March 12 – Grain Prices Jump Ship After WASDE

Good morning!

Grain prices are starting the week in the red as bullish speculators have been jumping ship like it’s going out of style.

“People are always jumping at what’s new – who’s the next person, who’s the hottest thing, or whatever – so to be able to grasp the attention of everybody is difficult.”

– Remy Ma (American rapper)

Grain Prices Jump Ship After WASDE

Grain prices are mostly in the red to start the week, as bearish winds in soybean prices continue to drive the market. As such, bullish speculators have been jumping ship like it’s going out of style.

Friday’s sell-off of grain prices seemed to be more about just exiting positions (more explained below) but this morning’s activity is mainly about the market looking at weather conditions going forward.

Introducing a New Expert to GrainCents

Speaking of forward-looking, on Friday, we put our two cents on a lot of headlines and factors affecting grain prices. We looked at where peas prices are going from here. We’re especially cognizant of the expected large Rabi winter crop of pulses coming off in India soon.

While the USDA was decidedly bullish in Argentina, the numbers were quite mute in Brazil. That being said, CONAB raised their own soybean production forecast in the country. Conversely, heavy rain in Brazil could have a serious effect on the second/safrinha corn crop.

We know that American corn is making its way into Canadian feed markets, creating strong competition for feed barley and feed wheat. In Ukraine, corn is becoming too expensive, and instead, the 10-12% protein feed wheat has become more attractive.

Also, this past week, we saw Adrian Uzea join the FarmLead team, and specifically our GrainCents crew. Adrian has a Masters in Ag Economics from the University of Saskatchewan, and for the past eight years has held ag market research and analysis positions at companies that include AGDATA and DePutter Publishing.

Last week he dug into the ABARES forecasts of what the 2018/19 Australian crop is expected to look like. Here’s a breakdown of all the analysis in GrainCents to help make sense of the forecasts:

• Australian canola acres win big in 2018/19 crop shuffle;
• Australian wheat acres are weak, but exports are strong for both low-protein and high-protein;
• Bigger prices mean bigger acres of Australian barley;
• With fewer pulses, Australian oats acreage trend higher;
• Australian chickpeas charts are looking ugly; and,
 Acreage effects on Australian peas thanks to India.

Soybean Prices Cause “Blood in the Streets”

While the focus going into Thursday’s March WASDE report was all about South America, the attention quickly turned to the American balance sheet for the remainder of the week. Speculators sold off their position, leaving a lot of “blood in the street”.

Sidenote: This term, “blood on the street” refers to a contrarian investor thesis coined by Baron Rothschild, a banking scion. [1] Its meaning associates with the idea of buying up distressed assets that everyone else is trying to sell.

Specifically, for soybeans, U.S. ending stocks came in at 555 million bushels, which was 25.6 million bushels higher than trade estimates and 25 million more than February’s WASDE. More notably, if realized, this would be the second-largest carryout ever, and an 80% jump year-over-year.

Soybean prices ended up having a tough week. This was highlighted by the significant sell-off on Friday of 24 cents USD / bushel on front month contracts and 15 cents on new crop soybean contracts. May 2018 soybean prices lost 3%, or nearly 32 cents USD/bushel for the week to close at $10.393. Comparably, November 2018 new crop soybean prices lost 7 cents, down 0.7% to close at $10.30.

Worth mentioning is that the Buenos Aires Grain Exchange on Thursday lowered their Argentine soybean forecast to 42 MMT. This is down 2 million tonnes from their previous forecast just the week before, as well as 5 million tonnes below the USDA’s forecast.

Grain Prices Suffer on Friday

Canola prices followed soybean prices, highlighted by Friday’s move to the downside. Losses were about $6 to $7 CAD/metric tonne on this day alone. For the May 2018 contract, canola prices lost about 2.3% or $12.20 to close at $512. For the July 2018 contract, canola prices lost 2.4% or early $13 to end the tumultuous week at $518.50. On new crop canola prices, the November 2018 contract closed at $507.80, down 1.9% or $10 below the previous Friday’s close.

Winter wheat prices would’ve had a decent week if it wasn’t for Friday. Whether it was on the Chicago or Kansas City futures boards, wheat prices dropped anywhere from a dime to 15 cents on Friday alone. This put them into negative territory for the month.

Conversely, corn prices gained 5 cents on the front month and 3 cents on new crop contracts. The USDA said that global ending stocks came in at 199.2 MMT. That figure is about a 3.9 MMT decline from the February estimate of 203.1 MMT, and thus slightly bullish.

There was also a bullish cut in U.S. corn inventories: the US ending stocks figure was felled to 2.127 billion bushels. That figure is down 225 million bushels (or about 10%!) from the 2.352 billion-bushel estimate in February. The average trade analyst figure was 2.312 billion. This was thanks to ethanol use increasing by 50 million bushels and hiking exports by 175 million bushels to 2.225 billion bushels for the 2017/18 crop year.

Where Do Grain Prices Go from Here?

Another reason corn prices are on the up and up is that some of the managed money leaving soybeans seems to be going into corn (as evidenced by this chart).  

corn-funds-position-grain-prices-farmlead

In South America, some rain is in the mix for Argentina for the end of this week but there does not seem to be any model where rains this late in their growing season will help yield prospects. Further, above-normal temperatures of 93 degrees Fahrenheit and higher are expected through next weekend.

At this point, the direction of grain prices will likely come down to psychology. The market could interpret the rains as bearish but for the Argentine soybean crop, what’s done is done and there doesn’t seem to be a lot of yield salvation for even the later-seeded fields. Will the USDA eventually match up with the private market?

Also on the table is the interpretation of some of the geopolitical risk, thanks to what we should be dubbing “Trump’s Trade Wars”. China has said that they wouldn’t initiate a trade war with the U.S., saying “there are no winners in a trade war.” [2] However, the noise about soybean prices taking the brunt of Chinese retaliation is “deafening”, as Garrett has suggested.

Ultimately, the market is dealing with a lot of factors right now and the safe play by traders in making sense of it is to take profits and run.

To growth,

Brennan Turner
President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

 

At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2832
 CAD, $1 CAD = $0.7793 USD)

May Corn: -1.8¢(-0.0%) to $3.888 USD or $4.988 CAD
May Soybeans: -0.5¢ (-0.05%) to $10.388 USD or $13.329 CAD
May Soybean Meal (per short ton): -$2.00 (-0.54%) to $371.60 USD or $476.826 CAD
May Soybean Oil (cents per lbs): +0.6¢ (+1.93%) at 31.65¢ USD or 40.61¢ CAD  
May Oats: +3.8¢ (+1.43%) to $2.663 USD or $3.416 CAD
May Wheat (Chicago): -0.5¢ (-1.02%) to $4.843 USD or $6.214 CAD
May Wheat (Kansas City): -5.5¢ (-1.06%) to $5.150 USD or $6.608 CAD
May Wheat (Minneapolis): -1.5¢ (-0.16%) to $6.165 USD or $7.911 CAD
May Canola: -$1.90 (-0.37%) to $11.635/bu / $513.00/MT CAD or $9.067/bu / $399.791/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.

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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