June 29 – Challenging Numbers (What’s Yours?)

fl_hubspot_logo_456x57.png
FarmLead Breakfast Brief

Thursday, June 29th, 2017

“I love to win; but I love to lose almost as much. I love the thrill of victory, and I also love the challenge of defeat.”
– Lou Gehrig (US baseball player)

Good Morning!

At 7:55 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3024 CAD, $1 CAD = $0.7678 USD)

Sept Corn: +3¢ (+0.8%) to $3.693 USD or $4.809 CAD
Aug Soybeans: +6¢ (+0.65%) to $9.25 USD or $12.047 CAD
Aug Soybean Meal (per short ton): +$2.20 (+0.75%) to $298.80 USD or $389.16 CAD
Aug Soybean Oil (cents per lbs): +0.08¢ (+0.25%) to 32.33¢ USD or 42.11¢ CAD  
Sept Oats: +2¢ (+0.75%) to $2.63 USD or $3.425 CAD
Sept Wheat (Chicago): +10.8¢ (+2.25%) to $4.838 USD or $6.30 CAD
Sept Wheat (Kansas City): +10.3¢ (+2.15%) to $4.905 USD or $6.388 CAD
Sept Wheat (Minneapolis): +35.5¢ (+5%) to $7.435 USD or $9.684 CAD
Nov Canola: +4.8¢/bu / +$2.10/MT (+0.45%) to $8.432/bu / $371.77/MT USD or $10.981/bu / $484.20/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.309 USD or $3.048 CAD
Oct Milling Wheat: +19.1¢ (+2.5%) to $5.955 USD or $7.576 CAD

How much of a rally is enough for the next sale?
How many buyers do you call to stay on top of prices?
Let buyers come to you. Post your grain on FarmLead!

Challenging Numbers

Where Prices and Inventory Levels Go Next

On June 13, we recommended in the Breakfast Brief that wheat producers hold onto your good quality grains until we learned more about the production potential of the 2017/18 crop. I specifically advised you to hold out “for at least another two to four weeks as protein premiums start to get baked in (and possibly longer, dependent on how these next two weeks go, weather-wise).”

This recommendation looks to be the right call. Wheat prices (especially for high-quality protein) have been on a solid run. The price in Minneapolis is up nearly 36% (or $2 USD per bushel) from its April lows. Naturally, that rally has a lot of people talking.

Dan Hueber of the Hueber Report sums it up perfectly. He explains that the longer a product trades sideways, the more aggressive the move will be once it breaks out of its sideways trading range.[1] Looking forward, dry areas in the Dakotas are getting drier, and acreage is getting zeroed out by farmers.

Prematurely headed crops can’t come back this early in the growing season. Farmers are now swathing and baling them up. With the new crop September contract sitting above $7.30 USD / bushel this morning, Elaine Kub (author of Mastering the Grain Markets) suggests that “we could be headed towards $8.00  USD / bushel.[2] Kub says that the drought story in northern plains has led to a loss of acreage and yield.

On the stocks front, Todd Hubbs from the University of Illinois writes that corn inventories as of June 1 hit 4.944 billion bushels. That figure is 222 million bushels higher than stocks on June 1, 2016 [3]. The figure represents a 4.7% increase year-over-year, not the average pre-report analyst guesstimate, which is for 5.123 million bushels or an 8.7% increase (as mentioned in yesterday’s Breakfast Brief).

For soybeans, Mr. Hubbs says there are 960.5 million bushels still available in the U.S. as of June 1st.

This figure is more in-line with the consensus analyst forecast of 983 million bushels (+12.7% YoY). Despite some of the commentary in yesterday’s Breakfast Brief regarding peak wheat production, the market predicts 1.137 billion bushels of the cereal (+16.5% YoY) still out there in America as of June 1st.

Almost everyone agrees that there’s more corn still available than last year.

However, grain still seems to be moving, at least in the Northern Plains. B.N.S.F.’s $1.3 Billion investment in its northern corridor from Minnesota out to West Coast ports are seeing the fruits of their labor though. According to the railroad, they are running a near-record number of 110-car shuttle trains through the territory, a stark contrast to the issues faced back in 2013 when you could barely find a train.[4].

On the global front, the Brazilian corn harvest is speeding up, and it’s being shipped out rather quickly. AgResource is forecasting that Brazil’s June corn exports to come in at 1.19 million tonnes.[5] This would be a June record and a massive jump from the 63,000 metric tonnes (or about two boats) shipped in June 2016.  According to Advance Trading, twice as many boats are lined up are Brazilian ports this year to load corn. The nation’s declining currency has made Brazil a cheaper option for international buyers compared to a year ago when production was 67 million tonnes. This year it should be closer to 97 million tonnes. Prices have been declining in the wake of massive political turmoil that has sent its currency into a tailspin. It will be a long road to any political reform, and a weaker currency will continue to attract international buyers in 2017.

AgReource is looking at a weather forecast that is expecting to keep meaningful rains and cooler air in Canada. [6] As such, the research firm is expecting crop conditions to continue to suffer in the Northern and Central Plains. While we know that the Dakotas are already hurting, the research firm thinks that Nebraska and Kansas corn production will be at significant risk under the expected forecast. As such, they’re quick to point out that almost 25% of the U.S corn crop is produced between these four states.

Drew Lerner from World Weather Inc. thinks that Western Canada is “turning the corner.”[7]  This means that the wetter areas should get wetter while drier areas could get some moisture.  Drew says it has been a rough year for Western Canadian farmers, who must deal with stronger air masses and more volatile weather. Conversely, Mr. Lerner is expecting fairly good weather for most of the corn belt. More specifically, the U.S. soybean crop in this region is looking pretty good.

Now for the numbers

This morning, Statistics Canada came out with their acreage estimates for the 2017/18 Canadian crop.

The number most market participants are watching is canola. According to StatsCan, their survey of farmers suggests 22.8M acres got planted this spring by Canadian farmers. This would be a 12.1% increase over last year’s 20.4M acres, a new record, and above the market’s expectation of 22.2M acres (as shared in yesterday’s Breakfast Brief). Next on the most-watched list was wheat area, which StatsCan will top out at 22.4M this year, down about 3.7% from last year & below the 22.7M the market was forecasting. This will be the first time ever that canola acres in Canada top wheat’s area.

Digging into it, spring wheat area in Canada will be 15.8M acres, a 9.5% jump over last year. Area seeded to durum wheat was expected to show 5M acres even, but StatsCan says that number is actually 5.2M. That’s still a 16% drop from last year, albeit remember that last year’s acreage was a record. The durum acreage decline was led in Saskatchewan, down 18% from last year to 4.1M acres seeded this spring. Barley acreage came in at 5.77M, down 9.7% from last year and down from the 6M that the market was expecting. One could argue that that barley acreage loss went into oats as 3.22M acres of the cereal is getting planted in Canada this year, up 13.6% over last year (market was expecting 3.4M though). Fall rye is falling back to more normalized levels with 260,000 acres getting planted. That’s a 21% decline from last year’s large crop but does mirror the 259,000 acres seeded in 2015.

Soybeans continue to be the big surprise in Canada as even though the market was expecting to see 7M acres (which would’ve been a 28% increase from last year), the actual number came in at 7.3M, a 33% jump! Flax acreage will top 1M acres again, up 11.2% from last year’s blip of just 935,000 getting seeded. This was generally in line with what the market was expecting. Mustard acreage will revert back to the mean as 380,000 acres are expected to get planted, down nearly 28% from last year’s anomaly of 525,000 acres. Canaryseed acreage is expected to stay relatively flat at 255,000, down just 2% from last year’s 260,000,

As for the pulses, the numbers came in generally as expected. We knew lentils acreage was going to drop from last year’s record. StatsCan met the market’s expectation with 4.4M acres getting seeding this year, down about 25% year-over-year. 4.1M acres was sown to peas this year, slightly above the market’s 4M-acre pre-report forecast but still a 3.4% drop from last year. Chickpea acreage continues to roller coaster, coming in at 135,000 this year in Canada, down nearly 16% from last year’s 160,000 but still above the 115,000 acres seeded in 2015.

Of course, we know people will say “oh no way that XX million acres of (enter crop name) got seeded this year.” It was either too wet or too dry. While we can challenge these numbers as much as they want, they do set the playing field for what we’ll

Today’s StatsCan acreage report doesn’t usually have much of an impact on the broader grains complex. Thus, we know focus our attention on tomorrow’s U.S.D.A. stocks and acreage report. It’s usually a show.

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.

Most Recent Posts
Dec. 14 – Soybean Prices Remember Supply, Competition, Trade War
December 14, 2018 Brennan Turner
Grain markets are lower as the complex follows yesterday’s selling, soybean prices failed to find support after the big splash by China.
October 4: Corn Prices Edge Higher With October WASDE in Focus
October 04, 2018 Garrett Baldwin
Corn prices ticked higher Thursday as traders and analysts began to speculate on next week’s release of the October WASDE report.