May 24 – Just Heating Up?

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FarmLead Breakfast Brief
Wednesday, May 24th, 2017

“Do not wait to strike till the iron is hot; but make it hot by striking.”
– William Butler Yeats (Irish poet)

Good Morning!

At 7:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3463 CAD, $1 CAD = $0.7428 USD)

July Corn: +1.3¢ (+0.35%) to $3.708 USD or $4.991 CAD
July Soybeans: +0.5¢ (+0.05%) to $9.488 USD or $12.773 CAD
July Soybean Meal (per short ton): +$0.70 (+0.25%) to $307 USD or $413.30 CAD
July Soybean Oil (cents per lbs): unchanged at 32.34¢ USD or 43.54¢ CAD  
July Oats: -1¢ (-0.4%) to $2.403 USD or $3.234 CAD
July Wheat (Chicago): +0.8¢ (+0.15%) to $4.303 USD or $5.792 CAD
July Wheat (Kansas City): +0.3¢ (+0.05%) to $4.308 USD or $5.799 CAD
July Wheat (Minneapolis): +0.8¢ (+0.15%) to $5.55 USD or $7.472 CAD
July Canola: -2¢/bu / -$0.90/MT (-0.15%) to $8.843/bu / $389.90/MT USD or $11.905/bu / $524.9/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 $4.832 USD or $6.505 CAD

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Just Heating Up?

Grain markets are mostly in the green as weather prospects are starting to improve but outside political risks continue to weigh on outside markets. While Brazilian scandals are still fresh, rumours are that President Donald Trump’s 2018 federal budget doesn’t bode well for agriculture as $38 Billion less is getting earmarked for farm supports, including caps on commodity payments and new limits on crop insurance premiums.  Canadian exports of pulses continue to be strong as peas exports just hit 3.14M tonnes as of last week, meaning that shipments out of country are tracking about 45% higher than a year ago. Comparably, total Canadian lentils exports are now sitting at 727,700 MT, or about 21% than a year ago.  AgResource points out that Brazilian soybeans commitments are tracking 7.4% above last year at just over 40M tonnes thus far, despite wait times at ports being a record low (just an indication of how important investment in your infrastructure is if you’re a net exporter). This is arguably healthy for China who, despite recently negative margins, is seeing cumulative crush volumes in 2016/17 heating up as they’re tracking 9% higher than this time a year ago (the U.S.D.A. is forecasting just a 6% increase).

Europe’s agricultural research unit, MARS, recently cut its EU yield forecasts, blaming inclement winter conditions and dry spring conditions starting to impact vegetative growth. The worst of the worst is seen in Spain where barley yields are expected to drop 30% year-over-year to 47.2 bushels per acre. The French soft wheat yield forecast was dropped to 100.7 bu/ac, which would be in line with last year but below the 5-year average. French durum and barley yield forecasts were also lowered, along rapeseed yields in France, Germany, and across Europe on average to 57.7, 59.6, and 54 bushels per acre respectively. It’s not all negative though as some helpful rains in recent weeks in the United Kingdom has helped MARS move to “higher than average” yield expectations for UK fields. More specifically, barley and wheat yields there were raised to 118.4 and 121.3 bu/ac respectively. Looking more broadly, INTL FC Stone says that EU wheat prices have limited downside because of a slower start to the Black Sea harvest, combined with the lower but still decent EU yield prospects (just not a bumper crop).

The big news yesterday was that Swiss commodities giant, Glencore, has made an “informal” approach to buy Bunge, potentially setting the stage for the dismantling of the famous “ABCD” moniker of the larges grain traders (ADM, Bunge, Cargill, Louis Dreyfus). While they already own Viterra (which has mainly Australian & Canadian assets), the move to acquire Bunge would significantly broaden the grain handling network that Glencore has oversight on, with considerable assets in North and South America. The move by Glencore comes as grain company merger and acquisition activity has slowed over the last few years as companies have opted for building up physical assets. That being said, Glencore isn’t shy of buying up grain traders, paying $4.5B USD in 2012 for Viterra and $2.6B in 2013 for Marubeni Corp (which in turn bought Gavilon Group). However, debt issues have plagued the storied commodity trader over the past 2 years, as they sold 49% of their ag unit to the Canadian Pension Plan Investment Board and British Columbia’s Investment Management Corp in late 2015. All things being equal, BlackRock thinks that grain markets are at or close to the bottom of this current cycle. Accordingly, with company margins still relatively tight, we might to see grain trading M&A activity start to pick up as CEOs look to extract more shareholder value in other, non-internal ways.

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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