FarmLead Breakfast Brief
Wednesday, June 21st, 2017
“If you aren’t in the moment, you are either looking forward to uncertainty, or back to pain and regret.”
– Jim Carrey (Canadian actor and comedian)
At 7:10 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3273 CAD, $1 CAD = $0.7534 USD)
Sept Corn: +0.8¢ (+0.2%) to $3.788 USD or $5.027 CAD
Aug Soybeans: +1.5¢ (+0.15%) to $9.33 USD or $12.384 CAD
Aug Soybean Meal (per short ton): +$0.40 (+0.15%) to $303 USD or $402.18 CAD
Aug Soybean Oil (cents per lbs): +0.07¢ (+0.2%) to 32.21¢ USD or 42.75¢ CAD
Sept Oats: +1.5¢ (+0.5%) to $2.58 USD or $3.424 CAD
Sept Wheat (Chicago): -5.5¢ (-1.15%) to $4.823 USD or $6.401 CAD
Sept Wheat (Kansas City): -5.8¢ (-1.15%) to $4.865 USD or $6.457 CAD
Sept Wheat (Minneapolis): -6.5¢ (-1%) to $6.528 USD or $8.664 CAD
Nov Canola: -1.4¢/bu / -$0.60/MT (-0.1%) to $8.25/bu / $363.74/MT USD or $10.95/bu / $482.80/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.296 USD or $3.048 CAD
Oct Milling Wheat: +19.1¢ (+2.7%) to $5.495 USD or $7.294 CAD
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I’m starting this Wednesday out in sunny Regina, SK where I’m attending the 40th installment of Canada’s Farm Progress Show (we’re in the Agribition Hall again this year and we have a big update this week!).
Technically, I flew into to Saskatoon and drove down to Regina. It was noticeable with my highway crop-checking skills that 1) crops were planted late in more than a few places, and 2) fields are looking for a few more shots of moisture.
Weather through the end of June doesn’t seem to be too threatening to crops. However, the premiums still left in the market have more to do with the yield potential that is unrecoverable. Drought-like conditions will likely maintain an impact on Northern Plains areas, making the next few weeks pretty important regarding crop development.
With the North American durum wheat crop in limbo, we expect more upside for this cereal than spring or winter wheat. One key factor drives this sentiment: There is a much smaller pool of durum wheat produced both in North America and abroad compared to the total production haul of spring and winter wheat.
Wheat is down this morning though on more profit-taking while the rest of the complex is tryingt to gain more ground on some pecking short-covering from the managed money / hedge funds (“cut your losses and get out!”.
Next, it could be a record year for U.S. soybean exports to China. According to the US Soybean Export Council, the annual July Chinese purchasing party in the U.S. could top the 13.4M tonnes signed on the dotted line in 2012. The uptick would be welcome at a time that China imports have been slowing due to negative crush margins. Yang Linqin from COFCO is expecting total bean imports to ease this summer, but U.S. sourcing should rally.  Political influence will help this trade dynamic. Iowa’s Governor Terry Branstad has a great relationship with China and has been a key player on President Donald Trump’s trade team. 
Advisory firm Stewart-Peterson continues to be the most bullish of the grains complex, saying there’s a 70% chance that beans get back above $12 USD / bushel on the Chicago Board sometime this year. I won’t discount a possibility, but I’d put that $12 probability right now at roughly 25%. We have seen an increase in acreage all around the world (namely, Brazil, USA, and Canada.) This uptick in planting suggests global record production, and thus record global carryout. The reality though is that China can’t buy everything planted in the ground. What we do know is that the lack of farmer selling by farmers in Brazil and Argentina has provided some old crop sale opportunities for North American producers.
Palm oil production in Malaysia has placed pressure on the edible oils markets as stronger production has led to a value decline recently, which has some negative impact on soy oil and canola values. With Muslim Ramadan ending this weekend, the market anticipates a decline in global demand for edible oils. Data from Intertek indicates that palm oil shipments decreased nearly 15% month-over-month, while SGS says shipments declined by 17%. 
Vegetable oils fall into this category. The good news is that Chinese demand isn’g slowing down. Greg Kostal says that in the last two years, China’s canola oil consumption has exceeded supply by one million tonnes. However, China’s rapeseed oil reserves are still plentiful, and such a glut can put pressure on domestic crush margins. This means China could potential import less canola in the near term. Europe is also expected to remain a decently-sized importer; however, the fact remains that canola is already a “richly-priced vegetable oil.” This factor makes canola more susceptible to competition and substitution by other options like sunflower or palm oil.
Overall, as our economist friends at the University of Illinois point out, no pattern exists to predict how long prices will run above the expected average or how long they’ll sit below the mean. At FarmLead, we track here the multiple variables that go into establishing a grain’s price, be it on the supply or demand side. When a market fades or rallies (like we’ve seen the last few weeks), we become more aware of potential reversal risk. In today’s price environment, we are managing our exposure to that potential downside risk. Regardless, if you’re looking for the crystal ball, you might be disappointed to find that everyone’s is always broken.
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.