May 15 – Rally Options?

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FarmLead Breakfast Brief

Monday, May 15th, 2017

 “Millions don’t rally to the banner of Uncertainty.”
– George Packer (American writer)

Good Morning!

At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3602 CAD, $1 CAD = $0.7352 USD)

July Corn: -0.5¢ (-0.15%)  at $3.705 USD or $5.039 CAD
July Soybeans: +2¢ (+0.2%) to $9.65 USD or $13.126 CAD
July Soybean Meal (per short ton): +$0.60 (+0.2%) to $313.90 USD or $426.96 CAD
July Soybean Oil (cents per lbs): +0.16¢ (+0.5%) to 33¢ USD or 44.89¢ CAD  
July Oats: +3¢ (+1.25%) to $2.44 USD or $3.319 CAD
July Wheat (Chicago): -3.8¢ (-0.85%) to $4.29 USD or $5.835 CAD
July Wheat (Kansas City): -3.3¢ (-0.75%) to $4.36 USD or $5.93 CAD
July Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.453 USD or $7.416 CAD
July Canola: -2.5¢/bu / -$1.10/MT (-0.25%) to $8.717/bu / $384.36/MT USD or $11.857/bu / $522.80/MT CAD

Friday’s Winnipeg ICE Close
July Barley: unchanged at $2.209 USD or $3.005 CAD
July Milling Wheat: unchanged at $4.762 USD or $6.47 CAD

Monday heading into a new week….
Where does your grain marketing plan sit?
Post this week’s target on FarmLead to ensure all buyers see it!

Rally Options?

Grains this morning are mixed on a lower U.S. Dollar, some weather concerns impacting crops, and decent Plant 2017 progress lately. Some thunderstorms are expected to hit the Southern Plains, Northern Plains and western Cornbelt today, with more rain falling around the Great Lake states and provinces. The rains will slow Plant 2017 progress for spring-sown crops but also increase the disease pressures for those winter wheat crops that are resilient, especially in the Southern Plains where the start of Harvest 2017 isn’t too far way. Rains are also falling in parts of Western Europe and should continue to get decent shots of moisture here and there for the next 10 days which is good for an area that’s been hunkering for a drink. Hedge funds got more bullish on winter wheat last week, by getting longer in Kansas City hard red winter wheat futures while lowering their short position in Chicago’s soft red winter wheat market. Conversely, managed money extended its short position in corn, creating a scenario for short-covering rally opportunities, should we see some bullish crop progress data from the U.S.D.A. later today.

Recently confirmed U.S. Ag Secretary Sonny Perdue has one message for American farmers: “You grow it and we’ll sell it.” In an op-ed in the Wall Street Journal (sidenote: probably not the best publication to be trying to reach out to farmers through), Mr. Perdue goes through the importance of international trade and no time was apparently wasted as a nice trade deal was struck with China to send more U.S. beef to the People’s Republic, while the U.S. would open its doors to Chinese chicken. Interestingly enough, only about 10% of U.S. beef production gets exported annually, putting it at 8th behind the 3 major row crops, pork, rice, almonds, and cotton, which sees 75% of its production shipped out every year. Thus, if the Chinese are to fill the bellies of their emerging middle class with the protein they demand, importing in more meat is one way to do It. The other would be trying to expand your own livestock herd, but that requires more feedstuffs and China is already importing record amounts of soybeans! Needless to say, the American-Chinese beef deal is probably good for domestic demand for grain as more feed will be needed on this side of the Pacific.

One such feedstuff is barley, which the U.S.D.A. says on a global scale, will see its available supplies by the end of 2017/18 fall to a 34-year low of 17.5M tonnes (this would also indicate a 29% drop year-over-year). Globally, the U.S.D.A. is expecting only 116.6M acres to get planted with the cereal this year, the 2nd smallest acreage on record (since data started being tracked worldwide in 1960), including just 2.5M acres in America, the smallest since data started being collected in 1910! Although there’s no breakdown of malt versus feed barley area, I think that the acreage change is a result of decent malt barley supplies contrasting malt demand slowing growth and more competition in the feed markets. With 4 consecutive years of record global crop production, the U.S.D.A.’s chief economist Robert Johansson thinks it’ll take more acreage reductions in other crops to help improve prices. Bunge’s CEO, Soren Schroder, agrees, but takes it a step further by suggesting that acreage will only come down once prices drop a little more (perhaps just typical grain company executive speak?)

Brokerage firm Stewart-Peterson is one of the most bullish voices out there saying that there are “70% odds of the (corn) market getting up to the $4.40 – $4.50 December futures area on a summer scare”. This is an aggressive call, especially considering that the December corn contract has been trading between $3.80 – $3.95 since March, meaning prices basically have to rally 20% in the next 2 months. Not surprisingly, there’s a few on Twitter who are challenging this call and the skin-in-the-game behind it (including yours truly). From a risk management perspective, one has to consider what said summer scare would look like! Too wet? Too dry? All long-range forecasts are calling for average conditions today so the probability of a summer scare isn’t too high to begin with (albeit AccuWeather thinks it could get hot in Western Canada in July & August but not a lot of corn is grown here…). Further, you might start to see some corn acres switch over to soybeans on delayed seeding issues, something Informa seems to be factoring in by recently lowering its corn acres to 89.7M and raising its soybean area to 89.7M versus the U.S.D.A.’s forecasts of 90M and 89.5M respectively. Ultimately, like we’ve seen over the course of the past few months, any rally that materializes will likely get reined in on the fact that there’s still a lot of supply available in the market, especially domestically.

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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