FarmLead Breakfast Brief
Thursday, October 13th, 2016
“I know not why there is such a melancholy feeling attached to the remembrance of past happiness, except that we fear that the future can have nothing so bright as the past.”
– Julia Ward Howe (US poet)
At 7:50 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3247 CAD, $1 CAD = $0.7549 USD)
Dec Corn: +1¢ (+0.3%) to $3.38 USD or $4.477 CAD
Nov Soybeans: +1.8¢ (+0.2%) to $9.473 USD or $12.548 CAD
Dec Soybean Meal (per short ton): +$2.40 (+0.8%) to $298.90 USD or $395.95 CAD
Dec Soybean Oil (cents per lbs): –0.19¢ (-0.55%) to 33.15¢ USD or 43.91¢ CAD
Dec Oats: +1¢ (+0.5%) to $1.99 USD or $2.636 CAD
Dec Wheat (Chicago): +5.3¢ (+1.3%) to $4.02 USD or $5.325 CAD
Dec Wheat (Kansas City): +4.8¢ (+1.2%) to $4.033 USD or $5.342 CAD
Dec Wheat (Minneapolis): +3.3¢ (+0.6%) to $5.25 USD or $6.955 CAD
Nov Canola: +5¢/bu / +$2.20/MT (+0.45%) to $8.162/bu / $359.86/MT USD or $10.811/bu / $476.70/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.178 USD or $2.885 CAD
Dec Milling Wheat: -2.7¢ (-0.45%) to $4.705 USD or $6.232 CAD
Grains this morning are mostly in the green as the complex works on recovering from some bigger stocks than expected in yesterday’s WASDE report. In the USDA’s October installment of their world agricultural supply and demand estimates (WASDE), most things came in below pre-report expectations for yields and production but larger harvested acres created bigger carryout numbers, keeping the bulls in the pen. Soybeans dropped below $9.50/bu in Chicago while corn fell back under $3.40 and Chicago wheat ended up sitting back below a $4/bu handle (but has since climbed back above $4/bu this morning). Canola got a push higher yesterday to new 3-month highsthanks to a lower Canadian Loonie and the fact that about 20% of the Western Canadian crop still hasn’t been combined, producing some premiums but frustration for those with stuff still to get harvested.
Coming back to the report, average U.S. soybean yields were pegged at a record 51.4 bu/ac (market expected 51.5), for a 4.27B bushel crop (or 116.2M tonnes and +9% year-over-year). There’s more than a few analysts who believe that the final yield number will come in above 52 bu/ac by the January WASDE report, but the shots fired in this report really came in the form of harvested acreage also climbing to a record 83M acres (+2% from last year). On a state-by-state basis, Nebraska and Illinois both have average yields forecasted at over 60 bu/ac, with other big gains seen in the Dakotas. On the flip side of the equation, demand continues to show some healthy numbers, especially exports, which are expected to be a record 2.025B bushels in 2016/17, meaning a domestic carryout of 395M bushels, still under the psychologically-significant 400M bushel handle. Total worldwide production is seen at a record 333.2M tonnes, including 102M tonnes from Brazil and 57M from Argentina, while Chinese imports stayed flat at 86M tonnes for global ending stocks to climb 2.5% YoY to 77.4M tonnes.
For corn, average U.S. yields have been set at 173.4 bu/ac (market expected 173.5) for a record crop of 15.06B bushels (+33% YoY) with total area harvested set at 86.8M acres (+8% YoY). State-by-state, most areas saw their average yields fall month-over-month, in line with the national average, but still some high numbers in Minnesota (186), Nebraska (181), Iowa (198), and Illinois (202). Exports for corn were also raised to a 9-year high of 5.3B bushels (or 56.5M tonnes), but the size of the crop is forcing the USDA’s hand in that they’ve pegged average 2016/17 US corn prices at $2.95 – $3.55. As for wheat, US inventories by the end of 2016/17 were set at 1.14B bushels, up from 1.1B bushels last month and +17% YoY. Accordingly, average U.S. prices this marketing year have been set by the USDA at $3.50 – $3.90/bushel, a significant drop from last year’s average of $4.89/bu.
However, a study by Ohio State University suggests that when accounting for inflation, US wheat prices this year are the worst in 50 years. Further, we know that competition continues to increase globally as North American share of global exports have dropped from 70% to 30% in the past 35 years. With HRW wheat prices across Kansas currently ranging from $2.58 – $2.90 USD / bushel, creating the suggestion by Kansas State University that farmers will need at least a 60 bu/ac crop to break even! Most agree that the best way to improve margin is on the expenses side of the balance sheet, which mainly includes negotiating different land-rent agreements. Further, with the big crop coming off in all 3 major row crops, storage is becoming the glaringly other obvious challenge. If one is running out of bin space, then the really only options are to pile it on the ground or buy a call option and own the paper in order to eliminate the downside risk of the futures markets. Overall, the depressed state of the market is what it is and complaining and complaining is not healthy. A combined approach of solid grain marketing risk management plan, consistent conversations with your lenders / accountants, and patience are pretty important.
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.