June 15 – Balloon Markets

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FarmLead Breakfast Brief

Thursday, June 15, 2017

“What is success? It is a toy balloon among children armed with pins.”
– Gene Fowler (US Author)

Good Morning!

At 6:55 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3287 CAD, $1 CAD = $0.7526 USD)

July Corn: -2¢ (-0.55%) to $3.75 USD or $4.983 CAD
July Soybeans: -4.8¢ (-0.5%) to $9.27 USD or $12.317 CAD
July Soybean Meal (per short ton): -$1.60 (-0.55%) to $300.20 USD or $398.88 CAD
July Soybean Oil (cents per lbs): -0.01¢ (-0.05%) to 32.08¢ USD or 42.63¢ CAD  
July Oats: -2¢ (-0.75%) to $2.535 USD or $3.368 CAD
July Wheat (Chicago): -1.5¢ (-0.35%) to $4.415 USD or $5.866 CAD
July Wheat (Kansas City): -3¢ (-0.65%) to $4.545 USD or $6.039 CAD
July Wheat (Minneapolis): -9.3¢ (-1.45%) to $6.183 USD or $8.215 CAD
July Canola: -0.5¢/bu / -$0.20/MT (-0.05%) to $8.695/bu / $383.37/MT USD or $11.553/bu / $509.40/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.261 USD or $3.005 CAD
July Milling Wheat: -2.7¢ (-0.4%) to $5.489 USD or $7.294 CAD

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Balloon Markets

Grain prices are all lower this morning as the market prices in the effect of recent rains in drier areas, profit-taking, and a stronger U.S. Dollar. On the last point, the U.S. Federal Reserve raised interest rates yesterday to a range of 1% – 1.25%, the 2ndtime they’ve raised rates in the last 3 months, signaling a growing confidence in the U.S. economy.[1] Further, the Fed also told the market it will start unwinding its $4.2 Trillion balance sheet (yes, Trillion with a “T”) but didn’t indicate by how much and by when. With more positive confidence in the economy, the U.S. looks like a good place for investment, meaning the U.S. Dollar goes up, but when that happens, American goods will become more expensive for international buyers. Case in point, grain, which is why you’re seeing a bit of red this on the board this morning. In Europe,  thanks to recent moisture events over the past month or so, crops are looking better. In the U.K., without many disease issues, average yields are expected. the Germany farm co-op group DRV raised its wheat harvest estimate back above 25M tonnes (IGC at 25.6M, Coceral at 24.9M), pushing It further past last year’s 24.5M-tonne haul.[2]They’re also forecasting a 10.65M-tonne barley crop (beer!) and 4.8M tonnes of rapeseed (still below the long-term average but also better than last year). Ultimately, the recent surge in wheat prices has been nothing short of impressive but as we’ve said in the last few days of Breakfast Brief commentary, the downside potential has always been there, especially with each incremental step higher. More simply, it takes a lot of time to blow up a balloon but a short amount of time to let the air out.

In India, through the first 2 weeks of the monsoon season, the country received above normal rains, or about 15% above the long-term average over the same period. This comes as India is still sitting on a large amount of grain after last year’s record production of all crops of 273.4M tonnes[3], including 9.1M tonnes of chickpeas, a 28% jump after 2 years of dry-weather-depressed production! There are still many fiscal issues plaguing Indian farmers but when they get the rains, they can clearly produce a decently-sized crop. Between both domestic and global production, values for many crops in India are sitting below their minimum support prices. This is especially noticeable for soybeans, which after seeing 28.4M acres getting planted last fall / kharif season, there will surely be less area planted to the oilseed.[4]

One of the main reasons India’s soybean prices are much lower than a year ago is Brazil (the same can be said for America – Chicago board futures were above $11.50 USD / bushel this time in 2016). As per AgResource, it’s expected that 8.7M tonnes of soybeans will get shipped out of Brazil ports this month.[5] If this is the case, total February – June exports will come in at 45M tonnes, or 5M tonnes / 12.5% above last year’s pace over the same period. Later today we’ll get the N.O.P.A. crush data for the month of May, with pre-report expectations that it was another weak month. Average guesstimates are for 143.2M bushels processed, which would be the 4th consecutive month of disappointing crush action that fell below last year’s numbers. The University of Missouri’s Food & Agricultural Policy Research Institute says that because of large stocks and some of that aforementioned subdued domestic demand, average cash prices for soybeans should come in around $9.57 across America for the 2017/18 marketing year.[6] For corn, average cash prices are pegged by the FAPR at $3.60 nationally across the U.S..

One of things influencing this price will be the number of acres that the U.S.D.A. ends up telling us in the June 30th acreage report. One could argue that the market has started to price in a number below out the 90M acres that was originally suggested by the U.S.D.A., but the question is just how many less acres have they priced in? At this point in the game, I agree with some analysts that we have to get a acreage number pegged down first before a conversation starts on yield and final production numbers.[7] A secondary factor is the demand that the U.S. needs to maintain. On the domestic front, this is feed and ethanol use. For the former, higher livestock prices as of late is helping margins on that side of the ag industry, meaning some higher feed prices might be able to be paid out. Further, ethanol production in the U.S. jumped above 1M barrels a day last week, but this does come at a time when domestic gasoline demand has fallen for the 3 straight weeks and oil prices are sitting at 7-month lows.[8] Looking outward on the export front, the main competition for the U.S. is the large Brazilian corn crop. One simple indication of the size of the total Brazilian harvest is the record 80,000 grain bags sold in the country this year, which analysts estimate could house up to 20M tonnes (or slightly less than 10% of this year’s production), which would be a 30% increase from the Brazilian corn crop 2 years ago (last year’s crop was very small because of dry conditions).[9] Thus, like we’ve seen the white and black balloon bags of grain dot the North American rural landscape, South America is again following our lead and implementing a more new-age practice.

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] “Fed Raises Rates, Unveils Balance Sheet Cuts in Sign of Confidence” – Reuters, June 15, 2017
[2] Rains Boost Hopes for German Crops, Wheat Especially.” – Agrimoney.com, June 14, 2017
[3] “Growing India Supply Glut Threatens Farmers Income” – Western Producer. June 9, 2017
[4] “Soybean Prices Below MSP Even Ahead of Sowing” – The Indian Express, June 15, 2017
[5] AgResource Daily Soy Report – June 14, 2017
[6] “Will Your Corn, Soybean Prices be Above or Below Average?” – AgWeb.com, June 13, 2017
[7] “Analyst: Acreage Numbers More Important Than Yield Numbers” – AgWeb.com, June 14, 2017
[8] “Oil Prices Fall Again, Staying Around 7-Month Low as ‘Alarm Bell’ Goes Off Over U.S. Supply – MarketWatch, June 15, 2017
[9] “Brazil Bumper Crops Spark Surge in Grain Bags” – Western Producer, June 14, 2017

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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