June 5 – The Reversal

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FarmLead Breakfast Brief

Monday, June 5th, 2017

“If people perceive themselves as having very little opportunities to be fulfilled, then it cheapens their life and outlook. The solution is to reverse it; make sure they know opportunities abound.
– Michael Lee-Chin (Canadian businessman)

Good Morning!

At 6:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3488 CAD, $1 CAD = $0.7414 USD)

July Corn: -0.3¢ (-0.05%) to $3.725 USD or $5.024 CAD
July Soybeans: -1¢ (-0.1%) to $9.203 USD or $12.412 CAD
July Soybean Meal (per short ton): -$0.60 (-0.2%) to $301.30 USD or $406.39 CAD
July Soybean Oil (cents per lbs): +0.07¢ (+0.25%) to 31.08¢ USD or 41.92¢ CAD  
July Oats: +1.3¢ (+0.5%) to $2.473 USD or $3.335 CAD
July Wheat (Chicago): -0.1¢ (-0.25%) to $4.285 USD or $5.78 CAD
July Wheat (Kansas City): -2¢ (-0.45%) to $4.313 USD or $5.817 CAD
July Wheat (Minneapolis): -1.5¢ (-0.25%) to $5.823 USD or $7.853 CAD
July Canola: +4.3¢/bu / +$1.90/MT (+0.4%) to $8.438/bu / $372.04/MT USD or $11.381/bu / $501.80/MT CAD

Friday’s Winnipeg ICE Close
July Barley: unchanged at $2.228 USD or $3.005 CAD
July Milling Wheat: +2.7¢ (+0.4%) to $5.085 USD or $6.858 CAD

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The Reversal

Grains this morning are mostly quietly lower with the rest of the outside markets as the world tries to comprehend and deal with another terrorist attack in London over the weekend. Weather is on the mind of most farmers and grain traders this week as there is expected to be some very warm temperatures, accompanied by some sporadic rainfall across most of the major North American growing regions. While there have been some extremes, growing conditions have improved marginally, which is why hedge funds continued to increase their bearish bets last week as money managers pushed their short position in the entire grain complex to a net negative of 467,643 contracts. This would the largest net short position held in the past 11 years and a main reason as to why we could see a quick rally to the upside as hedge funds look to cover their shorts. More simply put, with so much negative sentiment, it’s hard to achieve much more downside, meaning a reversal could be coming soon.

With last week’s sales report, U.S. soybean export commitments is now sitting at 105% of the forecast made by the U.S.D.A. last month, basically guaranteeing an update in this month’s W.A.S.D.E. report on Friday, June 9th. While the old crop sales have been hot, just 3M tonnes of new crop soybean exports have been booked, which is the slowest start since 2008. That being said though, Societe Generale has picked up its forecast for soybean prices a bit, suggesting that the weather conditions in the U.S. could be enough to create some supply concern (I’m not that convinced yet) and the low prices could be enough to stimulate more buying. The weather factor is also why the French bank increased its forecast for corn prices, suggesting a new trading range on the Chicago Board of Trade of $3.80 – $4.50 USD / bushel over the next 6 months. With lower acres and sub-par conditions to start the season, SocGen is only expecting an average U.S. corn yield of 168.5 bu/ac, more than 2 bushels below the U.S.D.A.’s current forecast of 170.7 bu/ac. However, farmer and grain marketer Jon Sheve thinks that “without a true production problem due to (prolonged) heat or dryness, a market rally over $4.20 seems unrealistic.” I would tend to agree, being extremely cognizant of some of the solid carry options available to lock in the price now for a delivery at a later date.

In Europe, growing conditions have improved across most of the continent but the drier start to the growing season has prompted some downgrades (as discussed in last week’s Breakfast Brief commentaries). Comparing some of the estimates for the European production estimates, the soft wheat forecast is led by Strategies Grain is at 142.7M tonnes, Coceral at 142M tonnes, the E.U. Commission is calling for 141.3M tonnes, and the International Grains Council is forecasting 141.2M tonnes. As for the durum crop, the EU Commission is the most optimistic at 8.75M tonnes, followed by the I.G.C. at 8.7M, Strategie Grains at 8.6M, and then Coceral at 8.05M tonnes. As for rapeseed, the E.U. Commission’s forecast of 21.9M tonnes is sitting at the top, followed by Coceral at 21.5M tonnes, Strategie at 21.35M, then a 20.8M-tonne forecast by the I.G.C. (the U.S.D.A.’s forecast is 21.3M tonnes).

This European rapeseed crop looks to certainly be bigger than last year, which seems to be a consistent trend across most of the oilseed complex (and part of the more bearish sentiment lately). One of the more bullish variables may be available canola supplies in Canada as visible supplies are down to their lowest levels in 3 years at 702,700 MT. Can we get 1 more reversal to the upside for another rally before new crop supplies come on line? My expectation is that there will be some weather issues that help push prices up but the best canola values of this marketing season were seen in late November, early March, and late April.

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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