ (+0.35%) to $3.495 USD or $4.457 CAD
Jan Soybeans: -0.5¢ (-0.05%) to $9.863 USD or $12.578 CAD
Dec Soybean Meal (per short ton): +0.20 (+0.05%) to $314.10 USD or $400.59 CAD
Dec Soybean Oil (cents per lbs): -0.07¢ (-0.2%) to 34.35¢ USD or 43.81¢ CAD  
Dec Oats: -0.5¢ (-0.2%) to $2.625 USD or $3.348 CAD
Dec Wheat (Chicago): +2.3¢ (+0.55%) to $4.28 USD or $5.458 CAD
Dec Wheat (Kansas City): +1.3¢ (+0.3%) to $4.28 USD or $5.458 CAD
Dec Wheat (Minneapolis): +3.3¢ (+0.5%) to $6.28 USD or $8.009 CAD
Jan Canola: +0.7¢/bu / +$0.30/MT (+0.05%) to $9.196/bu / $405.46/MT USD or $11.728/bu / $517.10/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. 17 – Wheat Prices Leading Monday’s Grain Markets Higher
December 17, 2018 Brennan Turner
Wheat prices are leading grain markets higher this morning as the complex eyes Russian wheat exports and the harvest in Argentina.
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.