May 26 – Re-Checking Things

fl_hubspot_logo_456x57.pngFarmLead Breakfast Brief
Friday, May 26th, 2017

“Thinking no longer means anymore than checking at each moment whether one can indeed think.”
– Theodor Ardorno (German philosopher)

Good Morning!

At 7:20 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: +0.5¢ (+0.15%) to $3.698 USD or $4.978 CAD
July Soybeans: -3¢ (-0.3%) to $9.365 USD or $12.608 CAD
July Soybean Meal (per short ton): -$0.30 (-0.1%) to $304.40 USD or $409.80 CAD
July Soybean Oil (cents per lbs): -0.19¢ (-0.6%) to 31.85¢ USD or 42.88¢ CAD  
July Oats: -0.3¢ (-0.1%) to $2.418 USD or $3.255 CAD
July Wheat (Chicago): unchanged at $4.308 USD or $5.799 CAD
July Wheat (Kansas City): +0.8¢ (+0.15%) to $4.32 USD or $5.816 CAD
July Wheat (Minneapolis): +1.5¢ (+0.25%) to $5.638 USD or $7.59 CAD
July Canola: -5.4¢/bu / -$2.40/MT (-0.45%) to $8.726/bu / $384.77/MT USD or $11.748/bu / $518/MT CAD

Yesterday’s Winnipeg ICE Close
July Barley: unchanged at $2.239 USD or $3.005 CAD
July Milling Wheat: -5.4¢ (-0.8%) to $4.892 USD or $6.586 CAD

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Re-Checking Things

Grains this morning are slightly mixed as some better weather in the forecast for most North American growing regions is putting a bearish hinge heading into the American Memorial Day long weekend. AgResource points out that the American Plains (both north and south) and the Western Cornbelt will see a solid mix of sun & rain over the next week with some above-average temperatures, whereas the Eastern Cornbelt will get more cooler and intermittently wet weather. Accordingly the weather premium that you’re looking for is likely to show up but it’s not healthy to be greedy / have unrealistic price expectiations,and complain about the market not giving you the price that you think you should get. Don’t let hope be your risk management strategy because there will be opportunities to make sales in the coming weeks, just re-check your targets to ensure they’re not over the moon (post a few before the weekend on FarmLead to make sure all buyers can deal with you).

Domestic Chines meal demand may be slowing as China only bought 1 cargo of U.S. soybeans last week and with crush margins in the People’s Republic now at 3 year lows, a slowdown in purchasing activity may be seen. The waning demand has more to do with hog producer margins in China sitting at 2-year lows and soymeal stocks nearly as plentiful as they were in 2012. Nonetheless, it’s expected that Brazil will ship out a record about of soybeans in May, likely shattering the previous mark by 2M tonnes. Accordingly, yesterday we saw soybean prices on the front-month July futures contract pulled back below last week’s highs and the next target to the downside is April lows around $9.30 USD / bushel. For corn, it’s easily argued that corn will break out of its trading range of $3.96 and $3.75 before mid-June and that weather rallies could help break things out higher but acreage and potential production will likely be priced in before the June 30th acreage report (as evidenced by University of Illinois research, there’s a decent correlation between crop ratings in mid-June and the yield projections then to the final yield numbers).

SovEcon dropped their estimate of total grain production in Russia this year by 3M tonnes to 106.5M tonnes, albeit the wheat number was actually raised by 500,000 to 63M tonnes. The Canadian Ag Ministry recently noted that almost all acreage increases in spring wheat will be taken on by hard red spring wheat, accounting for 80% of total wheat acres, versus 76% in 2016/17. That being said, hard red spring wheat prices have been trending a bit higher lately with some of the U.S. winter wheat crop concerns. The A.A.F.C. also raised its price forecast for canola by $5 CAD / MT to a top end value of $540 CAD / MT, pointing to strong export and domestic demand and the subsequent 500,000 MT downgrade of available canola supplies by the end of 2016/17 for final marketing year ending stocks of just 600,000 MT.

While seeding acreage is certainly behind right now, there’s a lot less of durum wheat going into the ground in North America in 2017. In Canada, acreage is forecasted to fall 17% from last year to 5.15M acres but this is only 2.6% below the 5-year average of 5.28M acres. In the U.S., durum acres are seen falling 20% to 2.4M tonnes. With acreage down, the market is looking to the large carryout from 2016/17 to make up gaps in the market, but quality has certainly been a concern, but mainly on the northern side of the 49th parallel as the 2016 American durum crop was one of the best ever in terms of quality. However, the major concern is how much decent protein durum is left in the pipeline. Accordingly, while we know acreage is lower, harvest conditions in August and September will be the main contributing factor as to whether or not values head higher from where we’re at today. As such, with the Saskatchewan government saying 1.6M acres are unlikely to get seeded this year because of moisture issues,  the acreage issue may be the catalyst back to ideal values, not just available good quality/protein supply.

Have a great weekend,

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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