Nov 17 – Tightening The Leash

FarmLead Breakfast Brief

Thursday, November 17th, 2016

“If you give me enough time, enough leash, I can become pretty reasonable.”
– Michael Shannon (US Actor)

Good Morning!
At 7:00 AM CDT in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3423 CAD, $1 CAD = $0.745 USD)

Mar Corn: +1¢ (+0.3%) to $3.475 USD or $4.664 CAD
Jan Soybeans: +2.8¢ (+0.3%) to $9.885 USD or $13.268 CAD
Jan Soybean Meal (per short ton): +$0.70 (+0.25%) to $311.40 USD or $417.99 CAD 
Jan Soybean Oil (cents per lbs): +0.12¢ (+0.35%) to 34.48¢ USD or 46.28¢ CAD 
Mar
 Oats: +2.3¢ (+0.95%) to $2.348 USD or $3.151 CAD
Mar Wheat (Chicago): +3.3¢ (+0.75%) to $4.175 USD or $5.604 CAD
Mar Wheat (Kansas City): +1.5¢ (+0.35%) to $4.223 USD or $5.668 CAD
Mar Wheat (Minneapolis): +3.8¢ (+0.7%) to $5.225 USD or $7.013 CAD
Jan Canola: +5¢/bu / +$2.20/MT  (+0.45%) to $8.70/bu / $383.60/MT USD or $11.678/bu / $514.90/MT CAD

Yesterday’s Winnipeg ICE Close

Mar Barley: unchanged at $2.182 USD or $2.928 CAD
Mar Milling Wheat: +2.7¢ (+0.45%) to $4.724 USD or $6.151 CAD

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Tightening the LeashGrains this morning are rebounding from their down day yesterday as they pulled back from their morning highs 24 hours ago as the U.S. Dollar hit a 14-year high. Despite the Canadian Loonie also edging up a bit yesterday, canola bumped up higher on the snow and rain that have has basically closed the window to finish Harvest 2016 in Western Canada. It’s been suggested that only 14M tonnes of canola will get harvested this fall, about 4M shy of the projected 18M tonnes but the Canadian Canola Growers Association is giving farmers a great opportunity to get cash advances for unharvested canola (take advantage!). We definitely know farm income and margins have fallen since 2012 (literally halved for US farmers, to be more precise), which is why we’re starting to see a few more banks getting worried about farms’ working capital and are tightening the lending leash a bit as things are getting a bit riskier.

What we do know is that in this downturn, farmers spending less on machinery and trying to save more on inputs, especially fertilizer and fuel (helpful that prices for these 2 variables are substantially lower than what they were 3 years ago!). Speaking of fuel, yesterday’s US ethanol numbers out from the EIA suggests that production is tracking 4% higher than where it was a year ago, making things in line with the U.S.D.A.’s corn-for-ethanol use demand. That being said, University of Illinois economists think that, although ethanol and exports demand are going to be higher this year, it’s actually going to be the feed market that will dictate where prices go from here. The rationale here is that export demand will likely shift and there’s basically a cap (AKA blend wall) as to how much ethanol can be blended in with gasoline.

On that note, with harvest nearing its end in the Midwest, basis is improving as grain has been stored away (“Lock the bins!”) and/or already found a contracted home. One thing to note is that as the U.S. Dollar strengthens, it’s making it harder for traditional international buyers of U.S. grains to pay for it. This is why, if the American Greenback maintains its strength, you can expect that options in South America, Europe, and even Australia and Canada become much more attractive! As such, in their morning note, Allendale Brokers points out that Mexico is pulling back on U.S. grain purchases as the peso continues to pull back against the USD. Further, the U.S. Dollar could gain even more should the Federal Reserve increase interest rates in December, which looks like it will happen! More simply put, a loose leash has led to some strong export numbers thus far, but a tightening of it, thanks to the stronger USD, will possibly give us an ugly look (from the perspective of prices) of really how big this year’s record crop is.

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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