January 16 – Minimizing the Impact of Record January WASDE Numbers

Good Morning!

Grain markets this morning are starting the shortened trading week in the green as the market tries to rebound from a mostly bearish WASDE report last Friday.

“I know I’m going to make mistakes, but you try to minimize them. Don’t make the same ones twice.” – Malik Jackson (NFL football player)

Grain prices on the futures boards are mostly in the green this morning after emerging from a three-day weekend.

Grain markets were closed yesterday in the U.S. in observance of Martin Luther King Jr. Day (and why you didn’t get a Breakfast Brief!) It gave players in the grain markets an additional day to digest Friday’s generally-bearish January WASDE grain report (more on this later).

With the bearishness though, hedge funds went to their most bearish position in the grain markets in over seven months. [1] Overall, the net short position across the grain complex as of data reported on Friday last week was just under 435,000 contracts!

Most Wall Street analysts are pegging soybean prices on the front month futures contracts to stay between $9.40 and $9.80, albeit with some weather issues or a weaker US Dollar, a $10 – $10.50 range isn’t out of the question. [2]

La Niña continues to make headlines in South America, but it looks like it will dissipate through the winter months, limiting its impact on the 2018 North American growing season. [3]

If you’re heading to Manitoba Ag Days this week in Brandon, MB, stop by our booth in the Westoba Concourse (same place as last year)

Trade, Exports Continue to Own Headlines

It’s more than noticeable that US grain exports are tracking much lower year-over-year (I mentioned this in last Friday’s Breakfast Brief before the WASDE report).

For US soybeans, the window of opportunity is starting to slip away as the Brazilian harvest starts to pick up steam by the end of this month. With more acres of soybeans likely getting planted this spring across America, there’s more chatter of American 2018/19 ending stocks coming in above 600 million bushels! [4] This would certainly suggest $8 USD /bushel handles again at the Chicago Board of Trade (and even worse in the cash markets).

US corn exports are also tracking significantly behind last year’s pace, even more so than the 16% decline that USDA was forecasting. On that note, the trio of lead NAFTA negotiators from each of Canada, the US, and Mexico are meeting in Switzerland before the start conversations back up in Montreal next week. [5] US House Speaker and Wisconsin Senator Paul Ryan recently said that Canada is the real NAFTA problem, not Mexico, referring mostly to Canada’s dairy supply management system. [6]

Conversely, Canadian Foreign Affairs Minister and main NAFTA negotiator, Chrystia Freeland, says that “Canada is prepared for the worst.”[7]

I would have to respectfully disagree as no trade deal with the US would be a significant blow to the Canadian economy, especially with government debt skyrocketing.

graincents-trial

Mostly Bearish January WASDE Grain Report

On Friday, Garrett provided some immediate reactions to the January WASDE report, with a recap of how the grain markets performed in his regular Grain Markets Today column.

Soybeans were the only real winner as average US yields of 49.1 bushels per acre were 0.4 below what the market was expecting. However, thanks to the large area of America planted into soybeans; US farmers indeed produced a record crop of 4.392 billion bushels. US soybean exports were also lowered by 65 million bushels, a sign of a strong US Dollar and the heavy competition from South America.

Soybean production in Brazil was raised to 110 million tonnes and lowered to 56 million tonnes in Argentina. This was generally in line with the what the market was expecting. The market was also expecting corn production in South America to stay flat. And it did. Brazil’s corn production stayed at 95 million tonnes, while Argentina stuck to its 42-million-tonne number.

Conversely, average US corn yields were raised by 1.2 bushels to 176.6 bushels per acre, shocking most market participants and farmers. This is a new record yield. Despite some smaller harvested acres, US corn production came in at a very large 14.6 Billion bushel.

Add in more imports of corn by the US and weaker feed use, American corn ending stocks were pushed up to 4.48 Billion bushels, more than 40 million bushels more than what the market was expecting

Wheat took the biggest hit though as the January WASDE showed that there were way more winter wheat acres planted this past fall in the US then what the market was expecting. While 32.6 million acres of total winter wheat acres planted is still lowest in over 100 years, the trade was expecting just 31.31 million acres. Thus, the extra 1.3 million acres of potential production was interpreted as very bearish by the market.

Globally, 2017/18 wheat production was pegged at a new record of 757 million tonnes (technically the December WASDE number of 755.2 million tonnes was also a record). The reason for the bump was mainly attributed to Russia, who went from 83 to 85 million tonnes of wheat production in 2017/18. This matches most private estimates of what Russian wheat farmers harvested in 2017/18.

With no real new demand to report though, global wheat ending stocks for the 2017/18 crop remain around the record of 268 million tonnes. Thanks to an update to 2016/17 Australian wheat crop (something I mentioned last week) carry out, Australia’s wheat ending stocks will drop 1 million tonnes to 3.22.

However, this drop doesn’t make up for Russia 5.5 million-tonne increase in carryout for 2017/18 compared to the year prior. They’re expected to end 2017/18 at 16.3 million tonnes of wheat still around.

Overall, the USDA presented us another bearish WASDE and so many farmers will keep the bins locked, kicking the sales can down the road for better prices. This isn’t necessarily the best plan of attack from a risk management standpoint, especially when there’s likely some bills coming due within the next 8-10 weeks.

Keep this in mind as we move past the middle of January.

january-wasde

Where Are Barley Prices Going?

Yesterday it was announced that Saudi Arabia bought just over 1 million tonnes of feed barley for February-March 2018 movement at an average delivered price of $216.75 USD /metric tonne (or about $4.72 USD and $5.90 CAD/bushel).

In Saudi Arabia’s last feed barley purchase in November, they bought 723,000 tonnes at basically the same price. The barley was sourced from multiple regions, but it was made clear that Argentina was the cheapest in the world at $178 USD / metric FOB their river ports. See how it compares below.

world-feed-barley-prices

Yesterday, I took a deep dive into the expectations of the malt barley and feed barley markets in 2018. There’s certainly some bullish AND bearish factors for each type of barley, which led us to review our sales position of both types of barley.

As a reminder, you can review all of the GrainCents 2018 grain markets outlooks here.

I also looked at a few different ways to play the canola market over the next few months, especially as the discussion of record acres in Canada in 2018 starts to ramp up.

To growth,

Brennan Turner
President | CEO
FarmLead
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2438 CAD, $1 CAD = $0.804 USD)

Mar Corn: +1.8¢ (+0.5%) to $3.48 USD or $4.328 CAD
Mar Soybeans: +5.8¢ (+0.6%) to $9.663 USD or $12.018 CAD
Mar Soybean Meal (per short ton): +$3.10 (+1%) to $320.10 USD or $398.13 CAD
Mar Soybean Oil (cents per lbs): -0.12¢ (-0.35%) to 33.01¢ USD or 41.06¢ CAD  
Mar Oats: +1¢ (+0.4%) to $2.505 USD or $3.116 CAD
Mar Wheat (Chicago): -3¢ (-0.4%) to $4.175 USD or $5.913 CAD
Mar Wheat (Kansas City): -5¢ (-1.15%) to $4.213 USD or $5.239 CAD
Mar Wheat (Minneapolis): -0.3¢ (+0.05%) to $6.125 USD or $7.618 CAD
Mar Canola: +0.2¢/bu / +$0.10/MT (+0.02%) to $11.138/bu / $491.10/MT CAD or $8.955/bu / $394.84/MT USD

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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