May 11 – The Same Game?

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FarmLead Breakfast Brief

Thursday, May 11th, 2017

“We cannot change the cards we are dealt, just how we play the game.”
– Randy Pausch (US computer science prof)

At 6:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3699 CAD, $1 CAD = $0.73 USD)

July Corn: -0.3¢ (-0.05%)  at $3.735 USD or $5.116 CAD
July Soybeans: +3.8¢ (+0.4%) to $9.74 USD or $13.342 CAD
July Soybean Meal (per short ton): +$0.60 (+0.2%) to $318.30 USD or $436.03 CAD
July Soybean Oil (cents per lbs): +0.29¢ (+0.9%) to 32.57¢ USD or 44.62¢ CAD  
July Oats: +2.5¢ (+1%) to $2.468 USD or $3.38 CAD
July Wheat (Chicago): +2.5¢ (+0.6%) to $4.343 USD or $5.949 CAD
July Wheat (Kansas City): +1.5¢ (+0.35%) to $4.308 USD or $6.038 CAD
July Wheat (Minneapolis): +2¢ (+0.35%) to $5.47 USD or $7.493 CAD
July Canola: +6.4¢/bu / +$2.80/MT (+0.55%) to $8.654/bu / $381.57/MT USD or $11.855/bu / $522.70/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.197 USD or $3.005 CAD
July Milling Wheat: +5.4¢ (+0.85%) to $4.748 USD or $6.505 CAD

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The Same Game?

Grain markets this morning are mostly in the green with corn giving back a bit of yesterday’s gains and oilseeds rebounding from their drop on yesterday’s U.S.D.A. relatively bearish soybeans and canola data. AgResource points out that soybean harvest in Argentina has reached the halfway point, but farming selling remains slow thanks to a weak Argentina Peso – U.S. Dollar exchange rate and unattractive prices. Conversely, because of higher export taxes on soybeans than corn and wheat, many farmers have sold the 2 latter crops at profitable levels, strengthening their financial position.  Yesterday we got the U.S.D.A.’s May version of their world agricultural supply and demand estimates and it surprised the market in a few areas, namely being bullish corn, while giving out some domestic US numbers to get excited about on wheat while maintaining a relatively neutral-bearish stance on soybeans, despite U.S. exports finally being raised. However, the market has turned a bit sour this morning on the corn rally as cooler heads prevailed with the acknowledgement that there’s still a lot of corn and wheat out there, especially when looking globally. Alas, is this just the same game as last year in terms of grain and oilseeds supply and demand?

Digging into the report, the first estimates of American corn and soybean yields this year has been pegged at 170.7 and 48 bu/ac respectively, which would be a drop of 3.9 bushels and 4.1 bushels from their respective records last year of 174.6 and 52.1 bu/ac (Also worth noting is that these first estimates are both above the linear trend yield). Using the March 31st Prospective Acreage report, U.S. corn production is pegged at 14.1B bushels, a drop of 7% from last year, but with corn demand dropping 2.4% year-over-year to 14.3B bushels, there should still be 2.1B bushels of corn available in America by end of 2017/18 (an 8% decline YoY but fairly on point with pre-report estimates). For soybeans, U.S. output is forecasted to come in at 4.255B bushels (a little smaller than last year’s monster crop) while consumption is expected to hit a record high of 4.2B bushels, leaving the 2017/18 carryout at 480M bushels (below pre-report estimates and a 10% jump from the 435M bushels available at the end of 2016/17). For U.S. wheat, the average yield of 47.2 bu/ac forecasted would be a 10% decline from last year and with harvested acreage expected to be the lowest in the past century (yes, the last 100 years!). Accordingly, wheat production in America is set to come in at 1.82B bushels, or a 500M decline year-over-year (or -21.5% YoY).

Looking more broadly, 2017/18 global corn production is pegged at 1.033B tonnes (slightly lower from 2016/17), which, combined with a little more demand, equates to a carryout of just 195.3M tonnes, mainly due to the U.S.D.A.’s expectations of Chinese inventories dropping significantly this year. This is because of higher consumption and lower acres, meaning less production to shore up supplies again! More specifically, they’re expecting the People’s Republic to end 2017/18 with 81.3M tonnes, which would still account for 42% of total world supplies, but it would still be 20M tonnes lower than the end of 2016/17 and the lowest in the past 5 years (RJ O’Brien called this “a false hope for bulls”!). For soybeans, total global production in 2017/18 is expected to be just 3.5M tonnes smaller than 2016/17 at 344.7M tonnes, but strong demand (namely China importing 93M tonnes!) pushes ending stocks down slightly from the 90.14M tonnes ending this year to 88.8M tonnes next year. For wheat, global production should drop about 15M tonnes from 2016/17 to 2017/18 at 737.8M tonnes, but with demand relatively stagnant due to competition with corn and other feedstuffs, new crop global carryout is pegged 3M tonnes higher YoY at 258.3M tonnes (another new bearish record).

So…what to think? First, there’s a lot of new information that market has to digest and compare to not only last year but history. The American Farm Bureau points out that in the past 10 years, the U.S.D.A. tends to grossly overestimate soybeans ending stocks (but that’s mainly blamed on underestimating China’s appetite for beans over the past decade), which means their price expectations have been below actual 10% of the time. What we do know is that, like Argentinian farmers mentioned above, Brazilian growers have been slow sellers of their soybeans, meaning demand could wane for U.S. supply. For corn, the U.S.D.A. tends to underestimate ending stocks, which should means the price should be lower but the U.S.D.A.’s forecast has usually underestimate the average price as well. A couple numbers worth pointing out include Canadian and Australian wheat production dropping 10.5% and 28.5% respectively year-over-year to 28.35M and 25M tonnes each. Wheat production is also expected to fall in the Black Sea countries, down 7% to a combined 121M tonnes of production but EU production is expected to climb 4% from last year to 151M tonnes. Overall, the U.S.D.A.’s numbers are the first suggestions and we know they’re going to change so while the playing field might’ve changed, the rules of the game haven’t.

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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