April 19 – Making Big Bets

In today’s Breakfast Brief, we look at oil’s impact on grain prices, wheat production in Europe, and where soybean prices are heading. 

“Forget the lottery. Bet on yourself instead.”
– Brian Koslow (US author)

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Good Morning!

Grains this morning are mixed as wheat pulls back from some gains yesterday while soybeans continue to inch along  Oil is back up to its pre-Doha-meeting levels, despite a few headlines out this morning like “Iran’s crude output to reach pre-sanction levels by June” and “Kuwait’s daily oil output jumps to 1.5 million barrels”.

In yesterday’s Breakfast Brief we mentioned how hedge funds got more bearish on wheat last week but yesterday a bunch of them dropped those positions, helping propel the cereal higher on the futures boards. With the pace of planting in North America running along rather smoothly, there are some hiccups due to soil moisture conditions in Alberta, but the market is looking mostly outside of this continent right now for bullish catalysts to make some big bets on.

Where’s Wheat Going?

A recent Bloomberg survey has 11 analysts pegging the 2016/17 EU wheat crop at 154.9 million metric tonnes, a drop of 3.4% from last year’s monster, but the 3rd straight year of production over 150M tonnes. A couple notables from the survey include France’s durum harvest increasing 5.2% year-over-year (YoY) to 1.9 million metric tonnes, the UK wheat harvest dipping 5.8% YoY to 15.3 million metric tonnes, and the German wheat crop falling 1.8% from last year to 26M million metric tonnes. This would align better with expectations from Strategie Grains of lower carryout thanks to, mostly, a stronger EU wheat export program (we also touched on that yesterday).

We continue to look further east though into the Black Sea, specifically Ukraine, for places where a smaller wheat crop may allow for more export competitiveness from places other than the Black Sea (and its depressed currencies).

The USDA crop progress report released yesterday afternoon showed that 13% of the US corn crop had been planted, well above the 5-year average of 8% and nearly double what had been planted by this time a year ago. Spring cereal planting is also ahead of schedule with 56% of the US oats in (50% as a 5-year average), 33% of the US barley crop (26% average), and 27% of spring wheat fields (19% average).  Ideal conditions for Plant 2016 contrasted the ideal conditions for most winter wheat fields in the south as good rains over the weekend helped bump the good-to-excellent rating of the US crop by 1 point from last week to 57%.

Soybean Price Expectations

We’re getting a few questions lately about soybeans potential lately as it relates to acres and global production question marks. These have especially been exacerbated by calls like Moe Agostino of Farms.com who recently forecasted $11/bushel soybeans on the Chicago futures board this summer (a similar $11 summer high was made around this time last year by Moe, who cautioned it by saying $7 in fall 2015 was imminent as well). Net-net, these sort of calls make headlines but if there was more process behind them, they may turn out to be more consistently right.

This current $1/bushel rally (from November lows) is mostly attributed to technical momentum shifts and strong buying by hedge funds getting longer, albeit the fundamentals of some lower-than-expected ending stocks and U.S. acreage are hard to ignore as well. Overall, our call remains that any rallies will be reined in by the supply situation out there, unless technical & fund activity decides the rally is worth a few more cents (is betting a couple $100,000 for a few extra $100 worth it to your farm in a tight margin year?)

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
1-306-665-8740 (Office)
www.FarmLead.com
@FarmLead (on Twitter)

At 5:20 AM CDT in the North American futures markets:

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.2727 CAD, $1 CAD = $0.7857 USD)

July Corn: +1.3¢ (+0.3%) to $3.853 USD or $4.916 CAD
July Soybeans: +4¢ (+0.4%) to $9.67 USD or $12.307 CAD
July Soybean Meal (per short ton): +$0.40 (+0.15%) to $296.10 USD or $376.86 CAD 
July Soybean Oil (cents per lbs): +0.33¢ (+0.95%) to 33.56¢ USD or 43.99¢ CAD 
July
 Oats: +2¢ (+1%) to $2.01 USD or $2.558 CAD

July Wheat (Chicago): -1.8¢ (-0.35%) to $4.793 USD or $6.099 CAD
July Wheat (Kansas City): -0.5¢ (-0.1%) to $4.75 USD or $6.045 CAD
July Wheat (Minneapolis): +1¢ (+0.2%) to $5.335 USD or $6.79 CAD
July Canola: unchanged at $8.612/bu / $379.73/MT USD or $10.961/bu / $483.30/MT CAD

Yesterday’s Winnipeg ICE Close

July Barley: unchanged at $2.942 USD or $3.789 CAD
July Durum Wheat: unchanged at $6.82 USD or $7.974 CAD
July Milling Wheat: +2.7¢ (+0.45%) to $4.959 USD or $6.396 CAD

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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