July 6 – Snatching Profits

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FarmLead Breakfast Brief
Thursday, July 6th, 2017

“Many receive advice, only the wise profit from it.”
– Harper Lee (American author)

Good Morning!

At 8:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2918 CAD, $1 CAD = $0.7741 USD)

Sept Corn: -7¢ (-1.8%) to $3.85 USD or $4.974 CAD
Aug Soybeans: -5¢ (-0.5%) to $9.768 USD or $12.618 CAD
Aug Soybean Meal (per short ton): -$1.30 (-0.4%) to $317 USD or $409.51 CAD
Aug Soybean Oil (cents per lbs): -23¢ (-0.7%) to 33.01¢ USD or 42.64¢ CAD  
Sept Oats: -14.8¢ (-5.15%) to $2.71 USD or $3.501 CAD
Sept Wheat (Chicago): -23¢ (-4.1%) to $5.37 USD or $6.937 CAD
Sept Wheat (Kansas City): -23.5¢ (-4.15%) to $5.46 USD or $7.053 CAD
Sept Wheat (Minneapolis): -27.8¢ (-3.4%) to $7.92 USD or $10.231 CAD
Nov Canola: -5¢/bu / -$2.20/MT (-0.45%) to $8.929/bu / $393.71/MT USD or $11.535/bu / $508.60/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.36 USD or $3.048 CAD
Oct Milling Wheat: unchanged at $6.678 USD or $8.627 CAD

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Snatching Profits

Grain markets are the red as traders look to book in some profits after the recent rally, especially in wheat. Soybeans had a solid day yesterday, with the new crop November contract creeping closer to $10 USD / bushel again on Chicago futures board[1]. Our Garrett Baldwin had a good wrap-up on grain markets yesterday afternoon.[2]

Putting some pressure on corn and soy oil values was the EPA’s announcement that they won’t be chasing the original biofuel targets set out back in 2007.[3] Instead of the 26 Billion gallons the original Renewable Fuel Standard law was calling for, EPA Administrator Scott Pruitt is suggesting that new volumes are needed (up to 20% lower), those which are more “consistent with market realities.” A bearish but remaining factor to consider is the Congressional Budget Office AND the USDA have both projected an average price of $9.30 USD / bushel for soybeans and $3.40 for corn.[4]


Checking Crops

Spring wheat traded almost $1 USD / bushel yesterday as the market continues to try to price in the drought damage on U.S. Northern Plains. After the market close, the USDA’s crop progress report showed that the U.S. spring wheat crop’s good-to-excellent (G/E) rating dropped 3 points week-over week to 37%.[5] Corn gained 1 point in the G/E column to sit at 68% rated good-to-excellent nationally. Conversely, the U.S. soybean crop lost 2 points to start July with 64% of field rated good-to-excellent.

Barley G/E ratings dropped 8 points week-over-week to just 52% rated G/E, driven again by drought conditions in the Northern Plains. Oats were able to weather the storm a bit, just dropping 1 point from last week for 53% of the crop to still be rated G/E. The U.S. winter wheat crop lost 1 point for 48% to still be rated G/E. Morever, 53% of the winter wheat harvest is now complete, slightly behind last year’s pace of 56% and the 54% 5-year average.


Look to the North

80% of fields in Montana are now considered to have short or very short moisture issues. In South Dakota, it’s 68%. In North Dakota, it’s 54%. As such, those sort of conditions will negatively affect any crop, not just wheat. The extra acreage of canola in North Dakota this year will probably a similar-sized crop as last year.[6] While yields were 37 bu / ac a year ago in North Dakota, it’s looking like that average yield will be significantly less this go around.

Similarly, Chuck Penner of Left Field Commodity Research points out that just 35% of the North Dakota peas crop was rated in good-to-excellent (G/E) health.[7] Comparably, the 10-year average is 78%. In Montana, just 28% of the peas crop was rated G/E. With crops starting to bloom and no rain until after the middle of July, the average yield won’t match the 5-year mean of 31.3 bu/ac. For the lentil crop, we only know that just 30% of the crop in Montana is considered in good-to-excellent health. It was 60% a year ago. The impact will be mainly felt on green lentils though, especially Richlea or medium-sized ones.

Fun sidenote on the pulses complex: India extended the fumigation exemption for Canada to September 30th.[8] Basically the can just gets kicked down the road again. The only difference in this announcement is that, if Canadian exporters ship product out that that’s not fumigated, it would be charged 5x the normal fee to have it done at Indian ports.


Where to Store It?

Brazilian farmers are running out of room to store the record 114M tonnes of soybeans they produced this year.[9] Domestic prices are down 28% from a year ago so farmers are trying to bag or bin as much as possible. However, this is becoming increasingly difficult with a record corn crop coming off as we speak in Brazil (USDA is at 97M tonnnes but some local analysts are calling for 100M!). Most growers are shifting beans out of bins and putting them into grain bags to make room for the newly-arrived corn, which farmers aren’t looking to sell either. Why? Domestic corn prices are down about 50% compared to a year ago when dry conditions only produced a 67M-tonne corn crop.

On the other side of the world, after a record 9.6M tonnes of soybeans imported in May, Chinese bean demand doesn’t seem to be slowing. In June, initial forecasts were for another 9M tonnes and somewhere between 8.5M – 9M tonnes is forecasted for July. However, their ability to get them into the country is a challenge[10]. Ships at the Chinese ports are waiting to clear customs and dump the nearly 700,000 MT sitting in their berths. The recent rally in Chinese soymeal prices (mainly thanks to Chicago’s soybean rally) will likely result in a pullback as supply is now outpacing demand. More specifically, before the rally, crushers were losing $38 USD / MT processing imported beans. So much for profits.

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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