March 13 – Grain Prices “Buy the Dip”

Good morning!

After three straight sessions of posting lower closes, grain prices this morning are back in the green.

“The price of a commodity will never go to zero. When you invest in commodities futures, you’re not buying a piece of paper that says you own an intangible piece of company that can go bankrupt.”  Jim Rogers (American investor)

 

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Grain Prices “Buy the Dip”

“Buying the dip” seems to be the mot du jour as traders are coming back into the market, purchasing contracts that they now feel are undervalued after the past few days of selling.

Canola prices are finding some strength this morning on the news that Malaysian palm oil production fell to 1.34 million tonnes in February. [1] This is below the market’s expectations and down 15.4% month-over-month (which is also the largest decline in the past two years!). Malaysian palm oil stocks are fell month-over-month by 3% to 2.48 million tonnes.

In yesterday’s GrainCents, we took another look at what US durum acres could turn out being in 2018/19, with a reminder that our current forecasts for Canadian durum acreage in 2018 are.

Knowing what we do about the likelihood of 2018/19 Canadian barley acres, I also looked at the possibilities for feed barley prices (and feed grain prices in general) moving forward. Worth noting is that the Canadian cattle herd isn’t expanding like the US cattle herd is.

We also looked at the unintended consequences of India’s import taxes for India’s farmers, specifically as relates to the domestic prices in India for peas, chickpeas, and lentils.

Are Grain Prices Bullish or Bearish?

Winter wheat prices were able to find some support on the continued dry conditions in the US Southern Plains. Fast fact: Dodge City, Kansas (in the southwestern part of the state), has had no significant rains or snow in nearly five months. While there are some rains in the mix for areas of Nebraska and eastern Kansas, western Kansas and the Texas Panhandle continue to miss the moisture (both literally and figuratively).

While the Black Sea 2018/19 winter wheat prospects are looking rather bearish, Coceral is expecting a smaller European wheat crop this next crop year. Specifically, the industry group pegged the 2018/19 EU soft wheat crop (comparable to Chicago SRW wheat) at 140.5 million tonnes. [2]

This would be down 1 million tonnes year-over-year and is mainly attributed to lower acres (albeit higher yields). It does align with some of the other forecasts in the market right now:

• European Commission: 140 million tonnes; and
• Strategie Grains: 14.7 million tonnes

Societe Generale thinks that the prospects for winter wheat prices though are “decidedly bearish.” [3] They lowered their forecast for Chicago soft red winter wheat prices to $4.65 USD/bushel for the last three months of the year. This way, way, way below current December winter wheat prices in Chicago of nearly $5.50!

In Kansas City, SocGen’s estimate for hard red winter wheat prices in 4Q2018 is $4.43 USD/bushel. Keep in mind that current HRW wheat prices in KC on the December 2018 contract are trading at nearly $5.80!

Where’s the difference coming from?

SocGen thinks that “the US and global wheat markets should remain well supplied” and thus, prices should eventually retract once the US harvest is out of the way. They also referenced another large Black Sea wheat crop (something we’ve been watching in GrainCents for the last few months!)

SocGen also pegged fourth-quarter corn prices at $3.75 USD / bushel and soybean prices at $9.90. For perspective, December 2018 corn prices in Chicago are trading at just under $4.10 while November 2018 soybeans are just under $10.40.

Soybean Prices Telling of Competition

There continues to be more buzz in the market that USDA will have to align more with private estimates as it relates to Argentine soybean production forecasts. Right now, those private numbers are toggling between 39 and 42 million tonnes, significantly lower than the 47 million tonnes that the USDA put out in last Thursday’s WASDE.

As a GrainCents subscriber, you can take a look at our historical analysis at the USDA’s changes to South American production and how it’s influenced soybean prices and canola prices in the past decade.

That being said, soybean prices at US ports are still sitting about $6.50 – $7.50 USD/metric tonne cheaper than soybeans being sold out of Brazil ports. Thus, US soybean exports could remain relatively competitive until the full strength of Brazilian and Argentine exports start to heat up (which is happening as we speak).

Keep in mind, US soybean exports thus far are sitting at 39.7 million tonnes, 12% behind last year’s pace. Ultimately, US soybean exports through the last half of the crop year would have to be a record for them to hit the USDA’s current target of 2.065 Billion bushels. [4]

To growth,

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

At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2875
 CAD, $1 CAD = $0.7767 USD)

May Corn: +0.8¢(+0.19%) to $3.915 USD or $5.040 CAD
May Soybeans: +2.8¢ (+0.26%) to $10.435 USD or $13.435 CAD
May Soybean Meal (per short ton): +$2.30 (+0.62%) to $372.70 USD or $479.838 CAD
May Soybean Oil (cents per lbs): +0.02¢ (+0.57%) at 31.90¢ USD or 41.11¢ CAD  
May Oats: +2.5¢ (+0.95%) to $2.653 USD or $3.415 CAD
May Wheat (Chicago): +2.8¢ (+0.56%) to $4.935 USD or $6.354 CAD
May Wheat (Kansas City): +4.5¢ (+0.86%) to $5.268 USD or $6.782 CAD
May Wheat (Minneapolis): +3.8¢ (+0.6%) to $6.283 USD or $8.089 CAD
May Canola: +$3.70 (+0.72%) to $11.705/bu / $516.10/MT CAD or $9.091/bu / $400.865/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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