July 24 – Cooling Weather (and Grain Prices)

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FarmLead Breakfast Brief
Monday, July 24th, 2017

“Alas, summer sun can’t last forever. The days will grow cooler and shorter, and our skin will once again pale.”
– Sarah MacLean (US author)

Good Morning!

At 6:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2522 CAD, $1 CAD = $0.7986 USD)

Sept Corn: -6.8¢ (-1.8%) to $3.73 USD or $4.671 CAD
Sept Soybeans: -18¢ (-1.75%) to $9.963 USD or $12.475 CAD
Sept Soybean Meal (per short ton): -$6.20 (-1.85%) to $325.50 USD or $407.59 CAD
Sept Soybean Oil (cents per lbs): -0.27¢ (-0.8%) to 33.66¢ USD or 42.15¢ CAD  
Sept Oats: -4.3¢ (-1.45%) to $2.915 USD or $3.65 CAD
Sept Wheat (Chicago): -6.5¢ (-1.3%) to $4.928 USD or $6.17 CAD
Sept Wheat (Kansas City): -6.5¢ (-1.3%) to $4.895 USD or $6.129 CAD
Sept Wheat (Minneapolis): -7.8¢ (-1%) to $7.58 USD or $9.492 CAD
Nov Canola: -11.6¢/bu / -$5.10/MT (-1%) to $9.051/bu / $399.06/MT USD or $11.333/bu / $499.70/MT CAD

Friday’s Winnipeg ICE Close
Oct Milling Wheat: -10.9¢ (-1.35%) to $6.303 USD or $7.891 CAD

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Cooling Weather (and Grain Prices)

Grain markets are lower this morning as cooler, wet weather is expected to hit the Corn Belt this week.

This moisture is the opposite of the weather that grain markets and prices have been feeding off since mid-June.

Via Agrimoney, WxRisk.com notes that Northwest Indiana, northeast Illinois, and northeast Iowa all received significant rain that has continued into this morning. [1] Some areas got as much as 7 inches (which will intuitively switch the rhetoric from “not enough rain” to “too much rain”).

On the flip side, northern Missouri, eastern Nebraska, and central and western Iowa didn’t get much of what was in the forecast.

The caveat is the cooler weather will slow down the cooking of the corn crop. Further, a Canadian cold front should bring rain to southern Minnesota, most of Wisconsin, most of Iowa, eastern Nebraska, and southern Illinois. Overall, there are certainly good pockets of the crop out there, especially in the eastern Corn Belt. [2]

This next week of weather will be good for almost every area.


USDA Crop Progress Report on Tap

Speaking of Canada, some hail and even tornadoes hit the Prairies over the weekend with rain missing areas closest to the U.S. border that needed the moisture the most. In Alberta, spring crop conditions dropped 6 points in 1 week to 65% rated good-to-excellent (G/E). [3]

Spring wheat ratings in Alberta dropped 5 points to 66% considered in G/E shape.

Expectations for this afternoon’s crop progress report is for 1-3 point drop in G/E ratings for the U.S. corn crop, 1-2 points lower for soybeans, and another 1-2 points for spring wheat. Technicals on the winter wheat market are suggesting sideways to bearish trading. With this and our commentary on the spread between winter and spring wheat markets last week, this could put pressure on spring wheat markets as well. [4]

Louise Gartner of Agriculture.com says that general wheat prices will hinge on the direction of spring wheat and corn. [5] Thinking more long-term, if corn and soybean values stay elevated, it may be tough for spring wheat to return to acreage levels that it lost in 2017/18.

[if you missed it last week, read up on Garrett’s pieces on what’s happening with the U.S. winter wheat crop and how a seller’s market is being found in the spring wheat market]

 

Where Are Soybean Prices Headed?

For the soybean market, this next week of weather will certainly help American crop progress, but it will give strength to bears as prices face pressure. However, as Rich Nelson from Allendale points out, the bullish argument can be that “beans don’t like wet feet.” This means that the onslaught of rain in areas mentioned above could provoke some sudden death syndrome.

Those yield losses won’t be evident until harvest and combines roll. [5]

Chinese soybean imports for the first 6 months of 2017 came in at 44.8 million tonnes, a 14.2% increase over the same timeframe in 2016. In June, 7.7 million tonnes of the oilseed was imported, a 6.7% increase from June 2016.

The pressure was on palm oil imports though, which were down 8.5% year-over-year to 217,300 MT. The cooler demand continues to put pressure on vegetable oil prices. Chinese corn imports in June were 383,100 MT, a 472% jump from June 2016; however, 75% of that figure came from Ukraine, while just 19% (72,700 MT) came from America.


Is Corn a Carry Market?

As we’ve mentioned many times in the past, volatility creates opportunities. When the market is trying to “buy the rumor,” a farmer should be thinking about their opportunity to “sell the rumor.”

When the market “sells the fact,” the farmer should be happy that they’re profiting on the fact.

More concretely, as a farmer, you should also consider trying to “sell the rumor, profit on the fact.”

While the highs of the corn market were seen nearly 2 weeks ago, there is still a carry in the market. This, according to Brian Doherty at Top Farmer. [6]

Putting in those price targets on the cash market is no different than having an options strategy for the futures boards. Being disciplined at this time of year can be extremely difficult, considering what you see in the field and negative production rumors that are omnipresent.

Just a word of caution though: you’ll always hear more about the bad stuff going on. No one wants to talk about how good crops are looking here or there. The cognitive bias or emotion associated with growing a crop is the crutch on which many failed marketing plans feed off of for too long.

Simple recommendation: ditch the crutch. Go ahead and post those cash market targets on FarmLead today.


What Else You Need to Know About Grain Markets

The Pulses 2017 conference in Vancouver last week brought a healthy debate to where red lentil prices are going. [7]

While most agree that destination markets like Turkey and India have enough supply to be content with and not start a spending spree, production markets are the question market. Canadian production of red lentils in 2017 will surely be smaller because of lower acres.

Australia red lentils production is clearly in limbo because of smaller acres. There is some speculation that farmers in both countries will hold onto their lentils and as canola and wheat prices provide cash flow relief.

In the Land Down Undaa, there is hope for a shot of precipitation this week in most areas of the country-continent. [8] However, August-October rainfall in Australia will be critical as it is still relatively dry, but there is some hope for a shot of precipitation this week in most areas.

Warmer weather is also putting some stress on western crops in the Black Sea region. However, with winter crops being harvested as we speak (namely winter wheat), the impact of the heat will mostly be felt on spring crops.

French wheat harvest is now past the 2/3s mark with yields better than last year but not necessarily catching headlines because they’re not amazing (read: near-average yields).

Saudi Arabia just bought 900,000 MT of barley at an average delivered price of $4.50 USD / bushel (or $5.60 CAD/bushel). [9] Movement is for September / October 2017. They were technically tendering for 1.5 million tonnes, so maybe they’re expecting prices to go down with harvest pressures?

Bunge thinks that the commodity cycle is close to a bottom [10].

CEO Soren Schroder also thinks that the industry has too much capacity and needs to be consolidated, meaning that they’re open to M&A activity. These comments precede Bunge’s second-quarter results, which are expected to come in at the low-end of expectations, fueling the idea that they may be more open to a bid from Glencore. [11]

To help consolidate their balance sheet, Bunge is pulling back on the travel and entertainment budget allowed for their commodity traders.

ADM is just going to cool its workforce and lay people off. [12]

Overall, this is the nature of commodity cycles. Nobody likes being on the lows, be it farmers, grain companies, or their workers. Th effects ripple throughout small-town/rural economies around the world. While grain prices have been cooling for the past few years, this last few months have been anything but. Maybe there is some merit to Schroder’s words.

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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