June 28 – Filling The Gaps (There Are A Few)

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FarmLead Breakfast Brief
Wednesday, June 28th, 2017

“Bridge the gap w/ closed minds through careful dissection of ideas & solid presentation of fact”
– Maximillian Degenerez (Portuguese artist)

Good Morning!

At 6:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3080 CAD, $1 CAD = $0.7645 USD)

Sept Corn: +0.3¢ (+0.05%) to $3.68 USD or $4.814 CAD
Aug Soybeans: +1.3¢ (+0.15%) to $9.173 USD or $11.998 CAD
Aug Soybean Meal (per short ton): +$1.30 (+0.45%) to $297.10 USD or $388.62 CAD
Aug Soybean Oil (cents per lbs): -0.14¢ (+0.45%) to 32.06¢ USD or 41.94¢ CAD  
Sept Oats: +0.5¢ (+0.2%) to $2.495 USD or $3.264 CAD
Sept Wheat (Chicago): +1.3¢ (+0.25%) to $4.703 USD or $6.151 CAD
Sept Wheat (Kansas City): +1.5¢ (+0.3%) to $4.773 USD or $6.243 CAD
Sept Wheat (Minneapolis): +7¢ (+1%) to $6.93 USD or $9.065 CAD
Nov Canola: -2.5¢/bu / -$1.10/MT (-0.25%) to $8.278/bu / $364.67/MT USD or $10.818/bu / $477/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.309 USD or $3.048 CAD
Oct Milling Wheat: +16.3¢ (+2.2%) to $5.784 USD or $7.566 CAD

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Filling In The Gaps

Trading yesterday was mostly focused on the bullish crop ratings from the U.S.D.A. report on Monday. Minneapolis spring wheat hit a three-year high yesterday as the long-term forecast is calling for some hot weather past national birthday celebrations in Canada (July 1st) and the U.S. (July 4th).

The weather forecast for the next few days has some west stuff in it. But a heat ridge is expected to move west from the Rockies into the Plains and Western corn belt.[1] The threat of it hitting the eastern corn belt is pushing into mid-to-late July. Nonetheless, the market is doing its job of accounting for some potential yield loss and corresponding price for the gap in production. Hence, why markets are again in the green this morning.

To The Reports

For the StatsCan report, a Reuters pre-report survey of market analysts suggests that 22.2 million acres of canola will get seeded this year.[2] This would be up 9% from last year’s area but down almost 1% from StatsCan’s first estimate back in April. While there’s lots of ranting and raving about some acres that probably didn’t get in, I would suggest that the maximum amount of area that went unseeded is probably 400,000 – 500,000 acres, meaning more than 21 million acres still got planted. Total-wheat acreage is suggested to come in at 22.7 million acres, or down about 2% from last year, but the smallest area in 6 years.

Digging into other crops, Canadian durum wheat is estimated to come in at 5 million acres (-3% from April’s estimate, -19% from last year), oats are pegged at 3.4 million (+8%, +20%), and barley is expected to own 6 million acres (+2%, -6%). Flax acreage is estimated at 1 million even (-10% from April’s expectations but still 7% higher than last year), soybeans are pegged at 7 million even (+0.6%, +28%!!!), and area seeded with corn is expected to come in at 3.6 million (-4%, +8.3%). For pulses, the area sown with peas is forecasted at 4 million acres (-0.3% from April, -5.5% compared to last year) and 4.4 million acres of lentils are expected (+0.3%, -25%).

In India, as of Friday last week, the pulse crop area planted thus far in the Kharif season is down about 33% year-over-year (although last year saw record acres).[3] Almost 600,000 acres have been seeded thus far with pulses, compared to over 900,000 a year ago at this time. As of last Friday, over 1.77M acres of cereals have been seeded(+11% YoY), 1.25M acres of oilseeds are planted (+55% YoY!), and nearly 2.5M acres of cotton have been sown (+30% YoY). While there are some undersupplied moisture areas in central and northeast India, the monsoon season should cover the entire country over the next few weeks. This will certainly help speed up planting process and the start to the growing season.

What About American Acreage?

For the U.S. stocks and acreage report, most market participants are expecting to see a lower corn number because of the wet weather the eastern corn belt had. Conversely, there are some suggestions that you could see more soybean acreage, which helps rationale why soybeans have been trading sideways to lower since the begging of June. Long-time analyst Jerry Gulke thinks that you could see 88.5M acres of corn and 91.5M acres of soybeans.[4] CHS is in the same camp, thinking that the area planted to soybeans could surpass corn for the first time since 1983 when 63.8M acres of beans got seeded, versus 60.2M acres of corn.[5]. Rich Nelson of Allendale thinks that U.S. corn acreage could come in higher “because of the way (the) U.S.D.A. surveys farmers.”[6].

Overall, the average analyst’s pre-report estimate is for 89.75M acres of soybeans, which would be unchanged from the March 31st estimate but up 6.3% from 2016’s final planted area. Comparably, total corn acres is pegged at 89.9M acres (-0.1% from March 31, -4.4% from 2016 final acreage). Total wheat is expected to come in around 46.07M (unchanged from March, -8.1% YoY) made up of 32.83M acres of winter wheat (0.3%, -9.2%), 11.2M acres of spring wheat (-0.9%, -3.5%), and 2M acres of durum (-0.1%, -17%).

The obvious question most are asking though is just how much American wheat acres will get combined in 2017? The combined 800,000-acre drop between spring and durum wheat year-over-year could turn out to be much more because of these dry temperatures in the Northern Plains. My guesstimate today is that another 1M acre could join that 800,000 acreage loss, regarding the area that doesn’t get harvested this year. If I’m wrong, and that number turns out to be less, these sub-par fields will certainly bring in sub-par yields, bringing the aggregate average down.

Peak Wheat Production

In fact, most estimates for the U.S. spring wheat crop are sitting around 40 bu/ac, if not lower. But Societe Generale points out correctly, in my opinion, that the premium in the spring wheat market is getting a bit top-heavy.[7] Using history as a measuring stick, the premium between Chicago and Minneapolis wheat futures prices continues to widen, now at more than $2 USD / bushel. Commonwealth Bank of Australia notes that the spread topped out at $3 USD / bushel in 2011 – the last time the average U.S. spring wheat yield fell below 40 bu/ac.

Intuitively, with the focus of the wheat market squarely on America, the first call for the top of the world supply glut has been made by Bloomberg.[8] More concretely, it’s suggesting the bottoming of wheat prices.  I do like that they did their due diligence by going through conditions in Canada, Europe, the Black Sea, Australia, China, and even Argentina. And it doesn’t paint a very pretty production picture.

You should be cognizant of the noise though: people are just naturally wired to read headlines and stories where things are going wrong. No one spends a lot of time talking about how things are going average. Truthfully, apart from maybe U.S. production, total global wheat output in 2017/18 is looking more like 2015/16 with Russia and Argentina likely filling a lot of gaps. Of course, there’s still the talk of protein needs not being met but the market is fixing that with higher prices for higher protein as we speak (or read…really depends if you read this out loud or not I guess).

Tomorrow, Thursday, June 29th, we’re going to send out the Breakfast Brief a little later to try and give a quick breakdown of the StatsCan acreage numbers. Tomorrow, we’ll also dig into the stocks report expectations out from the U.S.D.A. on Friday, June 30th at noon Eastern.

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.

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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