June 14 – Lasting Volatility

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FarmLead Breakfast Brief
Wednesday, June 14th, 2017

“Traders can cause short-term volatility. In the long run, the market must revert to a sensible price/earnings multiple.”
– Ben Stein (U.S. writer / actor / economist)

Good Morning!

At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3203 CAD, $1 CAD = $0.7574 USD)

July Corn: +1¢ (+0.25%) to $3.82 USD or $5.044 CAD
July Soybeans: +4¢ (+0.45%) to $9.365 USD or $12.365 CAD
July Soybean Meal (per short ton): +$1.70 (+0.55%) to $303.20 USD or $400.32 CAD
July Soybean Oil (cents per lbs): +0.10¢ (+0.3%) to 32.19¢ USD or 42.50¢ CAD  
July Oats: +0.8¢ (+0.3%) to $2.54 USD or $3.354 CAD
July Wheat (Chicago): +3.5¢ (+0.8%) to $4.485 USD or $5.922 CAD
July Wheat (Kansas City): +6.5¢ (+1.4%) to $4.635 USD or $6.12 CAD
July Wheat (Minneapolis): +14.3¢ (+2.25%) to $6.423 USD or $8.48 CAD
July Canola: +2.5¢/bu / +$1.10/MT (+0.2%) to $8.80/bu / $388.01/MT USD or $11.619/bu / $512.30/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.263 USD or $3.005 CAD
July Milling Wheat: +24.5¢ (+3.45%) to $5.545 USD or $7.321 CAD

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Lasting Volatility

Grain markets are still in the green as we hit humpday and rain is still in the forecast for some major North American growing regions. The majority of rainfall over the next 7 days is expected to fall in the Eastern corn belt and around the Great Lakes, areas that already have a decent moisture profile. Out west, most of Montana, eastern North Dakota, and very southern parts of Saskatchewan missed the rains that they could’ve used. The good news though is that most of the areas are supposed to see some rain today (or already are at the time of writing) with some more precipitation in the forecast for the weekend. However, the possibility of those rains not materializing is what the market is really playing to and it’s in the more volatile moments that we tend to see the best opportunities materialize. The flip-side, however, is that, because of the volatility, these opportunities do not last long.

The French Ag Ministry says that the country will produced a decent rapeseed crop of 4.8M tonnes, slightly higher than last year’s crop, but still below the average of 5.1M tonnes (I.G.C. is forecasting 4.3M and Coceral is estimating 4.5M tonnes).[1] While forecasters may be using different acreage numbers, the Ag Ministry is forecasting a 55.5 bu/ac average yield for France’s rapeseed crop, while E.U. agronomy agency M.A.R.S. is forecasting 57.7 bu/ac. Australia’s grain forecaster, A.B.A.R.E.S. recently cut their forecast for the canola crop in the Land Down Undaa to 3.3M tonnes, as more acres are going into chickpeas than the oilseed.[2] More specifically, 2.72M acres of chickpeas are expected to get seeded by Australian farmers for the 2017/18 crop, with the expectation that it will produce 1.4M tonnes (acreage was just 1.05M back in 2014/15). Moreover, A.B.A.R.E.S. also increased the 2016/17 crop by almost a third to 1.85M tonnes (last year’s ideal conditions continue to surprise)! Finally, A.B.A.R.E.S. also raised their wheat production estimates by over 200,000 for the 2017/18 crop to 24.2M tonnes, which is more in line with the usual crop versus last year’s monster of 35.1M tonnes.

As discussed in yesterday’s FarmLead Breakfast Brief, the bulls are riding the spring wheat market and rightfully so. The headlines literally are reading “Wheat Soars As U.S. Crop in Worst Shape in 29 Years”, something that should grab any trader by the arm and want to get in on the action.[3] To be clear though, because of the heat, there’s a good chance that we get high protein wheat, but also because of the heat, the market is betting on smaller yields. In order to get an edge, analysts and traders are looking through history to try and find if there’s any years that correlate with the type of conditions that we’re currently seeing. Accordingly, it’s not just North American farmers who are waiting for more upside, but the rest of the world as well. While we’ve see tougher conditions affect other markets since the U.S. drought in 2012, it’s starting to feel like it’s again North America’s turn to take the heat (pun intended).

Farmers in Europe, Australia, the Black Sea, and South America are all watching to see if things continue to stay dry in the U.S.. Specifically, IMEA notes that farmers in the major Brazilian ag state of Mato Grosso are only pre-sold 4.25% of their 2017/18 new crop, almost 17 points behind last year. Further, Brazilian farmers in the state are still about 13 points below last year on old crop (2016/17 or the stuff they just harvested in March / April), sitting at only 78% sold.[4] Ultimately, the headlines (and the Twitter photos!!!) the rest of the world sees are just that the U.S. or Canada is in drought, not that it’s just specific areas, amplifying their thoughts of why the market should go higher. Intuitively, this creates more cognitive bias and managing risk can easily sway into the world of speculation. More simply put, with wheat prices at the best we’ve seen in 2 years, it’s easy to start questioning “can we get to a 3 or 4 or 5 year high?[5] I’m not saying we don’t have more upside potential in the wheat markets. Rather, I’m challenging you to think about timing of your next sale and make sure that it’s on the climb up, not on the downside of the hill. The volatility won’t last (it never does) and it comes down to whether you’re speculating or managing your price risk exposure. Accordingly, post that next target on FarmLead for any of the 40+ verified wheat buyers roaming the Marketplace to deal with you directly.

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]France to See Rise in Rapeseed Output This Year After All” – Agrimoney
[2]Australia Lifts Wheat Hopes, But Clamour For Chickpeas Curbs Canola.” – Agrimoney
[3] “Wheat Soars As U.S. Spring Crop in Worst Shape in 29 Years.” – Bloomberg
[4] “Weather and Currency Spike Prices in Brazil” – AgResource Daily Soy Report
[5] “Abysmal U.S. Crop Rating Sends Spring Wheat Futures to Two-Year Top” – Agrimoney

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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