July 26 – Keeping It Simple

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FarmLead Breakfast Brief

Wednesday, July 26th, 2017

“I think a simple rule of business is, if you do the things that are easier first, then you can actually make a lot of progress.”
– Mark Zuckerberg (Facebook CEO)

Good Morning!

At 7:10 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2503 CAD, $1 CAD = $0.7998 USD)

Sept Corn: -1.3¢ (-0.35%) to $3.675 USD or $4.595 CAD
Sept Soybeans: -1.8¢ (-0.2%) to $9.843 USD or $12.306 CAD
Sept Soybean Meal (per short ton): -$0.80 (-0.05%) to $319.50 USD or $399.48 CAD
Sept Soybean Oil (cents per lbs): +0.08¢ (+0.25%) to 33.70¢ USD or 42.14¢ CAD  
Sept Oats: unchanged at $2.82 USD or $3.526 CAD
Sept Wheat (Chicago): +4¢ (+0.85%) to $4.78 USD or $5.976 CAD
Sept Wheat (Kansas City): +4¢ (+0.85%) to $4.765 USD or $5.958 CAD
Sept Wheat (Minneapolis): +4.3¢ (+0.6%) to $7.218 USD or $9.024 CAD
Nov Canola: -1.8¢/bu / -$0.80/MT (-0.15%) to $8.866/bu / $390.94/MT USD or $11.086/bu / $488.80/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.438 USD or $3.048 CAD
Oct Durum Wheat: +8.2¢ (+1%) to $6.704 USD or $8.382 CAD
Oct Milling Wheat: -43.5¢ (-5.65%) to $5.834 USD or $7.294 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!

 

Keeping It Simple

Grain markets are mostly higher to start Wednesday, July 26, trying to recover yesterday’s losses.

I haven’t mentioned it this week, but the Canadian Loonie continues to impress, which is putting some pressure on Canadian cash grain prices. Now above 80 cents USD, this is nearly a 10% rally since May. [1]

For the first time since March, speculators are holding a net-long position in the Canadian Dollar. One of the main reasons for this is that the market is not expecting the U.S. Federal Reserve to raise interests rate anytime soon. This is especially true today as the 2-day FOMC meetings wrap up today with little support for the U.S. Dollar expected.[2]

On the flipside though, given the appreciation of the Loonie over the past 2 months, you could argue that the Bank of Canada might want this rally to dissipate a bit.

Yesterday’s Action

Yesterday, grain markets pulled back sharply less damaging weather on the horizon. While you can see this morning’s prices above, it was a tough day on the grains complex yesterday, driven a lot by volatility. [3]

  • December corn finished 8.5 cents lower to $3.82 per bushel on the Chicago board
  • November soybeans dropped 17.25 cents to close the day at $9.928
  • December Chicago SRW wheat fell more than 4% or 14.75 cents to $4.74
  • December Kansas HRW wheat fell 13.25 cents although held out above $5
  • December Minneapolis HRS wheat dropped an unhealthy 31.5 cents (or -4.5%) to $7.27
  • November canola dropped $4.40 CAD/MT to finish nearly 1% lower at $489.60

However, if you read Garrett’s Grain Markets Today (posted every afternoon around 4:00 PM ET), you’d know that “putting even a half inch of rain into a furnace isn’t going to make a dent.” You could argue that these are “billion-dollar rains” for a few places.

While I’m not an agronomist, at this point in the game, it’s pretty tough to recover yield potential, especially in corn and wheat. This sentiment was echoed by PRICE Futures Group’s Jack Scoville who isn’t reading into the sell-off the past few days. [4]

Bumper or Bust?

We can all agree that we do not have last year’s crop. We can probably also agree that the worst areas of production won’t be balanced by the best areas.

It is hard though, to ignore the size of the carry out to not only start the 2017/18 crop marketing year but also where supply will be at the end of said crop season.

Soybeans might the outlier on this front. Rababonk suggests that the market could be a in shortage situation if yields decline 3-4 bushels per acre from where they’re currently forecasted (48 bpa is the USDA’s estimate).[5]

Ray Grabanski at Progressive Ag Marketing doesn’t think we need a bumper crop to have adequate supplies. [6] This year’s crop still has the potential to be fairly large. Everyone brings out their measuring stick, but too many compare it to last year’s record yields. We tend to have short memories when it comes to this sort of thing.

Grabanski posits that if production comes in just marginally below average, the market has possibly already priced in enough premium. Further, prices could struggle until the next major bullish headline.

Could the August 10th WASDE be it?

US Spring Wheat Tour Starts

The first day of the U.S. Wheat Council’s spring wheat tour went off yesterday. [7] The results of Day 1 weren’t as bad as some were expecting though, despite the wheat standing about knee height.

On the first of 3 legs, the average yield estimate came in at 37.9 bushels per acre.

Last year’s yield for day 1 was 43.1. The 5-year average Is 45.7 bushels per acre. The USDA’s forecast in their July WASDE was for an average spring wheat yield this year of 40.3 bushels. Last year, the final spring wheat average yield was 47.2 bushels per acre.

The US spring wheat crop is stressed (Garrett talked about the state of the US spring wheat crop last week if you want some additional reading)

For Day 2 today, the tour is moving west. It’s widely suspected that the 70 scouts made up of buyers, farmers, university, and government types will find more stressed crops. These areas have suffered from more of the drier weather than Day 1’s path through western North Dakota.

Buy the Damn Dip!

A commonly used phrase in trading is “buy the damn dip.” This refers to when a significant sell-off in a derivative occurs. This applies to everything from stocks to currencies to (you guessed it) grains. Arguably, a lot of the yield losses have already been priced in.

With grain prices on the futures boards closer to where we were in mid-June, does this create buying opportunities? I would think so, especially if I’m an international buyer.

China might be the one player with the most to win. Considering that Brazilian ports are more focused on shipping corn out, China will still be looking for soybean coverage. With the Brazilian option, a bit tied up, swinging over to American supply at these lower levels seems very logical.

Algeria may be one buyer who’s taking advantage. They bought roughly 500,000 MT of milling wheat at an October delivered price of $215 USD / MT ($5.85 USD / bushel or $7.30 CAD / bushel).

Get Back to Being a Farmer

While the market marches up and down, it can be tough to know when to pick out a price. I’ll be the first to admit I don’t have a crystal ball. I remember one time, a young farmer told me that he always sold in the top 5% of the market. I told him he should sell the farm and start a hedge fund. He asked me, “what’s a hedge fund?”

There are things that I know I’m good at it. There are things that you can admit that you’re good at it. As a farmer, that list can include mechanic, agronomist, a logistics expert, a salesperson… the list can go as Garrett points out in one of his recent FarmLead Insights columns.

Particularly during this portion of the calendar, time can be pretty valuable. Unlike the aforementioned young farmer (who was apparently lying to me), you should be shooting for the top 20% or so of the market.

We’re certainly at that point in wheat and a few other crops.

Post your grain’s price target(s) on FarmLead. You grow the grain. Let us help you manage the rest.

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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