January 26 – Grain Prices Try to End Week in Green

Good Morning!

Grain markets this morning are somewhat mixed as the complex is trying to finish the week in the green, despite some currency headwinds.

“Defeat doesn’t finish a man, quit does. A man is not finished when he’s defeated. He’s finished when he quits.” – Richard Nixon (37th US President)

 

graincents-trial

Grain markets this morning are somewhat mixed as the complex is trying to finish the week in the green.

A day after the US Treasury Secretary said that he doesn’t care which direction the US Dollar goes, the US President said he wants a stronger dollar. President Trump will speak at the World Economic Forum in Davos Switzerland today, and it’s likely to include more talk of the US Dollar (and thus, will likely move markets).

Lofty Expectations for Corn Prices, Winter Wheat Prices

Earlier in the week, we looked at the idea of more oats demand coming down the pipe. Yesterday, we looked at how one company is trying to do its own thing regarding oats demand.

The obvious question is with all this supposed demand, where are the prices going? That’s what we dig into via these GrainCents articles.

Allendale Brokers have been coming out with some bullish calls on grain prices this week. They think that corn prices will rally up to $4.25 USD / bushel on the Chicago Board of Trade, while soft red winter wheat prices on the futures board could climb to $5 by March/April.

For purposes of tempering expectations and not taking these forecasts as gospel, I would say that there is roughly a 30% – 35% chance we get to $4.25 for corn prices or $5 for winter wheat prices. Keep in mind that these are for front month contract prices.

For perspective, December corn prices are trading at nearly $3.90 at the Chicago Board of Trade this morning, while December Chicago-traded winter wheat prices are at $4.95.

The one main rallying cry for higher grain prices continues to the dryness concerns across North and South America. Considering these drier conditions here in North America, I took a stab at potential production and price scenarios for both spring wheat and durum wheat.

farmlead-marketplace-search

South American Grain Trade on Hold?

South American farmers have slowed their grain sales down.

In Argentina, it continues to be dry and the idea of selling too much grain that hasn’t yet been harvested spooks farmers.

Sidenote: you can use the futures market to protect some forward-contracted grain. I’m also comfortable getting as much 40% sold on new crop – if the price is right – since we feel that we can usually take off at least 40% of an average crop.

Dr. Cordonnier of Soybean and Corn Advisor recently dropped his estimates for corn Argentina’s corn and soybean crops by 1 million tonnes each. His forecast for the 2017/18 crop there now sits at 40 million tonnes of corn and 52 million tonnes of soybeans.

In Brazil, corn is now being used for ethanol which will likely help corn prices there and draw down the leftover inventory from 2016/17’s record crop.

Staying in Brazil, it’s getting to be harvest time for the first crop but there’s some wet weather over the next few days and weeks that is going to slow down field activity. More specifically, over the next two weeks or so, up to 12 inches of rain is in the forecast for Mato Grosso and Goais states! While it will also put a halt of harvest in a few areas, it will also make the transportation of soybeans problematic.

Keep in mind that we see this issue every year in Brazil and it will stay that way until they get the remainder of the BR-163 highway paved. Or until they finally build the “grain train” that’s supposed to go the 1,000 km from Mato Grosso to northern ports. This is why the cost of freight for Brazilian grain is estimated to be three times as high compared to its American brethren.

Despite this, we looked into some of the reasons why Brazil’s soybeans are gaining more influence in China. This has intuitively slowed down America’s soybean exports: Brazil was responsible for 53.3% of China’s soybean purchases in the 2017 calendar year. This is the equivalent of nearly 51 million tonnes!

China Not Slowing Imports of Grain

With the trade-off between Brazilian or US soybeans aside, China imported over 95.5 million tonnes of soybeans in the 2017 calendar year (key word here being calendar year). This according to Chinese customs data. [1]

Also of note in Chinese grain imports in the 2017 calendar year (and change year-over-year):

• Rapeseed/Canola: 4.75 million tonnes (+33%)
• Barley: 8.86 million tonnes (+77%)
• Corn 2.83 million tonnes (-11%)
• Wheat: 4.3 million tonnes (+27.5%)
• Sorghum/Milo: 5.06 million tonnes (-24%)
• DDGs: 391,000 tonnes (-87%)
• Rapeseed Meal: 965,000 tonnes (+92%)
• Soybean Meal: 61,200 tonnes (+240%)
• Rapeseed Oil: 757,000 tonnes (+8%)
• Soybean Oil: 653,500 tonnes (+16.5%)
• Palm Oil: 5.08 million tonnes (+13.5%)

If you’re not seeing the trend here, I’ll help you out: more feedstuffs and vegetable oils.

Specifically, as it relates to corn though, China is obviously importing less, but also less from America. Instead, Chinese corn importers are turning their attention towards another rising star play in the global trade spae.

Coming back to vegetable oils, the Chinese New Year celebrations are starting in a couple weeks in mid-February. During this time, we see international buying activity slow down from Chinese players. Ahead of it though, we tend to see a ramp up in buying to accommodate for the lost days of productivity during the celebrations.

As such, yesterday, we looked into how much vegetable oil demand the Chinese New Year will actually bring in 2018. You might be surprised what the numbers look like and why.

Have a great weekend!

To growth,

Brennan Turner
President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter
At 7:55 AM CST in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2456 CAD, $1 CAD = $0.8028 USD)

Mar Corn: +0.5¢ (+0.15%) to $3.558 USD or $4.388 CAD
Mar Soybeans: -2.8¢ (-0.3%) to $9.895 USD or $12.204 CAD
Mar Soybean Meal (per short ton): -$2.40 (-0.7%) to $338 USD or $416.87 CAD
Mar Soybean Oil (cents per lbs): +0.19¢ (+0.6%) to 32.69¢ USD or 40.31¢ CAD  
Mar Oats: +3.3¢ (+1.25%) to $2.643 USD or $3.259 CAD
Mar Wheat (Chicago): +2.3¢ (+0.5%) to $4.368 USD or $5.387 CAD
Mar Wheat (Kansas City): +3¢ (+0.7%) to $4.38 USD or $5.402 CAD
Mar Wheat (Minneapolis): +2¢ (+0.35%) to $6.123 USD or $7.551 CAD
Mar Canola: -3.4¢/bu / -$1.5/MT (-0.3%) to $11.215/bu / $494.50/MT CAD or $9.095/bu / $400.94/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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