November 27 – Letting Off Pressure in Grain, Wheat Prices

Good Morning!

Today we look at projections for corn and wheat prices, noting lower wheat acres global (but not by much), and how exports of some major crops are faring (especially when compared to Chinese imports).

When we long for life without difficulties, remind us that oaks grow strong in contrary winds and diamonds are made under pressure.” – Peter Marshall (American TV & Radio personality)

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Grain markets are coming off the US Thanksgiving holiday weekend sort of like most people after a big turkey meal: slowly.

Societe Generale says that ag commodities aren’t likely to undo their pants and let some pressure off. Instead, the French bank expects prices to stay near or below today’s prices for most crops.[1]

For example, a year from now, they are expecting 4Q2018 corn prices to be $3.50 USD / bushel on the Chicago Board of Trade.

Today, the December 2018 corn price on the futures board is closer to $3.90.

The main reason is ample domestic supply. They expect 2.56 Billion bushels still available at the end of 2017/18, or 70 million bushels more than the current USDA forecast.

Thanks to another strong year of production, SocGen sees Chicago soft red winter wheat prices at $4.20 USD / bushel a year.  Today, those Chicago winter wheat prices are closer to $4.95.

Considering the large short position in the wheat market today, can there be more bearish pressure?

The answer is yes, especially if we’re using corn’s record short position by managed money as an indicator. Further, our friends at AgChieve note Kansas City hard red winter wheat prices are trending lower.

KC winter wheat prices trending lower?

Southern Hemisphere Crops Update

A year ago, Brazilian soybean farmers had planted 83% of their soybean crop by this weekend. This year, 84% is in the ground, up 11 points from last week, aided by some good rains. The five-year average is 79%.

It’s expected that drier parts of Argentina will see some rain in the next week. Dryness in Argentina tends to be a component in La Nina events.

This is important because almost half of global soymeal exports come from Argentina. This, even though they only account for roughly 15% of global production.

In Australia, the canola harvest is starting up but rains in the eastern parts of the country are slowing combines activity. With a smaller crop coming out of Australia, ODA reminds us that the global canola stocks-to-use ratio could end 2017/18 under 10%.[2]

Grain Export Activity Update

US wheat export sales came in at a six-week low of 200,000, versus market expectations of 350,000 – 550,000 tonnes. This included a net cancellation of 43,000 tonnes of hard red spring wheat, making it the worst week of export activity in 2.5 years.

US corn export sales of 1.08 million tonnes was inside expectations of 900,000 to 1.3 million.

US soybean export sales of 869,000 metric tonnes were below pre-report expectations of 1 – 1.4 million tonnes. Thus far in the 2017/18 marketing year, total US soybean export sales are sitting at 33.45 million tonnes. That’s 6.92 million or 17% lower than where we were at a year ago.

On Friday, I mentioned how Chinese palm oil imports in October were up 78% year-over-year at 480,115 tonnes. January-to-October, total palm oil imports are almost at 4 million tonnes. That’s up more than 18% year-over-year.

What’s also positive is the pace of Chinese soybean imports.

In October, China imported 5.85 million tonnes. That’s up more than 12% from October 2016’s imports. From January through October, total soybean imports by China are sitting at 77.3 million tonnes, a 15% jump year-over-year.

Rounding out the list of notables in China’s October import numbers is:

• 3,260 tonnes of DDGs (-97% year-over-year), 378,940 tonnes January-October (-87% YoY);
• 302,765 tonnes of sorghum (-43% YoY); 4.54 million tonnes Jan-Oct (-27% YoY);
• 683,500 tonnes of barley (+114% year-over-year); 7.64 million tonnes Jan-Oct (+83% YoY);
• 392,170 tonnes of wheat (+49% YoY); nearly 4 million tonnes Jan-Oct (+27% YoY); and
• 306,200 tonnes of rapeseed/canola (+399% YoY); nearly 4 million tonnes Jan-Oct (+31%).

Through November 19th, Canada had exported nearly 3.2 million tonnes of canola. That’s up more than 11% over last year’s pace of exports.

Domestically-speaking, Canadian canola crush is 2.83 million tonnes. This behind last year’s number of 2.87 million crushed by this time of year. Canadian farmer deliveries so far in 2017/18 are sitting at 6.43 million tonnes, just 2% ahead of the pace set this time a year ago.

Less Global Wheat Acres in 2018/19?

The International Grains Council said last week that global wheat area in 2018/19 will shrink to a five-year low of just over 542 million acres.[3]

Don’t get too bullish yet as that’s a drop though of just 0.3% year-over-year, or 1.5 million acres less than 2017/18.

The drop includes about 741,000 less acres in Russia. Yet, favorable returns on wheat production Russia means 65.5 million acres of both winter and spring wheat are still expected to get harvested in 2018/19.

In Europe, the IGC is forecasting nearly 68 million acres of wheat (including durum) to get harvested in 2018. Compared to 2017, this would be a small increase of 0.2%.

The IGC notes that there were more farmers who looked to switch over to rapeseed for some of their acres this fall. But rains in the north (Germany, Poland, and other Baltic states) and dryness in the south (Italy and northern Spain) led to the old faithful – wheat – getting seeded instead.

In Canada, the IGC is suggesting a rebound to more than 22.2 million acres, up 2.3% year-over-year. We would note that with likely less Canadian peas and lentils in 2018/19, the most likely substitute is wheat or canola.

Can Canadian canola area top 2017’s record of 22.84 million acres?

Coming back to winter wheat, the IGC is expecting to American acres to drop by 0.1% year-over-year to 37.6 million acres.

This would be the lowest on record since 1890!

The IGC forecasts total US wheat acreage at 44.2 million.

We would, however, note that North American cash wheat prices have started to pick up again.[4] This is because of those lower acres and stronger demand from millers and exporters for at least 12% protein.

This year’s US winter wheat crop from the likes of Nebraska, Kansas, and Oklahoma are showing average protein levels closer to 11%.[5] Even at today’s prices though, putting on some of the groceries for the 2018 winter wheat crop to get better protein looks like it could pay off.[6]

Intuitively, this would (under average growing conditions) take some pressure of current lower grain prices.

To growth,

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

At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2679 CAD, $1 CAD = $0.7887 USD)

Mar Corn: -1¢ (-0.3%) to $3.54 USD or $4.488 CAD
Jan Soybeans: +1.3¢ (+0.15%) to $9.945 USD or $12.609 CAD
Jan Soybean Meal (per short ton): +$0.90 (+0.3%) to $326.80 USD or $414.35 CAD
Jan Soybean Oil (cents per lbs): -0.06¢ (-0.2%) to 34.02¢ USD or 43.13¢ CAD  
Mar Oats: +3.3¢ (+1.2%) to $2.70 USD or $3.423 CAD
Mar Wheat (Chicago): -3¢ (-0.7%) to $4.318 USD or $5.474 CAD
Mar Wheat (Kansas City): -1.8¢ (-0.4%) to $4.303 USD or $5.455 CAD
Mar Wheat (Minneapolis): -0.3¢ (-0.05%) to $6.383 USD or $8.092 CAD
Jan Canola: -5.2¢/bu / +$2.30/MT (-0.45%) to $11.537/bu / $508.70/MT CAD or $9.099/bu / $401.21/MT USD

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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