FarmLead Breakfast Brief
Tuesday, October 18th, 2016
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
– F.A. Hayek (Austrian economist)
At 6:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3057 CAD, $1 CAD = $0.7659 USD)
Dec Corn: +0.8¢ (+0.2%) to $3.548 USD or $4.632 CAD
Jan Soybeans: unchanged at $9.86 USD or $12.874 CAD
Dec Soybean Meal (per short ton): +$2.10 (+0.7%) to $305.60 USD or $399.01 CAD
Dec Soybean Oil (cents per lbs): -41¢ (-1.15%) to 35.03¢ USD or 45.74¢ CAD
Dec Oats: -0.8¢ (-0.4%) to $1.993 USD or $2.602 CAD
Dec Wheat (Chicago): -3.3¢ (-0.75%) to $4.205 USD or $5.49 CAD
Dec Wheat (Kansas City): -1.8¢ (-0.4%) to $4.203 USD or $5.487 CAD
Dec Wheat (Minneapolis): -1¢ (-0.2%) to $5.28 USD or $6.894 CAD
Jan Canola: -3.4¢/bu / +$1.50/MT (-0.3%) to $8.716/bu / $384.33/MT USD or $11.381/bu / $501.80/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.193 USD or $2.885 CAD
Dec Milling Wheat: unchanged at $4.801 USD or $6.314CAD
Comparing The Macros
Grains this morning are mostly quietly lower after a few days of healthy gains as the moves to the upside could not last forever. Oilseeds got a good push higher yesterday on some support from palm oil in Asia (as discussed in yesterday’s Breakfast Brief), but also continued good export demand as 92.2M bushels of US soybeans were inspected last week, keeping things above the USDA’s estimated export pace. US corn and wheat inspections of 34.5M bushels and 16.6M bushels are both bullish numbers, especially for corn as that number is 80% higher than a year ago! Yesterday’s USDA crop progress report showed us that 46% of the US corn harvest and 62% of the soybean harvest are complete, both relatively in line with the 5-year average but behind last year’s early harvest. On the flip side, 72% of US winter wheat has been planted with 47% of fields now emerged, both figures of which are in line with both what we saw last year and the average of the past 5 years. Things are pushing higher yes but rally saturation effects take effect as underlying macroeconomic factors (fundamental / big picture things like the fact that there’s lots of grain in the world) will make every incremental percentage point gain that much more difficult.
As Indian farmers become more concerned about whether or not they have access to water, many are diversifying away from more moisture-intensive crops like rice and wheat to less-thirsty pulses, corn, oilseeds, and even vegetables. Over the past 30 years, groundwater use has accelerated while rainfall has been more sporadic and not refilling wells. This is especially true in the major ag-producing state of Punjab where well water depth has fallen from about 10 metres to 20, and in some places 30. The challenge in the switch to other crops though is that farmers are not guaranteed prices for pulses or corn like they are for wheat and rice (staples for the 2nd-most populated country in the world after China). If the Indian government does have some common sense (and someone at the top level who understands agronomy), you may see India become more self-sufficient in pulse needs (including this year where a big crop is expected).
Next door in China, there’s lots of excess grain available, thanks to various government policies. As per the Agriculture Economic Institute, China holds 50% of total global corn inventories, 45% of all wheat carryout, and almost 20% of worldwide soybean stocks(worthwhile to check out some of the charts in the link). That being said, looking at the bigger picture, Ag Economists does a good job of pointing out that global corn ending stocks to finish 2015/16 were sitting at about 22% of total use/consumption, above where they’ve been the past few years but still below the 25% – 30% seen in the 1990s. Similarly sitting at decade highs is wheat, but it’s much more “burdensome” at nearly 35% (which is part of our rationale here at FarmLead that any significant rallies will be kept in check). The worldwide stocks-to-use ratio is now sitting closer to 24% without any major weather or production hiccups.
The underlying story here is that supply and demand have both been trending higher over the past couple of decades. However, farming practices used here in North America have been quickly adopted in South America and the Black Sea, leaving us with production growing faster than demand, hence the glut in the price. With prices lower, and margins tight both on the farm and in corporate Big Ag offices,diversifying risk and leveraging the right partners are becoming important. If you haven’t noticed yet in reading the Breakfast Brief, here at FarmLead we are strong believers in managing and diversifying risk. It’s not in my interest or yours to talk about things like how many millions of dollars are in the field still like some analysts have done recently, because that value is arbitrary on a daily basis. What’s relevant is what threat does it put on the bears and bulls of the market, or, more simply, what sort of upside potential is there versus downside risk? We know already this week that farmers on FarmLead are making good sales on small red lentils, large green lentils, canola, flax, soybeans, and hard red spring wheat. Manage your risk against the macro factors and events and post on FarmLead today.
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.