FarmLead Breakfast Brief
Friday, July 7th, 2017
“Chaos was the law of nature; Order was the dream of man.”
– Henry Adams (American historian)
At 7:55 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2903 CAD, $1 CAD = $0.775 USD)
Sept Corn: +3.3¢ (+0.85%) to $3.938 USD or $5.081 CAD
Aug Soybeans: +3.5¢ (+0.35%) to $9.893 USD or $12.765 CAD
Aug Soybean Meal (per short ton): +$3.20 (+1%) to $325.20 USD or $419.61 CAD
Aug Soybean Oil (cents per lbs): -19¢ (-0.6%) to 32.71¢ USD or 42.21¢ CAD
Sept Oats: +0.5¢ (+0.2%) to $2.75 USD or $3.548 CAD
Sept Wheat (Chicago): -2¢ (-0.35%) to $5.37 USD or $6.929 CAD
Sept Wheat (Kansas City): -3.8¢ (-0.7%) to $5.428 USD or $7.003 CAD
Sept Wheat (Minneapolis): +20¢ (+2.6%) to $7.89 USD or $10.181 CAD
Nov Canola: -7.5¢/bu / -$3.30/MT (-0.65%) to $9.054/bu / $399.20/MT USD or $11.682/bu / $515.10/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.362 USD or $3.048 CAD
Oct Milling Wheat: -46.3¢ (-5.35%) to $6.328 USD or $8.165 CAD
Learning the Law
Compared to Thursday, cash bids for soybeans were slightly higher and grains were lower, with wheat closing today significantly lower.
Once again, wheat is generating today’s headlines. Here’s why.
Informa Projections Rattle Traders
The wheat complex saw technical correction yesterday from the advances made throughout the last week.
Aggressive farmer selling also pushed down values. The wheat complex was overbought after roughly three straight weeks of price increases . Simple laws of trading point toward a correction when things head one way for a long time. However, it’s difficult to predict when the reversal comes.
On the bearish side of things, Informa Economics is forecasting the U.S. spring wheat harvest at 434M bushels. This stunned many market participants.
Almost every other private estimate is closer to 350M bushels.
For the U.S winter wheat crop, they’re forecasting 1.28 Billion bushels. As for soybeans, Informa’s average yield forecast of 47.9 bu/ac is basically aligned with the USDA’s call for 48 bu/ac.
For the U.S. corn crop, Informa is calling for 14.17B bushels. While crop conditions are continuing to hold up most private corn yield estimates, Benson Quinn is taking about 165, 167, and 169 bushel per acre scenarios (we’ve already stated that we’re looking for something around 168 bu/ac today).
Soybeans are looking to close out its ninth straight day of trading higher as short-covering and some lower crop ratings are getting the bulls antsy.
However, 2017/18 new crop export sales out of the U.S. continue to be a point of weakness for the oilseed. Further, soy oil is pulling back on the reduced biofuel blending expectations (as mentioned in yesterday’s Breakfast Brief). Also, pulling back are palm oil and canola, which just got off its own seven-day bender of higher prices before closing slightly lower yesterday.
As Todd Hultman from DTN will point out, global ending stocks are sitting at a quite comfortable level of 35% of annual demand. If we compare it to 2012/13 when we last saw U.S. dryness concerns and wheat hit a $10.35 USD / bushel high, global wheat carryout then was at 26%. The available supply is confirmed by a few players, including the UN’s Food & Agriculture Organization. 
“Abundant” and “well-supplied” are the specific words used to describe cereal and coarse grain markets.
Market Elaine Kub explains a call we made a few weeks ago regarding substitution effects for spring wheat. 
Wheat buyers and millers are going to have to figure out at what price point does it become more economical to import supply from outside of North America, versus paying up for domestic product. Amplifying the difficulty in reaching this decision would be other logistics hurdles, that ultimately lead to price shocks. 
What Analysts are Missing about Egypt
The complete opposite is the case for Egyptian wheat business.
There is a lot low-protein-producing wheat countries that bid into that market.
Black Sea and European tend to win the business, with Russia, Ukraine, & Romania the main players the last few years. Conversely, the U.S. has not been able to play ball with these aforementioned cheaper options for the last few years because they’re just overpriced.
Yet, Agrimoney continues parade it as a new story like it’s going to change. 
This is just noise.
For the record though, Egypt did by 410,000 MT of wheat from Russia & Romania in their last tender at an average delivered price of $214.24 USD / MT or $5.83 USD / bushel (or nearly $277 CAD / MT and $7.53 / bushel)
More buzz is being said about crop conditions in the Land Down Under. 
“The extremely dry start to winter” in Australia, according to the National Australia Bank, is why they’re forecasting a 23.3M tonne wheat crop in 2017/18.
This would be nearly a 12M-tonne fall from last year’s record. Apart from that word “record”, there are two other things that you need to remember.
First, most other estimates are still in the 24M – 25M-tonne range, meaning that Aussie wheat production is likely going to fall in line with the long-term average. Second, there’s a solid carryover of wheat from said record crop last year. Thus, while the headline of “Australia wheat harvest to fall further than first thought” screams bullishness, it’s just noise (or rather people writing the headlines who just want clicks).
As Garrett mentioned in yesterday’s Long and Short afternoon grains market recap, we think that the next three to four weeks of weather will really determine wheat’s price direction.
Yesterday’s trading range of over 64 cents USD / bushel on the Minneapolis exchange is indication that volatility is not going away.
Additionally, it’s not like the areas impacted by dryness are magically improving as there’s no rain really in the forecast. More concretely, I think after yesterday’s sell-off, there will be a return to these higher levels and very likely, even higher.
Rabobank points out that there is a chance that winter wheat could hit $7.50 USD / bushel. However, the chance is pretty slim.
However, it’s very tough to see some of these crops but that is the law of farming: over time, everyone takes their turn of having tough production conditions to help prices generally improve.
Be sure to check back later today for our insight on what sellers should be considering in today’s environment.
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.