Jan 18 – Early Speculation?

FarmLead Breakfast Brief

Wednesday, January 18th, 2017

“In my early days, I was eager to learn and to do things, and therefore I learned quickly.” – Sitting Bull (Sioux chief)

Good Morning!
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 = $1.3096 CAD, $1 CAD = $0.7636 USD)

Mar Corn: +0.5¢ (+0.15%) to $3.66 USD or $4.793 CAD
Mar Soybeans: -3.3¢ (-0.3%) to $10.66 USD or $13.96 CAD
Mar Soybean Meal (per short ton): -$2.90 (-0.85%) to $345.90 USD or $452.99 CAD 
Mar Soybean Oil (cents per lbs): +0.13¢ (+0.35%) to 35.69¢ USD or 46.74¢ CAD 
Mar
 Oats: +2.8¢ (+1.1%) to $2.52 USD or $3.30 CAD
Mar Wheat (Chicago): unchanged at $4.335 USD or $5.677 CAD
Mar Wheat (Kansas City): +0.8¢ (+0.15%) to $4.513 USD or $5.91 CAD
Mar Wheat (Minneapolis): +8.5 (+1.5%) to $5.75 USD or $7.53 CAD
Mar Canola: +3.2¢ or +$1.40/MT (+0.3%) to $8.839/bu / $389.74/MT USD or $11.576/bu / $510.40/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.294 USD or $3.005 CAD
Mar Milling Wheat: -21.8¢ (-3.3%) to $4.863 USD or $6.368 CAD

How much of a rally do you need before posting a target?

Early Speculation?

Grains this morning are mostly mixed as long positions try to keep testing new highs in the soybeans markets as Argentine weather premiums continue to drive things. The U.S. Dollar is up a bit this morning which is putting some outside pressure on the grains complex while soybeans are stalling a bit on the December U.S. crush number coming in at 160.18M bushels, 2.6M below what the market was expecting, albeit it is aligned with the full-year target by the USDA for domestic crush to climb 2.3% year-over-year. Another headline that’s being watched is a Brazilian trucker strike, but that’s par for the course at this time and it’s a bit early to speculating how disruptive that will be to Brazil’s soybean harvest, which is pegged now at 5.3% complete in largest-producing province, Mato Grosso (well above 2% harvested at this time a year ago).

Switching gears for a moment, winter wheat values have been rising on the news that acreage in America in 2017 could hit a 108-year low, but things may be a bit overpriced on the futures board. The first reason is that we continue to hear similar acreage numbers in Europe and the Black Sea and the conditions are relatively decent right now. Second, U.S. wheat inventories by the end of the 2016/17 crop year are still likely to sit at 1.19B bushels, the most in nearly 30 years. Third, even with less acreage in 2017, this would likely only suggest a pullback of about 150M bushels in output compared to 2016’s crop. This all translates to a grain that still has inventories that are almost double the 590M bushels that were available when we saw the best prices in years in 2013/14 (not to mention, the global carryout is also significantly higher). Accordingly, the price on the futures board in Chicago is enjoying some short-term bullishness and either the cash price must come up to it, or the paper trade has to come down and meet it somewhere below today’s value (we expect the latter).

Coming back to the oilseed complex, Dr. Cordonnier of Soybean & Corn Advisor lowered his Argentinian soybean production forecast by 4M tonnes to 51M tonnes, the lowest of all private estimates and 6M tonnes below the USDA’s current forecast from last week’s WASDE. With the latest rally and currency effects in mind,  Jared Creed of Gavilon points out the South American producer continues to enjoy higher grain prices for this time of year, despite farmer selling being a bit slower down there. On the flipside, as there’s still no concrete number associated with U.S. soybean acres, Bower Trading suggests that the market tends to overestimate soybean supply, but underestimate demand. My conclusion though, even with a healthy stocks-to-use ratio, we’re still looking at a record global carryout for soybeans, despite concerns out of Argentina.

That being said, the weather there has clearly been wet for the past month, but this is technically just the start of the growing season in Argentina and the drier weather in the pipeline to finish out the month of January will certainly help the crop. As Karen Braun of Reuters points out, this is moreso the early stages of the Argentinian soybean growing season and there’s limited plants that are yellowing, let alone seeing pods set and filled yet. Yet the rally we’ve seen is starting to look eerily like what we saw last spring, as, with other markets like equities or currencies not necessarily providing the returns, speculation money continues to drive this soybean move to the upside. This even if the size of the bullish positions aren’t near their peaks seen in May 2016 of 210,000 soybean longs, 75,000 soymeal longs, and 109,000 long soy oil positions (albeit today’s longs are growing quickly). While, yes the market is trying to price in the likelihood of the size of the Argentinian crop (and the subsequent output of soymeal and soyoil, as mentioned in yesterday’s Breakfast Brief, and their corresponding prices, which are both higher), the aforementioned growing timeline of the soybean plant in Argentina is still early.

To growth,

P.S. Catch us this week in Brandon at Manitoba Ag Days in the Westoba Concourse!

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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