FarmLead Breakfast Brief
Tuesday, July 18th, 2017
“A market is never saturated with a good product, but it is very quickly saturated with a bad one.”
– Henry Ford (American industrialist)
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 = $1.258 CAD, $1 CAD = $0.7949 USD)
Sept Corn: +11.8¢ (+3.15%) to $3.868 USD or $4.865 CAD
Sept Soybeans: +14.3¢ (+1.45%) to $10.004 USD or $12.585 CAD
Sept Soybean Meal (per short ton): +$4.20 (+1.3%) to $328 USD or $412.63 CAD
Sept Soybean Oil (cents per lbs): +31¢ (+0.95%) to 33.45¢ USD or 42.08¢ CAD
Sept Oats: +10¢ (+3.5%) to $2.955 USD or $3.717 CAD
Sept Wheat (Chicago): +9.3¢ (+1.85%) to $5.153 USD or $6.482 CAD
Sept Wheat (Kansas City): +9.3¢ (+1.85%) to $5.158 USD or $6.488 CAD
Sept Wheat (Minneapolis): +20.8¢ (+2.7%) to $7.88 USD or $9.913 CAD
Nov Canola: +5.2¢/bu / +$2.30/MT (+0.45%) to $9.167/bu / $404.21/MT USD or $11.533/bu / $508.50/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.423 USD or $3.048 CAD
Oct Milling Wheat: -5.4¢ (-0.7%) to $6.252 USD or $7.865 CAD
Higher Market Calls (or Just Noise?)
As I write this, I’m flying about 40,000 feet above sea level, headed to Saskatoon for the 2017 Ag In motion show (stop by the FarmLead booth here in the FCC Ag Pavilion).
Technology is amazing, isn’t it?
From this height, the colors of blooming canola, flax crops and the lush green of others are quite striking.
It’s amazing just how much productive land we have!
Sadly, some nations can’t say the same this year.
More on that thought in a moment.
First, let’s talk about the markets.
Grain prices areall in the green this morning. Canola is acting quite resilient in the face of the Canadian Loonie touching 79.5 cents USD. December corn is back above $4 USD / bushel and November soybeans are back into double digits as well.
Corn: Big Goals
Yesterday, the USDA released its crop progress update, and as expected, quality fell across the board. 
National corn good-to-excellent (G/E) ratings decreased by 1 point from last week to 64%. Last year it was 76% at this time.
The areas fairing the worst are the usual suspects:
South Dakota registered only 30% G/E (and 38% poor-to-very poor or P/VP);
North Dakota hit 45% G/E (24% P/VP); and,
Indiana at just 47% G/E (and 18% P/VP).
It’s worth noting that the percentage of the corn crop across the country in a silking state is only 40%. That’s a bit behind the 53% it was a year ago at this time and the 47% average we’ve seen the last five years.
In Garrett’s Grain Markets Today posted yesterday afternoon, he pointed out that Hackett Financial Advisors is getting some press for calling for $6 USD / bushel corn . Between declining inventory levels, pollination risk during heat waves, and falling yields, Hackett, via Barron’s, is pushing out the most bullish narrative we’ve seen yet.
While there’s a case to be made for the three factors above pushing corn prices higher, there’s a lot of domestic and global supply that will put pressure on rallies.
This theme has continued all year.
One could argue that Hackett is just pushing a contrarian narrative.
However, with the rest of the marketing accounting for these variables to a certain extent and with smaller upside targets, click-bait by Barron’s and annual subscription sales from Hackett seem to be the goal here.
Soybeans Performing Well?
The crop progress report showed that 61% of the US national crop is considered to be in G/E shape.
Like corn, this is down 1 point from last week and tracking well behind last year’s G/E rating at this time of 71%.
The Northern Plains are faring the worst with just a 29% G/E rating in South Dakota (33% P/VP) and 40% G/E in North Dakota (25% P/VP).
And again, Indiana isn’t doing super great, with only 49% of the crop rated G/E and 15% considered to be in P/VP shape. Ohio isn’t faring too well either, sitting at 50% G/E and 15% P/VP.
From a crop development state, 52% of the U.S. soybean crop is in bloom (aligned with the 5-year average). 16% of the crop is also setting pods, matching last year’s pace and ahead of the 13% seasonal average.
Elsewhere in the soybean complex, NOPA’s monthly crush report came out yesterday.
It met the market again with disappointing results. 138.1 million bushels of soybeans were crushed in the month of June, about 3 million less than the trade’s expectation. This figure is also a 7.5% drop from what we saw in May and a 4.8% decline from June 2016.
Wheat Leads the Way?
75% of the American winter wheat harvest is now in the books.
This figure is in line with last year’s harvest pace and that of the average from the past five years. Combines in Nebraska and South Dakota made a lot of progress last week with 83% and 43% of winter wheat crops now harvested there. Last week it was 52% and 14% respectively.
91% of the American spring wheat crop is now headed out, but ratings continue to fall. Just 34% of the crop is rated G/E, down 1 point week-over-week. Again, the worst of the worst is in the Northern Plains. South Dakota is the worst with just 8% of the crop rated G/E and 74% considered in P/VP condition. Montana is next at only 16% rated G/E and another 61% in P/VP shape. North Dakota, whose eastern half has gotten some rains, is seeing 32% of its crop considered G/E and 40% of it is in P/VP health.
[To understand more about what’s going on with the U.S. wheat crop, please read Garrett’s piece posted this morning here. Yesterday, he spoke to Royce Schaneman, executive director of the Nebraska Wheat Board, and Blake Rowe, CEO of the Oregon Wheat Growers League, who offered their perspective on the current harvest.]
The one question on everyone’s mind is simple: Just how much lower can the ratings go?
Well, if you saw them, there are still numbers in the good-to-excellent columns. Yes, ratings could drop with more heat and the lack of rain in the forecast for the Northern Plains this week.
As we talk with growers in the southern parts of Western Canada and even parts of the Northern Plains that are hanging on, the sentiment is that crops are tapping into as much soil moisture reserves as possible (how deep are your roots?)
Is this being priced into the market?
On the futures board, gains have been incremental, but we still haven’t seen the highs from the first week of July. Will we? I think it’s safe to assume that we should get near those levels, but it will depend more on speculative fund money pushing the board again. As DTN’s Todd Hultman points out, sellers have seemingly left the market (and from a human psychology perspective, understandably so). 
Todd notes that the last time we saw a drought market was in 2012. That year, the global wheat stocks-to-use ratio sat at 26%, well below the 35% ratio that is expected by the end of 2017/18.
That year, spring wheat peaked at $10.35 USD / bushel on the Minneapolis market in July.
Todd also points out that the spread between Chicago and Minneapolis are historically around 14%. Currently, it’s more than 50%, the 2nd-highest since 1980. The top all-time spread is owned by the month of February 2008 – a year we can all remember for wheat prices.
Back then, the Minneapolis spring wheat premium was 69% relative to the Chicago wheat futures board.
One last point from Todd: there only have been five years that Minneapolis spring wheat had more than a 33% premium above Chicago. Each time, the premium lasted less than a year. As such, Todd’s conclusion is that the Minneapolis spring wheat market needs to come down. More concretely, I fully support “Todd’s Take” that these selling opportunities don’t last long and should be considered. Supporting this theory is Jon Scheve who challenges you to consider “Grand Slams vs. Strike Outs”. 
On the cash front, we continue to see healthy activity on wheat trades, for winter, spring, durum, and even feed. Post your next block of an old or new crop on the FarmLead Marketplace today.
As per the DTN Cash Index, since June 1, spring wheat cash bids have risen by $1.80 per bushel to $7.18 USD / bushel. 
On the durum wheat front, DTN says cash wheat prices have rallied $2.45 over the same period. Negotiations on the FarmLead Marketplace for durum continue to sway above $7 USD / bushel with some getting closer to $8. In Canada, $10 handles are still in play.
As I was saying above, several key producing regions have struggled due to unpleasant weather.
Australia, Spain, and Italy have usually been productive. This year, however, it’s been a bit too dry. We continue to monitor crop conditions in these three nations, especially in the Land Down Undaa where wheat production estimates continue to fall below the USDA’s benchmark of 23.5 million tonnes. 
For southern Europe, durum and soft wheat production are expected to decline notably this year.
Agroinfomarket says that due to the smaller harvest, Spanish soft wheat imports are expected climb 40% year-over-year to 5.6 million tonnes.
While we’re also cognizant of some wet weather in Germany, overall European wheat production should be relatively decent this year and closer to the long-term average. Thus, despite the “the sky is falling” headlines of EU wheat production, EU wheat futures have only rallied about 6% in the past six weeks.
Heading northeast, as of last Friday, Russia had harvested 14.4 million tonnes of grain thus far. Comparably, it was 18.2 million a year ago. Yields are tracking a bit better year-over-year though (which somewhat affirms the USDA’s call last week to bump their wheat output number to a near-record 72 million tonnes!).
In China, domestic agricultural policy changes continue to support more imports.  Despite owning 10% of the world’s arable land, Beijing’s goal of self-sufficient agricultural production is a long way off.
What Else Should You Know?
Barley production in the Northern Plains is suffering, like its cereal brothers and sisters. In Montana, just 39% of the barley crop is rated G/E, with 24% considered P/VP. In North Dakota, 41% of barley fields are in G/E shape with 28% in P/VP shape. Overall, barley ratings across the US are at 53% G/E, down 2 points week-over-week and again, a good stretch of last year, when things were at 73% G/E.
With these sort of conditions, it’s safe to assume that there will be a few malsters whose forward contracts with producers won’t be able to get filled. Too high of protein might be the biggest problem this, given the dryness.
For oats, the percentage of the crop rated G/E is at 51%. This is technically up 2 points from last week but still a long way off from 66% a year ago and the 10-year average of above 70% G/E. 
Harvest has started in a few places though, with 14% of the total American crop combined. The 5-year average for this time of year is 20%.
Also, North Dakota’s flax crop continues to deteriorate, with barely 20% of the crop considered G/E. 
The 10-year average for this time of year, as pointed out by Chuck Penner of Left Field Commodity Research is closer to 75% G/E.
Overall, the crops continue to suffer in the Northern Plains, bringing optionality for Canadian producers who are willing to sell across the border. Or just deal with grain buyers who export into the U.S.
While many calls may be for higher market prices, wheat prices are closer to finding an equilibrium. For other crops like pulses and flax, the crop is still up in the air, which is why you haven’t seen as much of a rally for new crop.
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.