Jan 13 – Record Surprises?

FarmLead Breakfast Brief

Friday, January 13th, 2016

“The surprise is half the battle. Many things are half the battle, losing is half the battle. Let’s think about what’s the whole battle.”
– David Mamet
(US playwright)

Good Morning!
At 7:10 AM CDT in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3125 CAD, $1 CAD = $0.7619 USD)

Mar Corn: -1¢ (-0.3%) to $3.573 USD or $4.689 CAD
Mar Soybeans: -5¢ (-0.5%) to $10.353 USD or $13.588 CAD
Mar Soybean Meal (per short ton): -$2 (-0.6%) to $325.90 USD or $427.75 CAD 
Mar Soybean Oil (cents per lbs): -0.15¢ (-0.4%) to 35.92¢ USD or 47.15¢ CAD 
Mar
 Oats: +1.3¢ (+0.55%) to $2.36 USD or $3.098 CAD
Mar Wheat (Chicago): -1.5¢ (-0.35%) to $4.248 USD or $5.575 CAD
Mar Wheat (Kansas City): +0.8¢ (+0.15%) to $4.455 USD or $5.847 CAD
Mar Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.733 USD or $7.524 CAD
Mar Canola: -2.5¢/bu OR -$1.10/MT (-0.2%) to  $8.661/bu / $381.86/MT USD or $11.367/bu / $501.20/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: -6.5¢ (-2.15%) to $2.289 USD or $3.005 CAD
Mar Milling Wheat: +10.9¢ (+1.7%) to $4.997 USD or $6.559 CAD

Perhaps it’s time to post a bit of your grain on FarmLead?

Record Surprise?

Grains this morning are mostly lower, with the market trying to keep its gains following yesterday’s W.A.S.D.E. report that claimed a bullish stance by the market. Wheat is trying especially hard to keep climbing this morning on less acres while soybeans posted its highest close yesterday in 3 weeks, but I’m uber-cognizant of the fact that despite ending stocks expected to more than double from last year to this year, we’re sitting above $10/bushel on the Chicago futures board compared to being below $9/bushel a year ago. Overall, while many numbers came in below what the market was expecting, suggesting some bullish bias to the report, the fact remains that we still have record numbers, albeit slightly less than what they were pegged at in the past few months. The Quarterly Stocks report also came out, showing inventories as of December 1st all higher than they were a year ago for corn (+10% to 12.4 Billion bushels), soybeans (+7% to 2.9 Billion bushels), and wheat (+19% to 2.07 Billion bushels). With this report out of the way though, the market will re-focus back on South American weather and U.S. acres over the next couple of months, as well as trade deals with the new U.S. President officially in office (especially since there are records to work through – we mention it 10 times this morning).

What didn’t change in the report was the record production of corn and soybeans in the U.S. in 2016, pegged at 15.15 Billion and 4.31 Billion bushels respectively. This was technically down a bit from the November estimate as average yields were felled a bit to 174.6 bu/ac for U.S. corn fields with 86.7M acres getting combined (+7% from 2015) while the average U.S. soybean yield came in at 52.1 bu/ac (4.1 bu/ac or 8.5% higher than the previous record set last year) with harvested acres up 1% year-over-year to a record 82.7M acres. While we know there’s a lot of grain, how has demand fared? U.S. soybeans crush and export numbers remain unchanged at 1.93 Billion and 2.05 Billion bushels respectively, but with the slight decline in yield, 2016/17 U.S. bean ending stocks are pegged 60M bushels lower at 420M bushels (technically, that’s a 113% increase year-over-year), with the U.S.D.A. calling for an average farm price between $9 – $10 / bushel. For U.S. corn, feed use was actually dropped by 50M bushels, ethanol was up 25M bushels, but again, exports was left unchanged at 2.23M bushels, implying America ends 2016/17 with 2.36 Billion bushels of corn still available (that’s a 36% jump year-over-year).

The number that’s probably catching the most amount of attention is that from winter wheat, which came in at 32.8M acres, down 10% or 3.8M acres from last year, and the 2nd lowest on record and lowest since 1908! This drop is about 2M acres more than what the market was forecasting, hence the bullish optimism surrounding the complex. This include drops of 10% alone in states like Texas and Oklahoma, but also North Dakota and South Dakota, down 50% and 24% respectively, and lake states like Wisconsin and Michigan, down 19% and 23% each. When producers are being offered per bushel prices that start with $2 USD like we saw this fall, it’s clear that the market is not buying any more wheat acres in America. Offsetting the bullish acreage number is the fact that we mentioned in yesterday’s Breakfast Brief which is that the rest of the world isn’t necessarily pulling back as much as America (or maybe even Canada). A few other bearish factors to consider still was the increase of 2016/17 ending stocks in the US to 1.19B bushels (+22% from the 2015/16 carryout) and that the quarterly wheat stocks that we mentioned previously, indicating less wheat is disappearing than one would hope (AKA less demand).

Outside of America, total world wheat output is up 2% YoY to a record 752.7M tonnes, meaning global wheat ending stocks for 2016/17 are expected to climb 5% YoY to 253.3M tonnes with some swapping of trade origination as Aussie and EU wheat exports are up 500,000 MT each, while Canada is down 500,000 MT. With global corn production up 8% from last year to a new record of 1.037 Billion tonnes, global carryout will be 5% higher from last year at 221M tonnes with most numbers unchanged on the balance sheet from December’s WASDE, including Brazilian & Argentinian corn production staying at 86.5M and 36.5M tonnes respectively.  The USDA also kept their estimate for soybean production in Argentina at 57M tonnes (despite everyone else dropping their forecasts, including ) while Brazilian bean output was raised by 2M tonnes to 104M tonnes, more in line with private estimates. This equates to global soybean production climbing 8% from last year to a record of nearly 338M tonnes. Despite Brazilian & Argentinian soybean demand was raised by a collective 2.7M tonnes, meaning we should expect a record global soybean carryout of 82.32M tonnes (+6.5% YoY). With soybeans acres likely going up again in 2017/18 around the world, any bullish surprises like yesterday’s report, will likely be masked in the long-term by the relatively bearish fundamentals that is the amount of supply still available around the world.

Have a great weekend.

To growth,

Brennan Turner

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

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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