In today’s Breakfast Brief, we question those who are waiting for the US winter wheat crop to “lose” and, accordingly, reviewing if you have a grain sales plan (unlike the Egyptian government).
“Life was always a matter of waiting for the right moment to act.”– Paulo Coelho (Brazilian author)
Grains are again mostly in the red this morning as benign weather provides a better pace of the South American harvest as it accelerates on drier conditions and the outlook for the US winter wheat crop is improving, albeit the forecast for the next 2 weeks puts temperatures pretty close to freezing.
US Winter Wheat In Trouble?
Kansas City hard red winter wheat futures are now trading a 6-month high against the Chicago soft red winter wheat market and that may widen with temperatures getting below zero.
Will it kill the entire crop?
Absolutely not but wheat is a pretty hardy crop that can survive some of the worst that Mother Nature can throw at it. However thought, with the weather trade coming out in full force, more analysts are expecting more short-sellers to cover this positions and help push values up.
Have a Grain Sales Plan?
The smart money play though is to have a target planned to execute a sale on for a block of your grain – waiting for the market to keep going higher and higher and higher will hurt when the weather risk premium passes and you didn’t sell at least something!
Much as is the case in many other resource-exporting countries, the British Pound has fallen to a 7-year low against the US Dollar and a 2-year low against the Eurodollar, prompting more grain to be shipped out the UK so far in 2016, including a 4-year high of almost 310,000 metric tonnes in January.
With a smaller EU corn harvest, feed wheat is in demand but there’s a lot of it, hence why London wheat futures dropped below £100/tonne recently for the first time since 2010 (equivalent to $3.84 per bushel in USD or $5.18 CAD at today’s exchange rates).
Across the English Channel and then some, German farm co-ops are saying that fall-seeded crops have weathered the winter well, with no significant damage.
Expectations from the German co-op DRV are for the rapeseed crop to be 0.7% bigger year-over-year to 5.04 million metric tonnes (EU Commission est. 4.98 million, Coceral at 5.18 million, IGC at 5 million) and the wheat crop to be 1.7% smaller than 2015/16 at 26.1 million tonnes (EU Commission at 26.2 million, Coceral at 26.15, IGC at 26.5 million).
More Pain in Grain Prices Pain
CHS is expecting more pain for North American farmers this year with fixed costs being too high and things like cash rents and crop inputs proving to be “sticky” despite the lower values for grain and oilseeds.
Conversely, Rabobank argues that over the longer-term, the average farmer learns how to survive (or as we like to say, “Play the game in front of you, not the one you hope for.”). This intuitively means more optimization of everything from equipment to crop inputs to even your bin space.
On the latter, Angie Setzer of Citizens recently wrote probably one of the best “how to make your bins pay”” pieces I think I’ve ever read (this means click the link and read it too).
Some of the more aggressive selling we’ve been seeing is in Argentina, who has shipped $4.9 billion of grains and oilseeds through March 11th in 2016, a record for the timeframe and literally double compared to what was traded a year ago.
On that note, the NOPA crush number came in well above expectations, showing 146.2 million bushels of American soybeans were crushed in February, the 3rd-largest figure ever for the 2nd month of the year. The flipside of this is that US soyoil stocks also rose which puts pressure on the market.
Switch gears completely, while yesterday I ranted about the rumours of “cancer-bread” in Egypt, the flipside of that coin is the reality of widespread corruption in the Egyptian wheat industry. Everything from master SMART cards (helped digitize and track bread sales) to made-up figures for domestic production, which were then artificially propped up by purchases of grain already stored, the only discrepancy being the storage only held about 1/10th of what was supposedly sold!
More than anything, who loses out the most in this situation is the more than 2/3rds of the 90-million Egyptian population, who wait every day for loaves of bread to survive.
At 6:53 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3379 CAD, $1 CAD = $0.7474 USD)
May Corn: -1.8¢ (-0.45%) to $3.668 USD or $4.907 CAD
May Soybeans: -3.8¢ (-0.4%) to $8.883 USD or $11.884 CAD
May Soybean Meal (per short ton): -$2.00 (-0.75%) to $266.20 USD or $356.15 CAD
May Soybean Oil (cents per lbs): -0.03¢ (-0.1%) to 32.46¢ USD or 43.43¢ CAD
May Oats: +0.5¢ (+0.25%) to $1.965 USD or $2.629 CAD
May Wheat (Chicago): -1.8¢ (-0.35%) to $4.755 USD or $6.362 CAD
May Wheat (Kansas City): -0.8¢ (-0.15%) to $4.883 USD or $6.532 CAD
May Wheat (Minneapolis): +0.3¢ (+0.05%) to $5.195 USD or $6.95 CAD
May Canola: +2.7¢/bu / +$1.20/MT (+0.25%) to $7.941/bu / $350.16/MT USD or $10.625/bu / $468.50/MT CAD
Yesterday’s Winnipeg ICE Close
May Barley: unchanged at $2.
May Durum Wheat: unchanged at $5.899 USD or $7.893 CAD
May Milling Wheat: +10.9¢ (+1.7%) to $4.841 USD or $6.477 CAD
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