July 27 – Greeting Skepticism

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FarmLead Breakfast Brief

Thursday, July 27, 2017

“The path of sound credence is through the thick forest of skepticism.”
– George Jean Nathan (US magazine editor)

Good Morning!

At 7:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2463 CAD, $1 CAD = $0.8024 USD)

Sept Corn: +2.5¢ (+0.65%) to $3.753 USD or $4.677 CAD
Sept Soybeans: +4.3¢ (+0.45%) to $9.98 USD or $12.438 CAD
Sept Soybean Meal (per short ton): +$1.70 (+0.55%) to $323.60 USD or $403.29 CAD
Sept Soybean Oil (cents per lbs): +0.28¢ (+0.85%) to 34.13¢ USD or 42.535¢ CAD  
Sept Oats: +2.3¢ (+0.8%) to $2.908 USD or $3.624 CAD
Sept Wheat (Chicago): +4.3¢ (+0.9%) to $4.82 USD or $6.007 CAD
Sept Wheat (Kansas City): +4.8¢ (+1%) to $4.803 USD or $5.985 CAD
Sept Wheat (Minneapolis): +7¢ (+0.95%) to $7.37 USD or $9.185 CAD
Nov Canola: +5.4¢/bu / +$2.40/MT (+0.75%) to $9.087/bu / $401.12/MT USD or $11.338/bu / $499.90/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.446 USD or $3.048 CAD
Oct Durum Wheat: unchanged at o $6.726 USD or $8.382 CAD
Oct Milling Wheat: +5.4¢ (+0.75%) to $5.896 USD or $7.348 CAD

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Let buyers come to you. Post your grain on FarmLead!

 

Greeting Skepticism

Grain markets this morning are mostly in the green on some follow-on buying from yesterday. Some of the rhetoric being spewed is that enough rains aren’t falling in key areas and it’s falling too much in others.

As Garrett mentioned in his Grain Markets Today recap yesterday afternoon, the market spent yesterday looking at yield expectations and current growing conditions.


Rain on the Way?

Rain is expected to fall a bit excessively over the eastern corn belt through the end of the weekend. Come Monday, though; tap shuts off with below-average precipitation expected through to next weekend.

Nebraska is also getting a much-needed drink. And a lot of it. Next week, there’s a chance for 200% – 300% of normal rainfall in the Cornhusker state. Drier parts of Iowa are also going to get in on some of those rains.

In its seasonal ag outlook, Commodity Weather Group states that 25% of U.S. corn and soybeans will feel the effects of lingering dryness.[1] This includes the Northern Plains.

They also expect 40% of Canadian wheat production areas to take on drier weather in August. More specifically, CWG is suggesting that anything within 2 hours of the U.S. border in Saskatchewan or Alberta will see late wheat and canola growth under pressure. On the flipside, the drier conditions will help with the start to Harvest 2017.

Wheat Quality Council Spring Wheat Tour

The Wheat Quality Council’s spring wheat tour continued on Wednesday through northwest and north-central areas or North Dakota. The 70 crop scouts were met with the effects of lingering drought.

225 fields were checked yesterday, calculating an average yield of 35.7 bushels per acre.[2] Last year on Day 2, the average was 46.5 bushels per acre off 197 fields.

Yesterday’s fields included 34 durum, three winter wheat, and 188 HRS wheat stops. HRS wheat fields alone averaged 35.8 bushels per acre, down from 46.9 bushels on 2016’s tour. The 5-year average is 46.6 bushels an acre.

Yesterday’s average in areas that have seen some rain was 37.9 bushels per acre.

For the earliest-planted fields, it doesn’t look too great. For the later-planted stuff, there is some optimism. Unfortunately though, and as mentioned, there isn’t much precipitation in the forecast for these fields. Forecasted lower temperatures will help minimize any further loss of yield potential though.

For those doubting the results and the ability of the scouts to properly check crops, the tour’s organizers are pretty clear cut on sampling process. This includes opening heads and checking for actual kernels. Also, stems, rows, and spikelets are counted. Further, estimates are taken on abandoned fields and will be presented in today’s final recap.

There is some concern from analysts though that the market is biased towards the results of a tour that’s not necessarily going through the driest areas.[3] This includes South Dakota.

Day 3’s leg today will head through northeastern counties in North Dakota and parts of northwestern Minnesota. Final tour results will be released tonight in Fargo, ND.

Regardless of what the final results show, the US spring wheat condition index is sitting at its second-lowest level since 1986.[4] The only worse year was in 1988 when compared to the year prior, 2 million fewer acres of spring and durum wheat were harvested. This translated to a 60% decline in production year-over-year.


Corn Prices vs Corn Yields

The UK’s Met office recently build on a model trying to predict the effect of climate change on corn yields.[5] Using 1400 simulations of climate from 1981 to 2015, they found that the annual probability of severe water stress impact was 30%. Or one in every three years. Digging deeper, probability of severe water stress in the corn belt is about 20% per decade. This is backed up droughts in 1988 and, more recently, 2012.

Regarding yield updates this year, Garrett mentioned Planatyics yesterday. Using satellite imagery, their estimate for national U.S. corn yield average this year is 165.3 bushels per acre. This is down from their previous forecast of 166.6.

Grain analyst Jarod Creed thinks that yield expectations for yields this year may be overblown.[6] He suggests that the market should be looking at the 25-year trend, not what the average of the past 4 or 5 years is.

Dr. Cordonnier of Soybean & Corn Advisors has lowered his expectations in North America for both corn and soybean yields.[7] For the coarse grain, the good doctor is now pegging U.S. average yield at 163.5 bushels per acre, down 1.5 bushels from his previous estimate.

For average U.S. soybean yields, Cordonnier dropped his forecast by 1 bushel to 46.5 bushels per acre.

What the market can certainly agree on is that we’re not going to see 170.7 bushels per acre like the USDA is currently forecasting. Accordingly, the market has put corn prices at a level that I continue to think is that 167 – 168 bushels per acre level.

Around The Rest of the World

Rain is slowing down the harvest in some European countries right now. Specifically, in Poland and Germany, crop quality concerns are being raised as yields coming off are varied.

June’s soybeans crush numbers in Argentina came in at 3.9 million tonnes. That’s down 5% year-over-year and 15% lower than May 2017.

Keeping with my comments from yesterday about buying the dip, China is probably still in the soybeans-buying mood but it does have some wiggle room. Soybeans reserves in the People’s Republic are currently sitting at 1.4 million tonnes. This is 6.4% higher than a month ago and almost 15% higher than available stocks at this time last year.

Egypt got in on some of the lows recently. Yesterday they bought 420,000 MT of wheat from Russia, Ukraine, & Romania.[8] The average delivered price for the early September movement is for $219.11 USD / MT (or nearly $6 USD / bushel and $7.50 CAD / bushel). According to its agricultural ministry, Egypt has about six months of supply right now, or roughly 4.6 million tonnes. Given the GASC’s history though, we know that the hand-to-mouth buying will likely continue.

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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