May 8 – Volatile Opportunities

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FarmLead Breakfast Brief
Monday, May 8th, 2017

“Traders can cause short-term volatility. In the long run, the market must revert to a sensible price/earnings multiple.”
– Ben Stein (US author/economist/actor)

Good Morning!

At 6:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3678 CAD, $1 CAD = $0.7311 USD)

July Corn: -1.8¢ (-0.45%) to $3.69 USD or $5.047 CAD
July Soybeans: -3.3¢ (-0.35%) to $9.698 USD or $13.264 CAD
July Soybean Meal (per short ton): -$1.70 (-0.55%) to $315.20 USD or $431.13 CAD
July Soybean Oil (cents per lbs): +0.17¢ (+0.5%) to 33.07¢ USD or 45.23¢ CAD  
July Oats: -4.3¢ (-1.7%) to $2.445 USD or $3.344 CAD
July Wheat (Chicago): -4.8¢ (-1.05%) to $4.375 USD or $5.984 CAD
July Wheat (Kansas City): -2.5¢ (-0.55%) to $4.475 USD or $6.121 CAD
July Wheat (Minneapolis): -2.5¢ (-0.45%) to $5.518 USD or $7.547 CAD
July Canola: +0.7¢/bu / +$0.30/MT (+0.05%) to $8.723/bu / $384.63/MT USD or $11.932/bu / $526.10/MT CAD

Friday’s Winnipeg ICE Close
July Barley: unchanged at $2.197 USD or $3.005 CAD
July Milling Wheat: +8.2¢ (+1.25%) to $4.875 USD or $6.668 CAD

This recent weather has pushed up grain prices…
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Volatile Opportunities

Grain markets this morning are mostly in the red, amplified by a lower U.S. Dollar and highlighted by wheat prices continuing their retreat from last week’s multi-month highs, although cold temperatures are hitting most of the Great Lakes region. Currencies are a bit volatile this morning after Emmanuel Macron won the French presidential election yesterday, stifling any thought around France leaving the European Union, and accordingly, helping the Eurodollar hit a 6-month high. There continues to be a fair amount of negative sentiment aimed at the Canadian Dollar as speculators are concerned about trade with the U.S. and the current hyper-inflated real estate market. Turning inward to actual grain market fundamentals, the majority of focus continues to be on a delayed Plant 2017. Western Canada got some great seeding weather over the weekend and it looks like it will continue all week long, allowing drills to get into the field and get the 2017 crop in (as well as any combines who need to take off 2016 crop). This week we get the May W.A.S.D.E. from the U.S.D.A., which will include the first supply and demand estimates for the 2017/18 crop year. While it’s still technically early (“late soybean planting” is considered to be June!), the market is still holding a significantly short position and with some heavy reporting this week, grain prices could see some heavy volatility and volume. In these moments, Katie Hancock of Brock Associates reminds us that “the best opportunities present themselves when there’s uncertainty” (one of the best grain marketing lines I’ve heard in awhile).

To end last week, on Friday, May 5th, Statistics Canada came out with what they think Canadian grain stocks were at the end of March 2017, which as usual, came with analysts skepticism, notably the production numbers to base the inventory numbers off of. Total wheat stocks were pegged at 15% higher than last March, at 16.6M tonnes, but that’s actually 1% lower than the 5-year average and below the 18.3M tonnes that the trade was expecting. There’s still a lot off durum out there according to the StatsCan survey though, saying 4.08M tonnes are still in the market, which would be a increase of 51% (or double) last March’s supply and 33% more than the 5-year average, but again, below the market’s pre-report expectations of 5.2M tonnes. On canola, available inventories are 23% lower than last year and 9% below the 5-year average at 6.57M tonnes (pretty much in-line with estimates). This is notable as Canadian domestic crush levels remain strong, as do exports, which could see things accelerate as 2 soybean crush plants in China are switching over to canola, meaning Chinese imports could grow by 25% in 2017/18 to 5M tonnes.

Confirming of the bearish pulse crops pressures is lentils stocks sitting 93% higher than what they were a year ago but, conversely, 9% below the average of 1.07M tonnes. Peas stocks of 1.7M tonnes is 26% above last year’s available supplies as of March 31st, 2016, and 21% above the 5-year average. Rounding it out (and compared to last year and the 5-year average), 4.58M tonnes of barley is more than the market was expecting (+23%, +25%), as were oats inventories of 1.66M tonnes (-8%, -6%). Rye supplies remain quite large at 198,000 tonnes (+100%, +97%), corn supplies across Canada are pegged 6.57M (-23%, -9%), soybeans at 1.86M (-4%, +5%), and flax at 404,000 MT (-23%, -9%). It’s also worth noting that farmers are holding onto 84% of all available lentils, 7 points higher than a year ago. It’s a similar story in durum as 79% of all durum is being held by farmers, 9 points higher than the 70% held this time a year ago.

Perhaps the wheat carryout in Canada will start to change as U.S. wheat millers get a little more concerned over the potential size and quality of the American winter wheat crop. With a smaller crop than last year likely available, combined with smaller stocks of good protein from last year’s crop, buyers are supposedly asking for specific protein bids, let by international export demand. What is also in strong demand by international buyers are soybeans, albeit it’s mostly China that’s buying. U.S. soybeans exports are up 15% from where they were at this point a year ago, suggesting that the U.S.D.A.’s forecast of 55.1M tonnes for the 2016/17 crop year may be too low (perhaps we’ll get an updated number on Wednesday?). It’s worth noting that soyoil prices had a strong finish to last week and are again in the green this morning after the U.S. International Trade Commission accused Argentina and Indonesia of “dumping” (or subsidizing their biodiesel production and selling it to America for less than fair value). By doing so, it supports a higher value of the soybean byproduct in domestic American markets as more demand would convert over to buying American (maybe making President Trump will be happy, instead of volatile?).

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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