Getting Handcuffed (Or Why You Shouldn’t Have Been)

“Nobody says you have to be shackled to tradition.”
– Monica Johnson (U.S. screenwriter)

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 = $1.325 CAD, $1 CAD = $0.7547 USD

Sept Corn: +2.3¢ (+0.6%) to $3.678 USD or $4.873 CAD
Aug Soybeans: +4.3¢ (+0.45%) to $9.128 USD or $12.094 CAD
Aug Soybean Meal (per short ton): +$1.40 (+0.45%) to $296.50 USD or $392.87 CAD
Aug Soybean Oil (cents per lbs): unchanged at 31.73¢ USD or 42.04¢ CAD
Sept Oats: +3.5¢ (+1.35%) to $2.638 USD or $3.495 CAD
Sept Wheat (Chicago): -6¢ (-1.25%) to $4.675 USD or $6.195 CAD
Sept Wheat (Kansas City): -7.8¢ (-1.6%) to $4.748 USD or $6.291 CAD
Sept Wheat (Minneapolis): +6.5¢ (+1%) to $6.728 USD or $8.914 CAD
Nov Canola: -1.1¢/bu / -$0.50/MT (-0.1%) to $8.125/bu / $358.26/MT USD or $10.766/bu / $474.70/MT CAD

Friday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.30 USD or $3.048 CAD
Oct Milling Wheat: +2.7¢ (+0.35%) to $5.546 USD or $7.348 CAD

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Getting Handcuffed

Heading into the last week of June before traders take a breather over the July long weekend, markets are prepping for what will be a significant reporting week. On Thursday, June 29th we’ll get Statistics Canada’s acreage estimates while one day later, the U.S.D.A. will release its quarterly stocks and acreage report. The big sell-off last week on the Chicago corn and soybean boards last week was something that we here at FarmLead started calling for almost a month ago. Literally, in a Breakfast Brief titled “Time For Timestamps,” we said to watch out for the market getting top-heavy and handcuffing bulls after mid-June.[1]

The grains complex is mostly higher to start the week, except for canola and winter wheat. Canadian canola exports are up 9.6% ahead of last year. Domestically, canola crush is tracking 12.4% ahead of a year ago at 8.18M tonnes used marketing-year-to-date.[2] This would be about 88.5% of total crush capacity in the Great White North   Conversely, Canadian soybean crush is actually running 4.1% behind last year with 1.68M tonnes used up thus far (or just 59% of total crush capacity).

For U.S. winter wheat, the protein harvested above 12% is finding the best premium seen in a decade.[3] Thus far in the American hard red winter wheat harvest, average protein is coming in around 11.1%, slightly below last year’s 11.2% average protein. Last week’s protein is technically up from the 10.8% average protein seen the week before, suggesting that as the winter wheat harvest accelerates, quality is getting a bit better.

Nevertheless, there’s a $1.30 USD / bushel spread between 11% and 12% protein hard red winter wheat in Kansas City, the widest range since 2008. While this may spring immediate thoughts of 2008 prices, let’s please try to keep the emotions in check. There are more than a few differences between 2007/2008 and 2017/2018, namely global wheat production and carryout. Further, the North American ownership of agricultural trade in the world has fallen with the rise of the likes of South American and Black Sea competition.[4]

Better or Worse Crop Conditions?

FarnceAgriMer recently downed the good-to-excellent (G/E) rating of the French soft crop to 68%.[5] This is a sharp fall from last week’s 74% G/E rating and also below the 75% G/E estimate seen a year ago. The downgrade was due to scorching temperatures last week. However, cooler and wetter conditions are expected this week. Nonetheless, wheat harvest is just starting up in France, while the winter barley harvest is about ten days ahead of schedule with quality looking fairly good right now.

In the U.S., the consensus of the corn crop seems to be variable right now but certainly not as good as they could be.[6] That’s the perspective of 8 different Winfield agronomists in 8 different major corn-producing states. With some better weather last week, the market is expecting to see an improvement in corn and soybean crop conditions in the U.S.D.A.’s progress report out later this afternoon. Both crops should see a 1-2 point bump to 69% – 70% G/E. Conversely, U.S. spring wheat ratings are expected to fall again, possibly below 40% G/E.

Compounding things in the U.S. Northern Plains was cooler temperatures over the weekend, including some areas going below zero, which would possibly wipe out any chance of a harvest. As such it’s not surprising that we’re seeing hedge funds getting longer in the wheat market. On the flipside, managed money has rebuilt their short positions in corn and soybeans to above 50,000 and 87,000 contracts respectively.

Russian Grain Exports Speeding Up?

Andre Sizov from SovEcon notes that in the first three weeks of June, 1M tonnes of wheat, 270,000 MT of corn, and 220,000 MT of barley got shipped out of the country.[7] Comparably, a year ago, 900,000 MT of wheat, 200,000 MT of corn, and just 12,000 MT of barley were exported.

However, Russia did miss out on the most recent Egyptian wheat tender late last week.[8]  Despite the Russian ruble losing 5% against the U.S. Dollar since the previous G.A.S.C. tender on June 13th, a delayed harvest is keeping grain supply from being port-ready. This is only the 2nd time in the past 25 deals that the Egyptian state grain-buying agency has put out in the last year that Russia wasn’t in the mix. When the dust settled, 60,000 MT of Ukrainian wheat and 120,000 MT of Romanian product ended up winning the business at an average delivered price of just over $208 USD / MT (or about $5.65 USD/bu and $275 CAD/MT or $7.50 CAD/bu).

It’s also worth noting that the G.A.S.C. admittedly only bought 3.4M tonnes of local production last year. This is about 1/3 less than the 5M tonnes they purchased a year ago, meaning that Egypt might have to open their wallet and import more wheat. That is easier said than done though as the North African state continues to struggle with foreign reserves after floating their currency last November.[9] However, the Egyptian central bank did lift a foreign-exchange transfer limit two weeks ago, indicating that a U.S. Dollar shortage may be easing, which will hopefully break free the economic activity that’s been shackled for awhile.[10]

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
@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.

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