Mar 16 – Overestimated Expectations

FarmLead Breakfast Brief
Thursday, March 16, 2017

“It is very easy to overestimate the importance of our own achievements in comparison with what we owe others.”
– Dietrich  Bonhoeffer (German theologian)

Good Morning!

At 6:50 AM CDT in the North American Futures Markets (*not local cash prices*)
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3291 CAD, $1 CAD = $0.7524 USD)

May Corn: +2.3¢ (+0.6%) to $3.658 USD or $4.861 CAD
May Soybeans: +7.5¢ (+0.75%) to $10.055 USD or $13.364 CAD
May Soybean Meal (per short ton): +$1.70 (+0.5%) to $329.30 USD or $437.67 CAD
May Soybean Oil (cents per lbs): +0.34¢ (+1.05%) to 32.56¢ USD or 43.28¢ CAD 
May Oats: unchanged at $2.573 USD or $3.419 CAD
May Wheat (Chicago): +3¢ (+0.7%) to $4.39 USD or $5.835 CAD
May Wheat (Kansas City): +2.8¢ (+0.6%) to $4.50 USD or $5.981 CAD
May Wheat (Minneapolis): +3.8¢ (+0.7%) to $5.443 USD or $7.234 CAD
May Canola: -1.6¢/bu / -$0.70/MT (-0.15%) to $8.704/bu / $383.80/MT USD or $11.569/bu / $510.10/MT CAD

Yesterday’s Winnipeg ICE Close

May Barley: unchanged at $2.244 USD or $2.983 CAD
May Milling Wheat: +10.9¢ (+1.7%) to $4.833 USD or $6.423 CAD

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Overestimated Expectations

Grains this morning are starting out mostly in the green after the U.S. Dollar lost some lustre yesterday following the U.S. Federal Reserve’s decision to increase interest rates by 25 basis points (or 0.25%). Usually, when a country’s interest rates increase, the currency of that nation will strengthen. However, the market had already priced in the interest rate move and was looking for bullish commentary from the Fed Chairwoman Yellen but instead got bearish cautiousness and the likelihood of only 2 more rate increases in 2017. Accordingly, the Canadian Loonie jumped the most in a year to back up above 75 cents USD, which in turn has put a little bit more pressure on the deflating value of canola. Also pressuring the complex yesterday was the N.O.P.A. crush number for February, which came in at 142.8M bushels of soybeans used in America, well below the 146.1M bushels that the market was expecting. More acutely, just like the Federal Reserve, the market’s expectations continue to be overestimated.

That being said, despite soybean values dropping after the N.O.P.A. report came out, the market has rebounded this morning on the lower U.S. Dollar. On the international front, we know that competition for U.S. soybeans is strong as Brazil continues to ship boat after boat of the oilseed. As per Ag Resource, the latest port data from Brazil shows that 3.7 M tonnes of soybeans have shipped out in March thus far, with another 5.8M tonnes likely to head out by the end of the month (for those looking at the calendar date and saying these numbers aren’t equal, exports in the first half of March were slowed by sluggish truck deliveries to port locations as a result of rains & traffic jams). Doing a little math, this would put total March soybean exports for Brazil at about 9.5M tonnes, a 15% jump year-over-year.

Speaking of exports, Canadian durum prices continue to be pressured by competition abroad and subdued demand for higher quality as the market continues to pay higher premiums that farmers have been hoping for. Compounding things is the Mexican durum crop starting to get harvested in May (and it looks pretty decent right now) and Europe’s crop, 2 months later, meaning more supply becoming available. Thus far in the 2016/17 marketing year, Canadian durum exports are down 15% year-over-year, wheat exports are down 20%. Comparably, some traders continue to think of Russia as “wheat powerhouse”, shipping out 619,000 MT of wheat in the first week of March, but just 145,000 MT of corn. Conversely, Ukraine shipped out nearly 600,000 MT of corn but only 129,000 MT of wheat during the same period. It’s also worth noting that Indonesia bought 100,000 MT of Black Sea wheat (11.5% protein) at a July 2017 delivered price of $197 USD / MT (~$262.50 CAD / MT or $7.15 CAD / bushel).

Indonesia and other SE Asian countries has been mostly supplied by Australia, American, or Canadian wheat in the past, but given the cheaper option, this Black Sea purchase isn’t likely the last, especially since the conditions in the region are good enough that expectations are pretty high for production right now. With very good soil moisture conditions, it’s not as favourable as where the winter crop emerged last year, but things are looking pretty decent. What also has remained favourable are peas prices, despite some of the bearish buzz surrounding the pulse crop. Although production was huge everywhere this year (literally everywher: Russia, Ukraine, Canada, US, Australia, & India all had big crops), demand has been relatively strong. As Chuck Penner of Left Field Commodity Research points out, China has been a strong buyer and prices in India are still high enough that even with the additional cost of fumigating boats at 3rd-party ports en route to India, North American supply can be priced competitively. Overall, while peas prices have pulled back significantly from where they were a year ago at this time, current values still aren’t all that bad (we were expecting things to be about $1 CAD / bushel lower than the current $7 handles available in most places for new cro). Accordingly, I have to agree with Chuck that sometimes it’s not all that bad to be wrong (or in my case overestimate bearish expectations).

To growth,

Brennan Turner

President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

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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