June 13 – Waiting on Wheat

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FarmLead Breakfast Brief
Tuesday, June 13th, 2017

“I don’t have a particular recommendation other than that we base decisions on as much hard data as possible. We need to carefully look at all the options and all their ramifications in making our decisions.”
– Dorthy Denning (U.S. computer science researcher)

Good Morning!

At 7:15 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3444 CAD, $1 CAD = $0.7438 USD)

July Corn: +3¢ (+0.8%) to $3.803 USD or $5.048 CAD
July Soybeans: +3.5¢ (+0.4%) to $9.348 USD or $12.409 CAD
July Soybean Meal (per short ton): +$2.40 (+0.8%) to $304.20 USD or $403.82 CAD
July Soybean Oil (cents per lbs): -0.08¢ (-0.25%) to 31.86¢ USD or 42.29¢ CAD  
July Oats: +3.3¢ (+1.3%) to $2.53 USD or $3.359 CAD
July Wheat (Chicago): +5.3¢ (+1.2%) to $4.393 USD or $5.831 CAD
July Wheat (Kansas City): +8.3¢ (+1.85%) to $4.51 USD or $5.987 CAD
July Wheat (Minneapolis): +15.3¢ (+2.55%) to $6.158 USD or $8.174 CAD
July Canola: -5.2¢/bu / -$2.30/MT (-0.45%) to $8.756/bu / $386.07/MT USD or $11.623/bu / $512.50/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.263 USD or $3.005 CAD
July Milling Wheat: -2.7¢ (-0.4%) to $5.33 USD or $7.076 CAD

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Waiting on Wheat

Grain prices this morning are mostly higher as the market is reacting to some surprisingly sub-par crop conditions in yesterday’s U.S.D.A. crop progress report, led by the spring wheat market[1]. Canola is lower on a stronger Canadian Loonie on speculation of an interest rate in Canada and palm oil futures in Malaysia hitting a 10-month low despite some smaller than expected stocks [2] and the U.S.D.A. dropping it’s forecast of the E.U. rapeseed crop by 200,000 to 21.1M tonnes on Friday.[3] In Brazil, farmers have slowed their grain sales, doing so more hand-to-mouth to just barely pay bills as there’s still political instability that could force the Brazilian Real lower (and thus, grain prices higher). This in mind, low wheat prices in the country are keeping acreage low, which means the South American nation will likely import 7M tonnes, near the record tabled in 2012/13.[4] Prices in the country currently range from about $4.75 – $5.15 USD / bu or roughly $6.40 – $6.90 CAD / bushel. In North America, AgResource says that they’re recommending on waiting for another weather rally for the next sale, especially considering that hedge funds are still sitting in very short positions across the Chicago board.[5]

Yesterday’s U.S.D.A. crop progress report showed us that emergence and crop development seems to be near the usual pace, but the heat from last week was certainly felt as crop conditions dropped.[6] Corn good-to-excellent (G/E) ratings dropped 1 point from last week to 67% (last year at this time it was 75% G/E, the 5-year average is 71%) while the first U.S. soybean crop rating of the year came in at 66% G/E, a good shot behind last year’s first recording of 74%. U.S. oats G/E ratings dropped 5 points week-over-week to 57%, well behind the 70% position it was in a year ago. Barley G/E ratings was the only bright spot as they rose 3 points from last Monday’s report to 72%, closely matching last year’s awesome position of 78% G/E. The U.S. spring wheat crop suffered the worst, dropping 10 points week-over-week to 45% G/E, miles away from the 79% crop rating and the 5-year average of 71%. As was suspected, North Dakota’s G/E portion dropped from 52% last week to 43% this week, South Dakota fell from 25% a week ago to 13% G/E now, and Montana took the biggest hit, dropping from 48% G/E a week ago to just 23% this week. The U.S. winter wheat harvest is accelerating with 17% of the crop now in the bin compared to the 10% that was combined at this time a year ago and the 5-year average of 15%. The G/E rating of the American winter wheat crop actually improved by 1 point to 50% G/E, but that’s still below the 61% G/E seen a year ago.

Does this mean wheat prices are on a rocket ship to the moon? That’s the question that will be debated about in coffee shops from Foam Lake, Saskatchewan to Manhanttan, Kansas to Labosse, France to Cowra, Australia. While we know that U.S. and Canadian wheat production will be lower year-over-year by 17.5% to 78M tonnes, a carryout of 30.3M tonnes is about 22% lower than a year ago. Compared to 2 years ago when global production was still rising in the 2015/16 crop year, production between the 2 countries this year is only 7% lower and carryout is about 4% lower. If we look around the rest of the world, Australia’s crop was an anomaly last year and things are expected to be more average while the Black Sea’s wheat crop is seemingly on course for another decent year while European production is up by about 4% from last year’s smaller harvest but still 6% below the record of 160.5M tonnes in 2015/16. More conclusively, I don’t think we’ll have a shortage of production, but it’s going to be more a question of what’s the available high quality product.[7] This in mind, with rains in the forecast, we might see an improvement to crop ratings next week but, for now, we’re recommending holding onto any old crop wheat that has higher protein wheat (above 13% for spring wheat, above 11.5% for winter wheat) for at least another 2 – 4 weeks as protein premiums start to get baked in (and possibly longer, dependent on how these next 2 weeks go weather-wise).

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] Spring Wheat Futures Soar Anew, As U.S. Crop Ratings Tumble – Agrimoney.com
[2] Palm Oil Futures Hit 10-Month Low, Despite Stall in Malaysian Stocks – Agrimoney.com
[3] U.S.D.A. Extends Round of Downgrades to E.U. Rapeseed Harvest – Agrimoney.com
[4] Brazil Hikes Wheat Import Forecast, As Low Prices Deter Farmers – Agrimoney.com
[5] Daily Soy Report – June 12th, 2017 – AgResource (as sponsored by CME Group)
[6] U.S.D.A. 2017-06-12 Crop Progress Report
[7] Is A Wheat Rally on the Horizon? – Western Producer

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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