June 12 – Is It Over?

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FarmLead Breakfast Brief

Monday, June 12th, 2017

“The greatest weapon against stress is our ability to choose one thought over another.”
– William James (American philosopher)

Good Morning!

At 6:35 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3432 CAD, $1 CAD = $0.7445 USD)

July Corn: -6.3¢ (-1.6%) to $3.815 USD or $5.124 CAD
July Soybeans: -4.8¢ (-0.5%) to $9.368 USD or $12.582 CAD
July Soybean Meal (per short ton): -$2.30 (-0.75%) to $303.60 USD or $407.79 CAD
July Soybean Oil (cents per lbs): -0.02¢ (-0.05%) to 32.27¢ USD or 43.35¢ CAD  
July Oats: -1.8¢ (-0.7%) to $2.505 USD or $3.365 CAD
July Wheat (Chicago): -7¢ (-1.55%) to $4.388 USD or $5.893 CAD
July Wheat (Kansas City): -6.8¢ (-1.5%) to $4.448 USD or $5.893 CAD
July Wheat (Minneapolis): -5.3¢ (-0.85%) to $6.013 USD or $8.076 CAD
July Canola: +2.3¢/bu / +$1/MT (+0.2%) to $8.706/bu / $383.86/MT USD or $11.694/bu / $515.60/MT CAD

Friday’s Winnipeg ICE Close
July Barley: unchanged at $2.237 USD or $3.005 CAD
July Milling Wheat: -2.7¢ (-0.4%) to $5.288 USD or $7.103 CAD

Waiting for the next stretch of weather for better prices?
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Is It Over?

Grain markets are mostly in the red this morning as the complex pulls back on some profit taking, as well as some cooler weather and rains in the forecast for drier areas across the Midwest, Northern Plains, and parts of Western Canada. However, the last 10 days or so of warm weather is likely to show up in this afternoon’s crop ratings out from the U.S.D.A.. While the market is expecting the first soybean rating to come in somewhere between 65-70% good-to-excellent (G/E), the market is expecting a 1-2 point drop for corn from last week’s 68% G/E rating and a 1-3 drop for spring wheat from last week’s 55%. The crop ratings have certainly been one of the catalysts for this nice bullish run that we’ve been seeing, but with weather starting to normalize, should we expect the rally to start to fade as well?[1]

The U.S.D.A. came out with their June W.A.S.D.E. report on Friday, June 9th[2] but it came and went without much fanfare as the number-crunchers in Washington didn’t change much, especially on the domestic front. Despite some obvious late / replanting of this year’s crop, the U.S.D.A. kept yield and production estimates unchanged from last month, sitting at 170.7 bushels per acre for corn and a 48 bu/ac for soybeans. For corn, Canadian production was downgraded to 14.4 million tonnes (a 5% from last month’s estimate) which would a 9% improvement from last year’s crop. Also worth noting is that the Chinese Ag Ministry cut its own corn production estimate to 211.65M tonnes, a drop of 3.6% year-over-year, due to weather issues in their northeastern areas.[3] Global soybean carryout was raised by almost 4% from the previous estimate, up 2.08M tonnes to 92.22M. This is technically just a 2.3% increase from last year’s carryout but the most notable increase is in the U.S., where available beans by the end of 2017/18 will be up 13.85% year-over-year to 13.5M tonnes. A similar story is being seen in Argentina, with their carryout raised by 5% from last month to 32.5 million tonnes. The reason for this is a larger carryout from 2016/17 in the U.S. and a bit of slowdown in exports from Argentina.

The U.S.D.A. noted that a smaller crop is expected in Germany but total E.U. wheat production is expected to be up almost 4% from last year’s output. Wheat production in both Argentina and Russia were raised by 3% from the previous estimate last month to 17.5 and 69 million tonnes respectively. Compared to last year though, this would be a 5% drop for Russia from its 72M-tonne bumper harvest, whereas Argentinian production is up nearly 10% year-over-year! However, Russia’s available stocks by the end of 2017/18 is expected to climb 21% to 11.63 million tonnes as a result of a bigger carry-out to end the 2016/17 crop year, mainly because of less-than-expected exports. This in mind Russian areas are expected to dry out over the next few weeks, after more than a few weeks of soggy, cool weather.[4] The weather isn’t a huge issue for the winter cereals, but moreso the spring-seeded crops. A recent 5-day, 2,500-kilometre (1500 miles) through Russia & Ukraine suggested the wheat crops could amount to 70M and 27M tonnes respectively.[5]  An indication of the recent rally might be Saudi Arabia bought 850,000 MT of 12.5% protein wheat for Aug-Oct at a delivered / landed price of $216 USD / MT or about $7.90 CAD / bushel.[6]

Some traders on Twitter are quick to point out that vegetation maps are indicating lower health in major corn-producing state Iowa. However, the data seems skewed as compared to past dry years, the numbers seem extremely abnormal.[7]  The dry weather continues to be most noticeable in the U.S. Northern Plains where it’s now suggested that almost 90% of North Dakota and over half of South Dakota is experiencing drought conditions.[8] As such, this has caused many cattle producers to sell portions of their herds as pastureland isn’t as plentiful this year.[9] On the grain side of things, this current stretch of dry weather though is why the buzz is over for $4 and $9.50 handles on the Chicago board of trade, with the focus now on $4.50 and $10 USD / bushel instead.[10] While these are nice, neat, even numbers to consider, I’m cautiously aware that one or two rain events over the next 10 days will likely create more sentiment from the market like we’re seeing this morning.[11] At this stage of the growing season, it doesn’t take much moisture to get the crop going. While we’re cautiously optimistic that we might see the market gap higher one or two more times in the next few weeks, these are opportunities that cannot be ignored from a grain marketing standpoint (We’ve seen a good rally – just don’t want you to miss anything before it’s over. Post your next block’s target on FarmLead).

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.

[1] Does U.S. Cool Weather Mean Spring Wheat Rally is Over? – AgriMoney.com
[2] U.S.D.A. June World Agricultural Supply and Demand Estimates
[3] China Cuts Corn Output Forecast on Bad Weather – Reuters
[4] Russian Wheat Farmers Will Get Relief As Soggy Field Dry Out – Bloomberg
[5] Bumper Wheat Crops Expected in Russia, Ukraine – Western Producer
[6] Swithun Still – Director of Solaris Commodities S.A.
[7] North American Vegetation Health Map – @Crushspread on Twitter
[8] Parched Conditions Expand Across Dakotas – Associated Press
[9] Northern Plains Dryness Forcing Cattle Producers to Sell Herds – Farm Journal
[10] Look For Dry Weather, Summer Rally for $4.50 Corn, $10 Soybeans – Agweb
[11] Kirk Hinz of BamWx.com’s weather forecast

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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