In today’s Breakfast Brief, we discuss hot weather, pressures from the wheat harvest and the outlook for the 2nd half of 2016.
“You are always a student, never a master. You have to keep moving forward.”
– Conrad Hall (US film director)
Grains this morning are in the green as some hotter temperatures in the forecast have those funds who were sellers the last few weeks back in the trade. While the US Dollar continues to be watched, weather is the main factor that is driving markets up or down – this time up as some hotter temperatures towards the weekend in the US Midwest will put some stress on yield potential. This will support the bulls but if rains do materialize with the heat, then you can probably expect US crop conditions to remain high (75% G/E corn, 70% G/E soybeans) relative to last year and the 5-year average. Accordingly, this means the bulls will look to head for exits again, much like did a few weeks ago and again last week. Until then though, you can expect non-commercial grain market players to aggressively, but consistently be in and out of the market.
Watching Out For Bears
One thing to watch for, according to Darin Newsom from DTN, is the volume of contracts traded in the corn market. Specifically, Darin makes the great point that if volume on days the price rallies is smaller than the volume on days the price drops, this is considered bearish. Last week, hedge funds dropped their net longs in grains by more than 141,000 contracts, including more than 70,000 corn contracts, making it one of the biggest sell-offs since 2006. That being said, $3.50 corn may be cheap, but $4.50 (where we were at about a month ago) is likely a long ways off. However, wheat positions held by fund managers are now sitting at a net short of 102,000 lots, just shy of the record set last year, suggesting that we may be near or at a bottom and that a short-covering rally as the US winter wheat harvest nears completion. However, the size of the global wheat harvest will continue to put pressure on prices, including better wheat crops thanks to La Nina in South America, and a relatively decent-sized crop in Europe, but one with quality concerns.
India is getting the monsoon rains it’s been looking for the past 2 years as the first week of July showed precipitation that was 35% above average, bringing relief for the driest areas, and with more rain on the way over this week. After June rains were 12% below average, this past week’s accumulation of rain puts things above-average, replenishing reservoirs, and giving farmers the much needed soil moisture to get their summer crops planted, including pulse crops (more acres expected there this year). Over the weekend, parts of the Canadian Prairies got dumped on pretty good, including Estevan, SK which saw its own monsoon with over 125mm dropping in a short timeand some flooding in the town streets. Thus, while one major pulse-crop producing area gets the rains it has been looking for, another (SE Sask) gets too much.
Looking Into The Future
All in all, there’s a lot of buzz out there as to which way things are going in the markets. In a moment of weakness in my week-long commentary hiatus, last Wednesday we reviewed what’s happened in the past 6 months in grain markets and where we think the opportunities lie in the next 6-9 months. Given where feed values currently are (and have been), we think there’s more downside than upside in lower value / lower quality cereals & feed grains, especially with a bigger U.S. corn crop potentially in the works (and with US milling wheat already being sold into Canada for feed…). While oilseed and pulse crop values have subsided recently, we still think there’s opportunities to the upside, given global demand remaining strong. We also think there’s upside opportunities for higher value cereals. Ultimately though, the decisions you make in the next 6-9 months as to what stays in and what goes out of yours bins should come down to (1) cashflow needs, (2) knowing exactly what you have to sell in terms of quality, (3) setting realistic targets on paper, and (4) making sales in block increments (10 – 20% at a time).
At 6:50 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3067 CAD, $1 CAD = $0.7652 USD)
Sept Corn: +3.3¢ (+0.9%) to $3.583 USD or $4.681 CAD
Aug Soybeans: +10¢ (+0.9%) to $10.933 USD or $14.285 CAD
Aug Soybean Meal (per short ton): +$4.30 (+1.15%) to $383.10 USD or $500.60 CAD
Aug Soybean Oil (cents per lbs): +0.16¢ (+0.55%) to 30.51¢ USD or 39.87¢ CAD
Sept Oats: +1.3¢ (+0.65%) to $1.965 USD or $2.568 CAD
Sept Wheat (Chicago): +3.3¢ (+0.75%) to $4.383 USD or $5.727 CAD
Sept Wheat (Kansas City): unchanged at $4.213 USD or $5.504 CAD
Sept Wheat (Minneapolis): +3¢ (+0.6%) to
Nov Canola: +15.6¢ / $6.90/MT (+1.45%) to $8.276/bu / $364.92/MT USD or $10.816/bu / $476.90/MT CAD
Friday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.666 USD or $3.484 CAD
Oct Durum Wheat: unchanged at $5.789 USD or $7.566 CAD
Oct Milling Wheat: +5.4¢ (+0.95%) to $4.
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.