June 16 – Parched or Saturated?

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FarmLead Breakfast Brief

Friday, June 16th, 2017

“I have a thirst – it’s an awful word, but I’m thirsty for knowledge. I like knowing things, the odder the better, the more obtuse the better.”
– Nicholas Haslam (British designer)

Good Morning!

At 7:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3233 CAD, $1 CAD = $0.7557 USD)

July Corn: unchanged at $3.795 USD or $5.022 CAD
July Soybeans: +3.8¢ (+0.4%) to $9.385 USD or $12.419 CAD
July Soybean Meal (per short ton): +$1.20 (+0.4%) to $301.80 USD or $399.37 CAD
July Soybean Oil (cents per lbs): +0.18¢ (+0.55%) to 32.92¢ USD or 43.56¢ CAD  
July Oats: +5.5¢ (+2.1%) to $2.668 USD or $3.53 CAD
July Wheat (Chicago): +4.8¢ (+1.05%) to $4.585 USD or $6.067 CAD
July Wheat (Kansas City): +7¢ (+1.5%) to $4.723 USD or $6.249 CAD
July Wheat (Minneapolis): +7.8¢ (+1.25%) to $6.403 USD or $8.472 CAD
July Canola: +0.7¢/bu / +$0.30/MT (+0.05%) to $8.797/bu / $387.90/MT USD or $11.641/bu / $513.30/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.271 USD or $3.005 CAD
July Milling Wheat: unchanged $5.656 USD or $7.484 CAD

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Parched or Saturated?

Grain markets are mostly in the green this morning as some solid export data and fresh production concerns are getting the bullish pacing around the pen again. Strategie Grains cut its forecast for most crops in Europe due to some hotter temperatures lately, pegging the soft wheat crop at 141.6M tonnes (-1.1M tonnes from the last estimate, still 4% better than last year’s crop), the E.U. barley cop at 58M tonnes (-1.6M tonnes, -3% year-over-year), and the European corn crop at 60M tonnes (-100,000MT but the same as last year’s harvest).[1] The most recent Saskatchewan crop report shows that most crops are developing normally or ahead of schedule but oilseeds are the slowest, with 44% of acres behind normal progress.[2] Canola and soy oil got a boost yesterday as it’s expected that the U.S. EPA will release new biofuel requirements soon, helping the quota for advanced biofuels (corn-based biofuel / ethanol needs are expected to stay the same). Wheat prices are back in the green this morning, which continues to impress most players, especially considering that the winter wheat harvest is ramping up, letting on that there are certainly some quality challenges this year. More simply, while we’ve been saturated with supply the last few years with average quality, much like parts of the Northern Plains, the pipeline is feeling much more parched than what we’ve been used to.

U.S. soybean exports for last week could continue to be viewed as bullish as total commitments are now sitting at 106% of June’s W.A.S.D.E. forecast for total-marketing-year exports, meaning the U.S.D.A. will have to up the ante in their July report. On the domestic front, N.O.P.A. crush numbers surprised the market to the upside with 149.25M bushels getting processed in May. This was much better than the 143.2M bushels the market was expecting and the 2nd best May on record but still 2% below the actual record set last year of 152.3M bushels (as well as the 4th consecutive month that this production didn’t beat it’s volume from a year earlier). On the other side of the equator, port workers in Argentina again are striking, holding up at least 20 ships in the Parana River, intuitively slowing down grain exports from the South American nation.[3] This comes as the Rosario Grains Exchange raised their soybean production estimate for this year’s Argentine crop by 300,000 MT to 57.3M tonnes, 500,000 below the U.S.D.A.’s 57.8M-tonne forecast. The Exchange also provided their first acreage estimate for their 2017/18 wheat crop, calling for 13.8M acres, or an 8% jump from last year.

A company that compiles forecasts together, FocusEconomics, suggests that the average corn price in the 4th quarter of this year (Oct-Dec) will top $4 USD / bushel on the Chicago future board, with the number attributed to lower global supply and a smaller harvest in the U.S. than last year.[4] For soybeans, the firm is calling for $9.66 and a 4Q2018 forecast above $10 for the 2018/19 crop (yes it’s healthy to consider next year’s crop now). However, the forecast for Chicago wheat prices in 4Q2017 remains at $4.70, with the optimism for 4Q2018 still just $4.82, despite the recent bullish production concerns on the table. There continues a lot of conversation about the available supply of good-quality wheat, or rather, the lack of it.[5] With yield estimates for the U.S. hard red spring wheat crop starting to drop, the suggestion is that the 2017/18 American carryout could be the below 100M bushels if average production is below 40 bu/ac (we’ve seen about 47 bu/ac the last 3 years). Where there’s no shortage of wheat is in Australia, but Lanworth says that soil moisture is at record lows in Western Australia, which isn’t helping a newly-seeded crop, and accordingly, has helped futures prices in Sydney hit a 1-year high this morning.[6]

Over the next 7 days, the western part of the U.S. Northern Plains and southern parts of Western Canada doesn’t seem to have much rain in its forecast (i.e. less than half an inch although I’m betting most would take it)[7], which will continue to weigh on the bullish mind of many. While rains this week in the aforementioned areas certainly helped, it won’t be enough to get soil moisture profiles back on the adequate side of things from the dry state they’re currently in. The N.O.A.A.’s long-term forecast just got updated and shows above-average temperatures for the U.S. Midwest with average precipitation for all growing areas in July.[8] Looking onward through September though, moisture events are expected to normal throughout the cornbelt but the Dakotas are expected to get above-average rainfall. If realized, the irony would be thick, given the parched conditions we’re experiencing right now.

Have a great weekend!

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] “Strategie Grains Trims E.U. 2017 Grain Forecasts As Weather Takes Toll.” – Western Producer. June 15, 2017
[2] Saskatchewan June 15, 2017 Crop Report
[3] “At Least 20 Grain Ships Halted By Argentina Port Strike” – Nasdaq.com. June 15, 2017
[4] ”Ag Price Forecasters Upbeat Over Soybeans, Sugar – But Not Wheat” – Agrimoney.com. June 14, 2017
[5] “Spring Wheat Stalls Despite Talk of ‘Dangerously Low’ Stocks – Agrimoney. June 14, 2017
[6] “Aussie Wheat Prices Rise Amid Record Western Australia Dryness” – Agrimoney.com. June 15th, 2017
[7] NOAA 7-day Forecast as of June 16, 2017 – @BAnderstonDTN
[8] N.O.A.A. 3-Month Outlooks – N.O.A.A. Climate Prediction Center. June 16, 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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