FarmLead Breakfast Brief
Wednesday, July 19th, 2017
“The problem with crying wolf so many times over the years is that it waters down a legitimate cry.”
– Vito Giacalone (American mafioso)
At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2598 CAD, $1 CAD = $0.7938 USD)
Sept Corn: +4.3¢ (+1.15%) to $3.813 USD or $4.803 CAD
Sept Soybeans: +1¢ (+0.1%) to $9.948 USD or $12.531 CAD
Sept Soybean Meal (per short ton): +$0.50 (+0.15%) to $326 USD or $410.68 CAD
Sept Soybean Oil (cents per lbs): +0.05¢ (+0.15%) to 33.34¢ USD or 42¢ CAD
Sept Oats: +3.8¢ (+1.3%) to $2.955 USD or $3.723 CAD
Sept Wheat (Chicago): -0.5¢ (-0.1%) to $5.033 USD or $6.34 CAD
Sept Wheat (Kansas City): -0.8¢ (-0.15%) to $5.02 USD or $6.324 CAD
Sept Wheat (Minneapolis): +3.8¢ (+0.5%) to $7.843 USD or $9.88 CAD
Nov Canola: -1.1¢/bu / -$0.50/MT (-0.1%) to $9.182/bu / $404.84/MT USD or $11.567/bu / $510/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.423 USD or $3.048 CAD
Oct Milling Wheat: +16.3¢ (+2.1%) to $6.373 USD or $7.484 CAD
After riding jet streams early yesterday, I arrived at the Ag In Motion show near Saskatoon.
It was a hot day, a sentiment echoed by many farmers who visited the FarmLead booth in the FCC Ag Pavillion.
Most producers from Western Canada said they could use more rain; however, they seemed surprised that by how resilient their crops have been, especially the further south their farms are.
Many were quick to mention how little rainfall they received thus far this year. When I asked, “what about last year and how much snow did you get over the winter?”, many replied with a chuckle of “too much!”
Not to say it hasn’t rained enough this year, but I’m cognizant that a soil moisture profile doesn’t just start at zero at the beginning of the growing season. I’d like to remind you of that as well.
Sure, it’s something to discuss, but when people only want to talk about how little rain they’ve got this year, I’ll be the first call out that “wolf” being cried.
Market analyst Bruce Burnett says that after a 4,500-kilometre tour around Western Canada, his conclusion is that best word to describe the crop is “variable.” 
Not discounting his travels and like hearing about the lack of rainfall, I’m taking “variable” with a grain of salt (I’m pretty sure I’ve heard that same word from Bruce a few times in the past five years).
Overall, our conversations with farmers were healthy, and most are optimistic about their crops, especially wheat, considering where grain prices are.
Let’s get into the markets.
As Garrett pointed out in his Grain Markets Today yesterday afternoon, grain prices were tossing between a weaker US Dollar, declining crop conditions, and improved rainfall outlooks.
Since the beginning of 2017, the US Dollar has lost more than 7.5%.
Corn yields are the topic du jour as numbers are being tossed out from 168 all the way down to 160. Currently, I’d say that the market is pricing in something close to 167-168 bu/ac.
I don’t think that the USDA will drop the yield by more than 3 or 4 bushels in their August WASDE, which is out in a little more than three weeks. There’s much speculation to be had between now and then (read: volatility), not just on what the weather will do, but also what the USDA will do.
Looking abroad, Egypt bought 300,000 MT of wheat in a tender yesterday from Russia, Romania, and France. At a delivered price of less than $6 USD and $7.50 CAD/bushel, it’s clear that Europe and the Black Sea wheat has a strong hold on the market of 12% or lower protein quality.
Weather Outlook Improving?
Rainfall coverage in the western Corn Belt is still looking a bit weak. For those areas that are getting drier, this week’s heat will certainly reduce yield potential as the crops are hitting the pollination period.
One positive that the bears are trying to hold on to is that the GFS weather models are pointing to more rain over central and northern Iowa than previously indicated.  1-2 inches should reach the Hawkeye state with some areas getting up to 5 inches. Conversely, the Euro model continues not show as much rain, meaning that the bulls are pushing back.
As pointed out by Allendale’s Paul Georgy, pushing back on the technical side is that the September corn contract on the Chicago Board of Trade is trading below its 100-day and 200-day averages. 
Conversely, the December contract is using its own 100- and 200-day averages as support.
Bob Utterback says that in the most bullish scenario, corn could run up to a $5 USD / bushel handle.  On the flip side, if more normalized conditions show up, $3.50 is where he’s targeting.
For November soybeans, the next level of support is $9.84, and the market is staying in double-digits for now.
While the US crop is trying to pollinate, Brazil is shipping out its record crop this year (97 million tonnes) at a record pace. In the first two weeks of July, 820,000 MT of Brazilian corn got shipped out, up 65% from a year ago.
What Else Is Going On?
The Trump White House recently released its game plan for renegotiating NAFTA. 
The gist is that they’re looking for “Buy America” provisions and trying to reduce the USA’s trade deficit.
As it relates to agriculture, the Trump Administration is looking to maintain the “existing reciprocal duty-free market access for agricultural goods.” There’s nothing concrete in the document that says the White House is going after Canada’s dairy sector or is going to tax Mexican imports of agricultural imports to pay for a Border Wall. Overall, it’s mostly the usual generalist political speak, but knowing Trump’s past, there are likely a few cards up his sleeve still to be considered.
Coming back to grain markets, it’s worth remembering that grain investors have added weather risk premium to the market in the past, but it didn’t end up being justified. This fact suggests that market participants may not be as willing to pay up for that premium this year. More simply put, traders might be getting better at catching on to the fact that with today’s agronomic practices and crop input technology and use, crops can weather the weather.
More or less, investors have been caught by the market crying wolf before. Is this time any different?
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