May 12 – Going Sideways?

FarmLead Breakfast Brief

Friday, May 12th, 2017

“Talent without discipline is like an octopus on roller skates. There’s plenty of movement, but you never know if it’s going to be forward, backwards, or sideways.”
– H.. Jackson Brown Jr. (American author)

Good Morning!

At 6:50 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3714 CAD, $1 CAD = $0.7292 USD)

July Corn: -0.5¢ (-0.15%) to $3.688 USD or $5.057 CAD
July Soybeans: -3.3¢ (-0.35%) to $9.63 USD or $13.206 CAD
July Soybean Meal (per short ton): -$0.30 (-0.1%) to $314.60 USD or $431.43 CAD
July Soybean Oil (cents per lbs): -0.19¢ (-0.6%) to 32.30¢ USD or 44.30¢ CAD  
July Oats: -3.3¢ (-1.3%) to $2.43 USD or $3.332 CAD
July Wheat (Chicago): -1¢ (-0.25%) to $4.328 USD or $5.935 CAD
July Wheat (Kansas City): -1.3¢ (-0.3%) to $4.395 USD or $6.027 CAD
July Wheat (Minneapolis): -0.3¢ (-0.05%) to $5.48 USD or $7.515 CAD
July Canola: -0.2¢/bu / -$0.10/MT (-0.02%) to $8.587/bu / $378.60/MT USD or $11.775/bu / $519.20/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.197 USD or $3.005 CAD
July Milling Wheat: -2.7¢ (-0.4%) to $4.723 USD or $6.477 CAD

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Going Sideways?

Grain futures prices this morning are quietly lower as there was some bearish U.S. exports data for wheat and corn yesterday and the market sees warmer temperatures in the 10-day forecast across the Midwest, giving the opportunity to get a lot of crop in. As traders are expecting Monday’s U.S.D.A. crop progress report to show 70% of the U.S. corn crop has been planted (matching the 5-year average), there’s more than a few analysts who are becoming more bearish on further corn price rallies. The only real catalysts are if (1) managed money starts to believe there’s a threat to yield potential or (2) we see a significant amount of replanting in Cornbelt, replacing wet corn fields with soybeans and shuffling the acreage makeup. Even abandoned winter wheat acres might see a switch into soybeans, but most likely a spring cereal). Looking more macro, U.S. Ag Secretary Sonny Perdue announced yesterday that he was reorganizing the U.S.D.A. to, mainly, help streamline paperwork. Also worth noting is that Robert Lighthizer was confirmed as U.S. Trade Representative yesterday, paving the way for what’s sure to be a re-negotiation of N.A.F.T.A.. The trade talks between Mexico, America, & Canada is sure to take the deal sideways with a lot of key issues set to change as President Trump has called it “a horrible one-sided deal that’s cost (America) millions and millions of jobs and tens of billions of dollars).

Switching gears, C.O.N.A.B. raised their estimate of the Brazilian soybean crop to 113M tonnes and the corn crop to 92.8M tonnes, which varies quite a bit from the U.S.D.A.’s call on Wednesday of 111.6M and 96M tonnes respectively. However, AgResource points out that CONAB has a history of underestimating the corn crop in May though, as 7 out of the last 10 years, they’ve eventually raised the crop by 4.5%, meaning that we could see a 97M-tonne handle from CONAB when all is said & done. Next door in Argentina, the Buenos Aires Grain Exchange raised its soybeans harvest estimate for the country by 1M tonnes to 57.5M tonnes (slightly ahead of the U.S.D.A.’s 57M-tonne call on Wednesday), thanks to an upgrade to the national yield average to a new record of 47.4 bu/ac, 0.3 bushel ahead of the previous record set 2 years ago.

Karen Braun of Reuters points out that while we’ll see another record for global wheat carryout this year, if you were to remove China from the table, ending stocks would actually be the lowest in 4 years. Digging in, the Chinese stocks-to-use ratio will hit 110% for the first time ever in 2017/18, meaning they’ll have a full year’s worth of supply in their coffers that would get used for, well, another year at least. Much like China is expected to hold over 42% of available global corn supplies by the end of the 2071/18 crop year, China should hold almost 50% of all available wheat by then. If not for China, global stocks-to-use ratio would be the lowest in a decade. Showing some demand, U.S. wheat is finding a home in Egypt for the first time in months, proving it can be competitive with European or Black Sea supply. Meanwhile French wheat has been sailing to places like the U.S. (for feed specifically) and Vietnam, which is a positive considering that customs data shows total wheat exports through March is only 7.21M tonnes (including within the EU), a drop of nearly 50% year-over-year, mainly because of quality issues after last year’s wet challenges.

Checking in on his weekly column for the Alberta Pulse Growers, Chuck Penner of LeftField Commodity Research admits that he’s been surprised by the strength of the yellow pea market this year (I’m also in that camp). It’s been mainly due to above-average demand from India, followed by Bangladesh & China. Looking forward, with likely less area going into green peas this year, this could be a bit supportive of the colour but as usual, yield uncertainty is the big question mark, but Chuck points out that even if peas yields revert back to the mean (5-year average) of 38 bu/ac, that would be a 15-20% reduction in total output versus last year (but given the acres, a 4M-tonne Canadian peas crop would still be the 2nd-largest on record!). We also need to consider that Russia, Ukraine, Australia, America, & France are increasing peas acreage in 2017/18, which will compete for business in the Asian markets. Nevertheless, the surprising resiliency of prices suggests to me that things could trade sideways, around that $8 – $9 CAD / bushel for both colours through harvest 2017.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
@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.

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