FarmLead Breakfast Brief
Thursday, October 27th, 2016
“I think that gravity sets into everything, including careers, but pendulums do swing and mountains do become valleys after a while, if you keep on walking.”
– Sylvester Stallone (US actor)
At 6:10 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3356 CAD, $1 CAD = $0.7487 USD)
Dec Corn: +3.3¢ (+0.9%) to $3.573 USD or $4.772 CAD
Jan Soybeans: +6.8¢ (+0.65%) to $10.278 USD or $13.727 CAD
Dec Soybean Meal (per short ton): +$3.80 (+1.2%) to $322.90 USD or $431.28 CAD
Dec Soybean Oil (cents per lbs): -5¢ (-0.15%) to 35.67¢ USD or 47.64¢ CAD
Dec Oats: +2.8¢ (+1.3%) to $2.178 USD or $2.908 CAD
Dec Wheat (Chicago): +4.5¢ (+1.1%) to $4.16 USD or $5.556 CAD
Dec Wheat (Kansas City): +2.5¢ (+0.6%) to $4.195 USD or $5.603 CAD
Dec Wheat (Minneapolis): +1¢ (+0.2%) to $5.265 USD or $7.032 CAD
Jan Canola: +5.4¢/bu / +$2.40/MT (+0.45%) to $8.84/bu / $389.77/MT USD or $11.807/bu / $520.60/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.16 USD or $2.885 CAD
Dec Milling Wheat: +2.7¢ (+0.4%) to $4.829 USD or $6.45 CAD
Grains this morning are all higher as rain in the Midwest has stalled harvest in a lot of places and commercial and speculative buying continues to run its course, pushing corn and soybeans above their 100-day moving averages. Canola is following beans but a Canadian Loonie back below 75 cents USD helped the January contract touch $520/MT in Winnipeg (still about $20 short of the contract high seen in June). Much like we saw in the rally in the spring when no other market was providing returns, managed money are looking for profitable opportunities and corn and soybeans are the most liquid / easiest ag markets to get in and out of quickly. Speaking of which, this morning, the Belgium government got its French-speaking southern district of Wallonia to agree to the CETA trade deal between the EU and Canada. Our friend Chuck Penner from Left Field Commodity Research suggests that quality issues in the Canadian crop are supporting lentils and chickpea prices right now, but does stop short of getting bullish on things (Australian & India crops are coming!). At these levels, no one should be walking away from the trading table, but instead looking to lock up some risk with a block sale (post that block on FarmLead today to ensure you’re getting the top price).
Speaking of walking, the US tends to walk away with the soybean export market in the 4th quarter of the calendar, as new inventories come off the field in the Northern Hemisphere and about half of America’s 50-52M tonnes of soybean exports are contracted in Oct-Dec. Thereafter, international buyers turn their attention back to South America for fresh supplies once the calendar flips. However, a recent sale of a few cargoes by Brazil to China is challenging this seasonal trend as it’s estimated that Brazil & Argentina still have about 10-12M tonnes of soybeans left to sell. Despite the US harvesting a record bean crop, Chinese demand continues to grow in-step, with the USDA expecting 86M tonnes of soybeans to get imported by the People’s Republic in 2016/17, a 4% jump year-over-year and +200% in the past decade.
Looking into the wheat market, expectations for Russia’s wheat exports in 2016/17 have dropped because of an appreciating Ruble and the trend doesn’t look like it’s slowing down, having gained 19%against the US Dollar this year. IKAR and SovEcon have both dropped their estimates of Russian wheat exports 1.6% and 1.3% each to 29.5M and 30M tonnes respectively. Other than the Ruble, the other factor to put blame on is Egypt and their zero-ergot policy, which was lifted in mid-September. Since then 720,000 MT of Russian wheat since then, including 180,000 MT in the most recent tender by Egypt. The GASC bought 420,000 MT of Russian and Romanian wheat at an average delivered price of $193 USD / MT ($7 CAD / bushel at today’s exchange), which would be their largest one-time purchase in almost 2 years. A clear indication that Egypt’s wheat buying game is behind schedule is that they’ve now bought 2.04M tonnes so far in 2016/17, 13.5% behind the 2.36M tonnes bought by this time in 2016/17.
While Russia’s share of global exports start to slow, who does it go to? Surprisingly, American wheat exports are expected to jump about 26% year-over-year to 26.5M tonnes, according to the USDA. This would bump them up to being responsible for 15% of global wheat exports, up from 12% and the highest in the past 3 years, but still a significant difference from the 29% it owned a decade ago and more than 50% in the 1970s. The increase in activity is mainly attributed to prices more competitive on the world market as U.S. wheat stocks by the end of the 2016/17 marketing year are likely be the highest in nearly 30 years. This in mind, with cash prices sitting around or below $3 USD / bushel, it’s more than expected that we’ll see less American acres with wheat on them in 2017. This is especially true if farmers are unable to negotiate cash rents, with recent surveys by ProFarmer and the Farm Journal suggesting about half of farmers will walk away from cash leases if the price isn’t lowered.
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.