July 27 – Grain Prices Head for Second Week in Green

Good Morning!

Grain prices this morning are almost all in the green, led by soybeans, as the complex looks to end its second straight week in the green.

“Perseverance is the hard work you do after you get tired of doing the hard work you already did.”  – Newt Gingrich (US Politician)

graincents-trial

Grain Prices Head for the Second Week in Green

Grain prices this morning are all in the green, led by soybeans, as the complex looks to end its second straight week in the green.

It’s been a highly volatile week of trading, be it new announcements from the White House, updated wheat estimates, and the weather (per usual) playing a role.

Wheat Prices Rally on Smaller Crops

The last two days of market activity have been largely highlighted by the moves of the wheat market. On Wednesday, Garrett walked us through the Grains Market Today column as to why we saw a nearly limit-up day for spring wheat prices. Very concretely, lower production estimates in Europe and worse-than-expected yields on Day 1 of the North Dakota spring wheat tour were bullish catalysts that couldn’t be ignored.

On Thursday though, Garrett again explained in Grain Markets Today why wheat prices retreated a bit. However, I have to note that, between my meetings and travel, in the morning, we did see spring wheat prices up about another 20 cents USD / bushel in Minneapolis, before some sellers came In and contracts closed basically where they started the day.

On the second day of the spring wheat crop our though, tour participants estimated yields at 41.3 bushels per acre. That figure is 5.5 bushels higher than what we saw in last year’s drought-riddled crop. However, it’s still 3.4 bushels below the five-year average of 44.7 bushels per acre.

The crop tour wrapped up yesterday with the Wheat Quality Council announcing a final yield estimate of 41.1 bushels per acre. [1] While this is 3 bushels above last year’s final yield, it’s almost more than 4 bushels below the five-year average of 45.4 bushels per acre. It’s also a stark contrast from a record 48 bushels per acre that the USDA is currently forecasting for average spring wheat yields in North Dakota.

Full disclosure: we’ve sent out a more detailed note to our spring wheat GrainCents readers this morning.

Worth also noting is that the tour projected an average durum yield in North Dakota of 39.3 bushels per acre. This is even lower than last year’s 39.7 yields and the five-year average of 40.5 bushels per acre. We do have to take the estimate with a  grain of salt though as just 17 durum fields were sampled. Drier conditions are something we’re watching very closely for durum prices.

A Flurry of Soybean Activity

This week, we’ve seen some heavy-handed external influences on soybean prices. First, earlier in the week we saw the US government announce $12 Billion in farm aid to help compensate farmers for losses trade.

I argued in Bloomberg this week that the aid might not come enough. [2] That echoes a lot of the sentiment of American farmers wanting trade, not aid. In fact, we read a report in the Wall Street Journal this week about a group of farmers who went to China directly to meet with soybean buyers there! [3]

Then we saw a more collaborative conversation between the White House and the European as they announced more open trade, including the EU buying more American soybeans. [4] However, the deal may appear to be on the rocks the Europeans are worried that their very-protected farming industry might be part of the deal that US President Trump wants. [5]

This price action has helped support canola prices, albeit some weaker soyoil activity has capped any rally. Further, a stronger Canadian Loonie is offsetting some patchy weather across the Canadian

In Brazil, AgResource is reporting that there are ships waiting at Brazil ports to load about 7 MMT of soybeans. Last week there was 7.34 MMT in the lineup. This time a year ago, just 5.9 MMT worth of ships were waiting.

It’s expected that Brazil’s July soybean exports will come in around 10.3 MMT. That’s well above the official number of 6.96MMT shipped out in July 2017

Clarifying Artificial Grain Prices

I got some feedback that there was some confusion over Wednesday’s FarmLead Breakfast Brief, titled “Are We Seeing Artificial Grain Markets?”

Why are they artificial? More than anything, when you see government intervention like today, the market becomes a mirror version of itself, but at a higher or lower step function than what it should be.

For example, soybean prices in Brazil are much higher today than they were when there were no tariffs on US soybeans. Conversely, US soybean prices are much lower today than they were without Chinese import taxes.

Since soybean prices are one of the major drivers of grain prices, there are effects that it can have on other grain, including corn prices and wheat prices.

There may be some readers who can preach back to me the saying that even I’ve used, “the market is the market is the market.” Indeed, we pay the game in front of us, not the one we’re hoping for. The point, more than anything though, is that because the event that’s driving current soybean prices lower is not a natural supply and demand factor, but government action said government policy could change tomorrow for we know it.

Then, the market will do a knee-jerk correction back to where the real variables of supply and demand are putting the price equilibrium. This is why it’s called artificial.

Have a great weekend!

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

 

At 6:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)

Sept Corn: -0.5¢ (-0.14%) to $3.610 USD or $4.717 CAD
Aug Soybeans: 5.3¢ (0.62%) to $8.665 USD or $11.323 CAD
Aug Soybean Meal (per short ton): $1.90 (0.57%) to $334.50 USD or $437.19 CAD
Aug Soybean Oil (cents per lbs): 0.80¢ (0.28%) at 28.23¢ USD or 36.89¢ CAD  
Sept Oats: -0.5¢ (-0.22%) to $2.320 USD or $3.032 CAD
Sept Wheat (Chicago): -3.3¢ (-0.61%) to $5.333 USD or $6.969 CAD
Sept Wheat (Kansas City): -4.3¢ (-0.81%) to $5.298 USD or $6.923 CAD

Sept Wheat (Minneapolis): -2.3¢ (-0.39%) to $5.855 USD or $7.651 CAD
Nov Canola: $0.50 (0.10%) to $11.188/bu / $493.30/MT CAD or $8.561/bu / $377.49/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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