November 1 – Away with Those Bearish Signals

Good Morning!

Today’s Breakfast Brief looks getting out of the bearish month of October, what Argentina’s farmers are selling (and not selling), and how Canada and the US are impacted by changes to wheat trade in Africa and the Middle East.

 

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If you’re looking for this morning’s grain markets futures data, please scroll to the bottom of the Breakfast Brief. 

“We cling to our own point of view, as though everything depended on it. Yet our opinions have no permanence; like autumn and winter, they gradually pass away.”
– Zhuangzi (ancient Chinese philosopher)

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Away with Those Bearish Signals

Grain prices are mostly mixed this morning while the broader commodity market is mostly in the green.

(Just because it’s a new month doesn’t mean we should expect a rush of new money to enter the grain markets.)

A weaker Canadian Loonie continues to support canola prices as the January futures contract continues to hover around $520 CAD/metric tonne.

Corn prices are trying to rebound from a down day yesterday, while wheat prices maintain their stubborn ways of failing to catch a bid. [1]

Are the lows in wheat prices and corn prices?

As discussed in yesterday’s Grain Markets Today piece, there are a few analysts who think we’re close. $3.30 per bushel on the Chicago Board of Trade seems to be a number for corn prices that keeps getting discussed. [2]

Generally-speaking, basis tends to improve a bit after the harvest slog. And then worth considering is the carry available in today’s market to capture.

Therein lies the problem though: lots of people are looking to capture that carry. This trend means that the longer one waits to price their grain out, more bushels will get contracted for 2018 movement.

Intuitively, this puts pressure on prices further out from today’s date.

This includes soybeans (although the carry isn’t as great).

Some analysts are looking for the USDA to cut yields and for dry conditions in South America to support soybean prices. [3]

We do usually see a pick-up in November.

And with thoughts of never eating chocolate again after last night, the good news is that we’re out of the historically-bearish month of October for grain prices.

But it’s time to get the wheels turning on the next step in your grain marketing plan.

Post an offer on FarmLead for 1Q2018 movement for your wheat, corn, soybeans, or canola today, and capture some of the premium available.

African and Middle East Wheat Trade

Yesterday we published an Insights piece as to whether or not Egypt matters in wheat markets.

Simple answer: yes. But it’s a bit more complex than that, especially when it comes to trade with the U.S. and Canada.

It’s worth the read but Egypt has gotten more bearish on North American wheat with the rise of Black Sea competition.

Unlike Egypt, U.S. wheat is just getting back into the Morocco market. Last week, the government issued its second wheat tender of the year, looking for 30,000 MT of common wheat and nearly 330,000 MT of American durum wheat. [4]

As I discussed two weeks ago, Morocco has some hefty wheat import duties. However, the Government of Morocco just lowered its taxes for common wheat imports from 135% to 30%, effective December 1.

For durum wheat, the levy remains at 2.5% for August through May, but 170% for June and July.

Thanks to a new free trade agreement between Morocco and the U.S. though, their tax rate on incoming common wheat from the U.S. is 9.9%. Further, there are no taxes from August to May for U.S. durum wheat.

Thus far in the calendar year 2017, Canada has been the major supplier of durum wheat to Morocco. Nearly 560,000 MT have been sent there from the Great White North since January 2017.

A similar case can be made for wheat trade into Nigeria. The African country is expecting to import 5 million tonnes in 2017/18, 2 million of which are expected to come from the U.S. [5]

However, the cost to get U.S. wheat from American borders into Nigerian ports is roughly $32 USD/metric tonne.  That’s about 40% higher than what it costs Black Sea wheat to get delivered into Nigerian ports.

For Canadian wheat, freight costs are like that of America’s. However, estimates indicate that Nigeria will import just about 500,000 MT of Canadian wheat in 2017/18.

Argentine Farmers Not Bearish About Soybeans

A recent Bloomberg piece highlights the healthy growth in popularity of Argentina’s President, Mauricio Macri.[6]

Now having been in power for two years, the former businessman has scrapped wheat and corn export duties. As such, 13.5 million acres of wheat got planted in Argentina this year, the most in a decade.

As we discussed in yesterday’s Breakfast Brief though, the amount of wheat that will get exported out of Argentina is likely to be much lower than originally forecasted.

Why?

Heavy rains will impact the quality of this year’s crop.

Argentina’s farmers are still selling wheat and corn. What they’re not selling are soybeans.

And it’s hard to not consider that as a bearish factor.

Like corn and wheat, President Macri promised to scrap soybean export taxes when he came into power. What he didn’t realize was just how important those revenues were to the government.

However, starting January 1, export taxes will drop by 0.5% every month.

Combine that with a depreciating Argentinian Peso, and it makes more sense for Argentina farmers to continue to hold soybeans.

Perhaps it’s not just Brazilian farmers who are the most bearish thing about soybeans.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:15 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2883 CAD, $1 CAD = $0.7762 USD)

Dec Corn: +0.8¢ (+0.2%) to $3.465 USD or $4.464 CAD
Jan Soybeans: +2¢ (+0.2%) to $9.868 USD or $12.713 CAD
Dec Soybean Meal (per short ton): +0.10 (+0.05%) to $311.90 USD or $401.83 CAD
Dec Soybean Oil (cents per lbs): +0.14¢ (+0.4%) to 35.06¢ USD or 45.17¢ CAD  
Dec Oats: +2¢ (+0.75%) to $2.668 USD or $3.437 CAD
Dec Wheat (Chicago): -1.3¢ (-0.3%) to $4.173 USD or $5.376 CAD
Dec Wheat (Kansas City): -1.5¢ (-0.35%) to $4.15 USD or $5.347 CAD
Dec Wheat (Minneapolis): -0.8¢ (-0.1%) to $6.12 USD or $7.885 CAD
Jan Canola: +4.3¢/bu / +$1.90/MT (+0.35%) to $9.165/bu / $404.09/MT USD or $11.807/bu / $520.60/MT 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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