May 31 – Volatile Parades

Good Morning!

Today’s Breakfast Brief looks at the lack of weather premium in wheat, the hope for Mother Nature to turn off the rain, and whether or not you should be managing some risk of your grain prices.  

“If you wait for inspiration you’ll be standing on the corner after the parade is a mile down the street.” – Ben Nicholas (Australian actor)

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After markets being closed for the US Memorial Day long weekend, grain futures got a mixed start to the shortened trading week as the focus on South American bullish headlines is again helping the bulls find fresh dirt to play in, especially soybeans chasing $11 handles.
While hedge funds got shorter in wheat (betting the price will go down), the biggest bet against the bulls was in soyoil, which saw the biggest reduction in the net long in almost a year.
In Argentina, the focus of trying to get soybeans off is slowing the pace of the corn harvest there, with just 29% of fields of the coarse grain harvested (usually have 70% of the crop taken off by now).
With that, corn prices in Chicago are chasing levels not seen since last summer, with front-month contracts going after $4.20 a bushel while July 2017 deliveries are pursuing $4.30. Darrel Good of the University of Illinois points out that given the number of risks & subsequent volatility weighing on the market right now, waiting for more upside “is a more risky venture for soybeans than for corn.” Its been a pretty good parade thus far though hasn’t it?

Less Grain Available in Canada

Last week, the Canadian Ag Ministry lowered its forecast for how much grain will be left in the country by the end of this and next year’s crop years (much like Brazil or Russia’s export strength, should we be surprised given the lower value of the Canadian Loonie?).

Of note was canola’s carryout by the end of the 2016/17 year getting pegged at 700,000 metric tonnes, suggesting an incredibly low stocks-to-use ratio of 4.3% with the assumption that Canadian farmers harvest 15.4 million metric tonnes. With production lower though, domestic use and exports are forecasted to drop by 2% and 20% respectively, down to 8.15 million metric tonnes & 8 million metric tonnes for each column.

While canola production is seen lower, Ag Canada bumped its specialty crop production to a record 8 million metric tonnes (it’ll be needed with the tight carryout in peas and lentils of 100,000 metric tonnes and 25,000 metric tonnes respectively!

EU Wheat vs Australian Wheat

While the EU wheat crop isn’t looking as big as last year’s monster, things are still OK across the pond.

Of note is that the French soft wheat crop rated good-to-excellent (G/E) has dropped from 92% in mid-April to 83% as of Sunday. With the mild winter and humid start to the growing season, disease and insect issues are playing a bigger role in the quality of the crop in France.

Nonetheless, Mars, the EU crop monitoring agency pegged the average French wheat yield at 113.6 bushels an acre, a drop of 3.5% from last year’s record. While we’ll have to wait to see if France can jump above 40 million metric tonnes of wheat for the 2nd straight year, the International Grains Council pegged total European wheat production at 153.6 million metric tonnes (including durum).

This would nearly match the European Commission current estimate of 153.9 million tonnes but still fall short of last year’s record 160.1 million metric tonnes.

Rains in Australia have producers in the Land Down Undaa enjoying some of their best conditions to the start of their wheat season in the last few years, especially in the West. Further, the Australian Bureau of Meteorology says that average rainfall is expected from June to August, which Rabobank warns will be needed to ensure wheat fields in Aussie paddocks reach their full potential.

Less Rain, More Grain Prices Risk Management

Speaking of rains, we continue to see rains fall in areas of Western Canada in the most need, prompting some to ask Mother Nature to turn the tap off.

Needless to say, there’s enough of a moisture profile to get the crop up out of the ground and going, which is intuitively why new crop prices are pulling back a bit.

As we finish the month today, volatility and volume have certainly been the mots du jour this May.Normally, we’ll see some volatility with the spring weather / planting concerns but the past few weeks of trading have certainly been exacerbated by adverse conditions in South America.

Overall, our call continues to be locking in oilseed futures values while pricing out basis opportunities in corn and pricing out Chicago values down the road.

The bull parade doesn’t appear to be over yet but managing risk doesn’t necessarily involve waiting til the end of all the floats to admit it was a good show.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
1-306-665-8740 (Office)
www.FarmLead.com
@FarmLead (on Twitter)
At 5:35 AM CDT in the North American futures markets:

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.305 CAD, $1 CAD = $0.7664 USD)

July Corn: -1.5¢ (-0.35%) to $4.113 USD or $5.367 CAD
July Soybeans: +4.3¢ (+0.64) to $10.908 USD or $14.234 CAD
July Soybean Meal (per short ton): +$0.40 (+0.1%) to $402.90 USD or $525.79 CAD 
July Soybean Oil (cents per lbs): +0.05¢ (+0.15%) to 31.53¢ USD or 41.15¢ CAD 
July
 Oats: -2¢ (-1.05%) to $1.91 USD or $2.493 CAD

July Wheat (Chicago): -2.8¢ (-0.55%) to $4.788 USD or $6.248 CAD
July Wheat (Kansas City): -1.5¢ (-0.35%) to $4.583 USD or $5.98 CAD
July Wheat (Minneapolis): -0.5¢ (-0.1%) to $5.273 USD or $6.881 CAD
July Canola: -0.2¢/bu / -$0.10/MT (-0.02%) to $8.899/bu / $392.40/MT USD or $11.612/bu / $512/MT CAD

Yesterday’s Winnipeg ICE Close

July Barley: unchanged at $2.853 USD or $3.723 CAD
July Durum Wheat: unchanged at $6.403 USD or $8.355 CAD
July Milling Wheat: 
unchanged at $4.964 USD or $6.477 CAD

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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