Nov. 2 – Convincing Skeptics

FarmLead Breakfast Brief

Wednesday, November 2nd, 2016

“There is a kind of courtesy in skepticism. It would be an offense against polite conventions to press our doubts too far.”
– George Santayana (Spanish philosopher)

Good Morning!
At 7:05 AM CDT in the North American futures markets (*not cash prices*):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3362 CAD, $1 CAD = $0.7484 USD)

Dec Corn: +0.8¢ (+0.2%) to $3.498 USD or $4.673 CAD
Jan Soybeans: +1.3¢ (+0.15%) to $9.945 USD or $13.288 CAD
Dec Soybean Meal (per short ton): +$1.20 (+0.4%) to $310.70 USD or $415.15 CAD 
Dec Soybean Oil (cents per lbs): -0.2¢ (-0.05%) to 34.83¢ USD or 46.54¢ CAD 
Dec
 Oats: +2.5¢ (+1.3%) to $2.22 USD or $2.966 CAD
Dec Wheat (Chicago): +1¢ (+0.25%) to $4.153 USD or $5.549 CAD
Dec Wheat (Kansas City): unchanged at $4.138 USD or $5.528 CAD
Dec Wheat (Minneapolis): -0.5¢ (-0.1%) to $5.19 USD or $6.935 CAD
Jan Canola: unchanged at $8.714/bu / $384.23/MT USD or $11.644/bu / $513.40/MT CAD

Yesterday’s Winnipeg ICE Close

Dec Barley: unchanged at $2.16 USD or $2.885 CAD
Dec Milling Wheat: -5.4¢ (-0.85%) to $4.787 USD or $6.45 CAD

We’re in a period of low-grain prices…

With the recent rally, shouldn’t you ensure the best price?

Step your game up – post a block of your grain on FarmLead!

Convincing Skeptics

Grains are slightly in the green this morning with the U.S. Dollar down but canola is down hard on some farmer selling and the market pulling back on speculation. The USDA’s crush numbers for September show 138M bushels of soybeans were used, a 2.3 increase year-over-year, but that’s still 3.4% behind the 1.95 Billion bushels they’re forecasted for the whole of the 2016/17 crop year. CBH Group of out Australia has estimated that 15% of the wheat crop in Western Australia’s been lost to frost, meaning only 13M – 14M tonnes is expected to be harvested (previously was estimated as high as 17M tonnes).  Next week on November 9th we’ll get the USDA’s November W.A.S.D.E. installment and ahead of it, FC Stone increased its average corn and soybean yields to 175.3 bu/ac and 52.8 bu/ac respectively. With the U.S. crop basically off, eyes are turning more and more to South American crop potential and while the American Soybean Association may be biased in their production estimates, I’m in the camp with many others who are convinced that some weather premiums could get priced in over the next couple weeks but the export competition threat is real.

Some more in depth analysis from the University of Illinois suggeststhat American corn ending stocks will stay above 2 Billion bushels for both 2016/17 and 2017/18. This is because, even though planted U.S. corn acres are likely to decrease next year, global competition and the huge crop this year are making it tough to work through the gluttony of grain. That being said, increased demand of U.S. corn is already up this year as corn for ethanol is projected by the U.S.D.A. to increase by 1.3% year-over-year (YoY) while exports are expected to grow a healthy 17% YoY at an impressive 2.23 Billion bushels. Feed and residual use of corn is expected to grow by 9% YoY, but anything much greater than that will be pressured by lower livestock prices and competition with other feedstuffs (i.e. wheat…there’s a lot of it).

Digging into the good wheat, according to the North Dakota Wheat Commission’s annual quality report, the US hard red spring wheat crop was one of the best. Much like the 2015 crop, much of it averaged at US #1 grade (92% to be exact), with average weights of 61.6 lbs per bushels, including 81% coming in above 60 lbs. The average HVK levels were 77% (above the 5-year average) with more than 2/3s of the crop coming in above 75% HVK. Average protein for the American HRS wheat crop was 14.2% (based off 12% moisture), a strong divergence from the US winter wheat crops’ average protein of 11.2%. Apart from quality being relatively high, disease issues are not a significant issue in the U.S. wheat crop, whereas vomitoxin and fusarium continue to looked for by all wheat buyers (on FarmLead.com or otherwise).

Coming back to the feed debate, Karen Braun of Reuters points outthat the spread between corn and Chicago SRW wheat prices are the lowest they’ve been in the last couple of years and continue to suggest that more wheat should be going into the livestock rations. However, the problem is that the aforementioned swelling of U.S. corn inventories makes it more difficult for wheat to compete. Globally, the U.S.D.A. does expect feed demand for wheat to increase 6% this year, but in the U.S., it seems that corn continues to win out. Using history as an indicator though, Braun suggests that corn and feed wheat prices will likely converge (either corn must see its price go higher or wheat must come down) and her expectation is in the second half of the marketing year, feed wheat demand (and prices will increase). However, with crop conditions in South America relatively benign (although there is some wet weather in Argentina) and La Nina unlikely to prove much of a threat, today I’m not so convinced that it’s feed wheat prices that must move.

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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