July 14 – Locking Up Some Profit

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FarmLead Breakfast Brief

Friday, July 14th, 2017

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
– Warren Buffet (the Oracle of Omaha)

Good Morning!

At 7:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2713 CAD, $1 CAD = $0.7866 USD)

Sept Corn: +5.8¢ (+1.55%) to $3.755 USD or $4.774 CAD
Aug Soybeans: +6.8¢ (+0.7%) to $9.823 USD or $12.487 CAD
Aug Soybean Meal (per short ton): +$3.40 (+1.05%) to $321.30 USD or $408.47 CAD
Aug Soybean Oil (cents per lbs): +0.04¢ (+0.1%) to 33.11¢ USD or 42.09¢ CAD  
Sept Oats: +4.5¢ (+1.65%) to $2.803 USD or $3.563 CAD
Sept Wheat (Chicago): +4.5¢ (+1.65%) to $5.178 USD or $6.582 CAD
Sept Wheat (Kansas City): +6¢ (+1.15%) to $5.203 USD or $6.614 CAD
Sept Wheat (Minneapolis): +14.5¢ (+1.95%) to $7.64 USD or $9.713 CAD
Nov Canola: +14.5¢/bu / +$4.10/MT (+0.8%) to $9.038/bu / $398.49/MT USD or $11.489/bu / $506.60/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.398 USD or $3.048 CAD
Oct Milling Wheat: -40.8¢ (-4.9%) to $6.208 USD or $7.893 CAD

How much of a rally is enough for the next sale?
How many buyers do you call to stay on top of prices?
Let buyers come to you. Post your grain on FarmLead!


Locking Up Some Profit

Traders continued to lock up profit yesterday as the market tried to take advantage of further optimistic weather (as discussed by Garrett Baldwin in yesterday afternoon’s Grain Markets Today).

The 7-day forecast is calling for some decent rain through the Midwest again [1].

But Montana and parts of the Dakotas are expected not to see much moisture again.

That is a problem.

Grain prices heading are rebounding with the weekend on tap. We see a bit of speculation on the yield potential for corn and soybeans in the months ahead. MDA Weather Services is the latest to throw their estimates in the ring, calling for 165.8 bu/ac for corn and 46.5 for soybeans.[2] In the Corn Belt, Global Commodity Analytics’ Mike Zuzolo explains that drought conditions are a major factor. Just 1% of the region was in drought at this time in 2015/16.

Last year, the figure was 6%.

This year, 9% of the Corn Belt is in a drought stage. [3]

Headlines from Abroad

Yesterday, Chinese buyers continued their annual July soybean-buying binge.

The nation signed contracts for 12.53M tonnes of U.S. beans.

This purchase load would be the second-largest deal on record after the more than 13M tonnes bought two years ago in July 2015.

In Brazil, farmers have been making some solid soybean sales of their own as of late. [4]

Domestic prices have rallied up to 12% in some places over the past few weeks, allowing farmers who’ve been holding their oilseeds to make a sale finally. For what it’s worth, these same prices have been seen in the past few months.

One reason for recent acceleration in selling is the need to store corn. With prices well below what they were a year ago, Brazilian farmers are opting to hold out. With increased demand for trucks trying to accommodate the record 97M-tonne crop, this also puts pressure on selling at the harvest lows.


Wheat Conditions

Supporting spring wheat prices this morning was yesterday’s Saskatchewan crop report. [5]

It showed that crops in southern and central areas of the Western Canadian province are deteriorating due to lack of rain and hot temperatures. Across the region, 68% of the spring wheat crop is considered to be in good-to-excellent (G/E) shape, but just 43% of the durum wheat crop is rated G/E.

Roughly 65% of the barley, 57% of the canola, 32% of the mustard, and 49% of the soybeans crop are rated G/E. For pulses, peas and lentils are faring well at 64% and 62% of the crops rated G/E, respectively.

Chickpea conditions aren’t looking so great. Only 6% are rated good, nothing is rated excellent, and 57% are considered in poor shape.

In Germany, persistent rains have helped downgrade the quality of the crop there. [6] Protein levels for German wheat typically comes in between 12 and 14%, making it competition for North American spring wheat markets. With the size of the North American crop output indeed lower this year, this could potentially be considered a bullish factor.

We have to be cautious though. These sorts of headlines can be more smoke than fire. I’m taking the rains with a grain of salt, but I remain cognizant that it could add some premium to the market.

As per Joe Vaclavik of Standard Grain, if we see some of these high wheat prices stick around, acreage in 2018/19 will likely be higher. [7]

I’d have to agree.

Canola / Rapeseed and Palm Oil

We mentioned the main crops in yesterday’s USDA July WASDE report, but there are a few others worth exploring.

For canola/rapeseed, global production was lowered by 160,000 MT to 72.42 million tonnes in 2017/18. [8] This would be 4.7% jump over last year’s production. Worldwide canola/rapeseed crush demand is expected to remain flat year-over-year at 69.47M tonnes.

The USDA lowered the 2017/18 canola/rapeseed carryout from its June estimate by nearly 10% to 4.61M tonnes. The carryout was also relatively flat from 2016/17 ending stocks, down just 1.6%.

The downgrade from the June report is mainly due to 3 things:

  • A slightly smaller Australian crop;
  • More imports by the EU; and,
  • More imports by China.

Other notable numbers include 21M tonnes of production from Canada (+13.5% year-over-year) and 21.15M tonnes of production the EU (+3.3% year-over-year).

Canola carryout in Canada is expected to end 2016/17 with just 327,000 MT still left in the pipeline. The USDA does have optimism that it will improve to 550,000 carryout by the end of 2017/18.

You could argue that this is a huge 68% jump year-over-year. But let’s call a spade a spade: it’s just a 223,000-tonne increase. I know at least 30 farmers who alone could be responsible for that change this year.

One of the primary substitutes for canola is palm oil. After some drought-like conditions in Southeast Asia, production is expected to rebound significantly in 2017/18 to 18.04M tonnes. Compared to last year and two years ago in 2015/16, this is up 6.6% and 13%, respectively.


Barley and Oats

 

In the U.S., much like other spring cereals, barley and oats’ crop ratings have been suffering through the prolonged heat.

In Wednesday’s USDA report, oats planted and harvested acreage is expected to come in a bit lower than last year, sitting at 2.5M and 900,000, respectively (last year was 2.8M and 1M, respectively).

Average yields are also expected to fall year-over-year, down 7.6% to 61 bushels per acre. This downturn puts total production at 54M bushels, down 17% from 2016/17 American output. Accordingly, U.S. oats ending stocks are forecasted to fall almost 35% from last year to just 34M bushels. The USDA increased its price forecast to $2.15 to $2.65 USD / bushel in 2017/18.

For barley, U.S. acreage will drop to 2.4M acres this year, a nearly 23% decline from last year’s 3.1M acres. [9]

Average yields of this year’s crop are expected to suffer from the aforementioned dry conditions, down 5.6% from last year to 73.5 bushels per acre. With estimated harvested acreage only expected to see 1.9M acres get combined, this means that total American barley production in 2017/18 should come in at 143M bushels (or 3.1M tonnes).

This is a 28% decline in production.

From a demand perspective for US barley, things aren’t too different from last year.

The significant downgrade in production results in 2017/18 ending stocks for the cereal fall more than 32% year-over-year to 73M bushels (or 1.6M tonnes). Less supply with same demand means a higher price equilibrium, right? Exactly. The USDA raised the price forecast to a spread of $5.05 to $6.05 USD / bushel for the 2017/18 crop year (keep in mind that this is a malt barley price).

Globally, we know that barley has a bit more competition going on, namely from the likes of Europe and the Black Sea.

Tack on Australia’s record crop last year, and it’s looking like a huge playing field in 2017/18. For Canada, Viterra’s merchandising manager/trader Kenric Exner is calling for a feed barley range of $2.75 to $3.50 CAD/bushel and $4.75 to $5.50 for malt barley. [10]

It’s worth noting that we’ve seen feed barley trade at the higher end of Exner’s estimates for the last month but expect some harvest pressures soon. We’ve been seeing $4.00 to $4.35 CAD/bushel trade into Lethbridge.  For malt, targets continue to get set around $5.00 CAD/bushel and we are starting to see a little bit of action around that. Post your block on FarmLead to start locking up some profit before harvest price pressures start up.

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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