February 1 – Can Grain Prices Press Higher?

Good Morning!

Grain markets are mostly all in the red this morning as the market continues to pull back from Tuesday’s double-digit move in most crops.

“You don’t start out getting into the gym and bench pressing 300 pounds. You start out by doing the bar.”  – Thomas Rhett (Country musician)

graincents-trial

Grain markets are mostly all in the red this morning as the market continues to pull back from Tuesday’s double-digit move in most crops. Yesterday morning, we saw nearly double-digit losses, but the negative sentiment was tempered by the market’s close to keep losses in the single-digits.

There’s a lot of reasons for the rally in grain prices, but one of them is surely the US Dollar. The Greenback had its worst month of January in more than three decades, closing down 3.2% in just 31 days.

Late last night, Garrett and I posted a January grain markets and grain prices recap, including some geopolitical risk factors that we’re monitoring.

Soybean Prices, Canola Prices Pull Back

As Garrett noted in Tuesday’s Grain Markets Today, soybean prices rallied nicely with front-month soybeans climbed briefly above $10 USD /bushel at the Chicago Board of Trade. However, soybean prices pulled back a few cents to back under $10.

Side note: for our GrainCents soybean subscribers, we’re not watching the March, but instead of focused on two specific contracts right now. Start your free 3-week GrainCents soybean trial to find out which ones.

There are currently 3.8 million tonnes of new crop Brazilian soybeans that are expected to sail in February, which is a bit below the number seen the last two Februarys. The USDA is currently forecasting 67 million tonnes of soybean exports out of Brazil this year, a 6% jump over 2016/17’s 63.14 million tonnes.

Something that could easily slow the export activity though is the slower harvest. Heavy rains are expected to hit Northern Brazil for the next few days, which will surely slow soybean harvest activity.

Switching continents, the size of the rapeseed crop in Ukraine continues to surprise, which will affect competition for both EU soybeans and rapeseed demand. Garrett dug into the impact for canola here and what it might mean for soybeans here.

As a reminder, I previously talked about some of the competition between soy oil and canola oil in the US is, and namely how many acres of canola might get planted in the US in the coming years. Separately, despite the political backlash from the EU and America, palm oil production is expected to climb to a new record in 2018. [1] For our GrainCents canola readers, vegetable oil substitution effects is one of the major factors that we’re watching in canola prices right now.

All Eyes on Argentina

The Rosario Board of Trade dropped their estimate of the 2017/18 soybean crop to 52 million tonnes. Further, Dr. Cordonnier over at Soybean and Corn Advisor is currently sitting at 51 million tonnes. Comparably the USDA’s January WASDE report showed a 56 million-tonne handle for Argentina’s soybeans.

There’s a divide in what the expectations are for the Argentinian crop. And when there’s this sort of uncertainty, you get volatility in the markets, much like we’ve seen yesterday and today in the nearly 20 cent trading range for soybeans.

On the corn front, Rabobank dropped their forecast for the Argentine crop by 2 million tonnes to 39 million. This is now three million tonnes more than the USDA’s current estimate of 42 million tonnes. Ultimately, with the crop in Argentina definitely up in the air, there’s likely some more volatility ahead for us. The next reports on the docket are the USDA’s February WASDE released on Thursday, February 8th, followed by the USDA’s Agricultural Outlook Forum on February 22-23.

The other factor is the continued negative weather in the forecast for Argentina. Across most of the country, dryness is expected to prevail for the next two weeks. With temperatures in the 90s Fahrenheit and no precipitation, soil moisture is being sapped.

Ultimately, if key producing regions in Argentina don’t see any meaningful rains in the next 10-15 days, we’re likely to start seeing soybean production estimates dropping below 48 million tonnes.

Dry Conditions Lift Wheat Prices

Yesterday, we also talked about the impact of some dryness in the US Southern Plains and the potential impact on winter wheat prices and spring wheat prices. As I initially suggested in Monday’s Breakfast Brief, the spread between spring and winter wheat prices could start to narrow. Over the past few days, they have.

We’ve also started to see protein spreads start to narrow as the blending between low and high protein has started to be found.  The driver of wheat prices, however, continues to be one main thing: soil moisture (but, more honestly, how traders interpret weather maps).

Most of North America’s major wheat producing regions have been fairly dry this year, with the only exception being southern Alberta and Montana in the last few weeks. Even then though, it’s totally undetermined of exactly how much of the rain/snow events will make its way down into the dirt.

Across most wheat-producing regions in both the US and Canada, the lack of snow cover is certainly concerning. It’s something that we dig into in more detail for our GrainCents spring wheat readers here, and for our GrainCents durum readers, here.

The cold that we saw in January will also likely have an impact on the winter wheat crop, but we won’t know until the crop leaves dormancy and starts to green up. Once that happens, some plants may not be capable of filling heads because of the cold damage. Conversely, wheat is a weed, and some damaged plants may set new tillers which would be more than capable of filling heads. To make the latter happen though, again, it’ll come down to moisture.

One secondary factor that’s supporting at least winter wheat prices is the rise of the Russian Ruble. While this is more related to the US Dollar’s fall than anything, we have dug more into more Russia’s influence on wheat markets, especially winter wheat prices.

Here’s to some optimism for continued weather premium being added to grain prices in February though.

To growth,

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

 

At 8:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2311 CAD, $1 CAD = $0.8123 USD)

Mar Corn: -0.8¢ (-0.2%) to $3.608 USD or $4.441 CAD
Mar Soybeans: -9.5¢ (-0.95%) to $9.863 USD or $12.141 CAD
Mar Soybean Meal (per short ton): -$3.30 (-1%) to $334.50 USD or $411.79 CAD
Mar Soybean Oil (cents per lbs): -0.19¢ (-0.55%) to 32.88¢ USD or 40.48¢ CAD  
Mar Oats: +2¢ (+0.75%) to $2.675 USD or $3.293 CAD
Mar Wheat (Chicago): -5.5¢ (-1.2%) to $4.463 USD or $5.494 CAD
Mar Wheat (Kansas City): -7.8¢ (-1.65%) to $4.595 USD or $5.657 CAD
Mar Wheat (Minneapolis): -1¢ (-0.15%) to $6.063 USD or $7.463 CAD
Mar Canola: -2.7¢/bu / -$1.20/MT (-0.25%) to $11.238/bu / $495.50/MT CAD or $9.128/bu / $402.50/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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