FarmLead Breakfast Brief
Friday, October 28th, 2016
“Like crying wolf, if you keep looking for sympathy as a justification for your actions, you will someday be left standing alone when you really need help.”
– Criss Jami (US philosopher)
At 6:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3383 CAD, $1 CAD = $0.7472 USD)
Dec Corn: -0.5¢ (-0.15%) to $3.57 USD or $4.778 CAD
Jan Soybeans: +1.5¢ (+0.15%) to $10.265 USD or $13.738 CAD
Dec Soybean Meal (per short ton): -$1.70 (-0.5%) to $325.90 USD or $436.16 CAD
Dec Soybean Oil (cents per lbs): +31¢ (+0.9%) to 35.42¢ USD or 47.40¢ CAD
Dec Oats: -3.5¢ (-1.5%) to $2.285 USD or $3.058 CAD
Dec Wheat (Chicago): -1¢ (-0.25%) to $4.135 USD or $5.534 CAD
Dec Wheat (Kansas): -0.8¢ (-0.2%) to $4.163 USD or $5.571 CAD
Dec Wheat (Minneapolis): +0.5¢ (+0.1%) to $5.26 USD or $7.04 CAD
Jan Canola: +2.3¢/bu / +$1/MT (+0.2%) to $8.821/bu / $388.92/MT USD or $11.805/bu / $520.50/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.156 USD or $2.885 CAD
Dec Milling Wheat: unchanged at $4.82 USD or $6.45 CAD
Grains this morning are mostly lower and pulling back from some recent multi-month highs on profit-taking and US harvest progress looking promising with relatively good weather over the next week or so in the Midwest. US export sales for last week continued to be on or above pace with what the USDA is expecting, especially soybeans. The Saskatchewan crop report out yesterday showed us that in the past 4 weeks, only an additional 3% of the crop has been taken off. Oats were on a rocket yesterday, climbing a couple dimes on the futures board in Chicago as the slower Canadian harvest is finally being noticed (it’s time to post your next target on FarmLead). The Ukrainian Ministry of Agriculture is expecting winter wheat acres to fall for the 2nd straight year to 15.2M acres, down about 8% from the 16.6M seeded last fall. The decline is attributed to unthankful weather with a dry September and then rains in October, and, when you add in at least 5-10% winterkill, total harvested acreage could come in around 13.8 – 14.6M acres. On the other side of the globe, rains in Argentina are causing some concerns for the larger wheat crop planted this year, but it’s a little early to crying wolf to Brazil to tell them the 3M – 4M tonnes of Argentinian wheat they’re looking for this year won’t be available.
The International Grains Council recently raised their global production estimates, expecting global grain inventories to end 2016/17 at nearly 500M tonnes, up 5% year-over-year (YoY). This includes global corn carryout climbing to a record 221M tonnes, up 6% YoY thanks to a record 1.035 Billion tonnes of production worldwide (+7% YoY). More specifically, the IGC is flagging that China will hold onto basically about 40% of this carryout, or about 200M tonnes, While minimum support prices for corn are gone, the state purchase price for Chinese wheat will stay unchanged at ~$350 USD / MT ($9.50 USD or $12.75 CAD / bushel).
As such, there’s no real incentive for Chinese wheat growers to switch into something else, like soybeans (although in some areas, farmers are being paid to plant beans)! This is a sign of poor policy planning by the People’s Republic as, while domestic Chinese wheat demand has stayed flat for the past decade (and available supply in storage has tripled over the same time), Chinese soybean imports have grown 200% (as mentioned in yesterday’s Breakfast Brief). However, a 20-year analysis of China’s soybean trade by the University of Illinois shows that imports’ growth is slowing, but demand from other countries is helping offset the decelerating pace, as well as the increase in global soybean production. On that note, the IGC also points out that global carryout for soybeans will come in at 32.7M tonnes (historically comfortable level) and also point out that planting in Brazil is progressing nicely, but forward sales of the crop have been slow thanks to lower domestic prices year-over-year.
While we’re seeing some healthy moves for soybean prices, Societe Generale is the first major analyst to come out and say that this move won’t last forever. Good export demand has helped but the bank doubts that this slight uptick will offset the record yields in the US. Add in that more support for Chinese soybean acres increasing and little expectation that La Nina will have any legitimate effect on the South American crop, SocGen is expecting soybean prices to fall back below $9 / bushel on the Chicago board before the end of 2016 (yes in the next 2 months). Tregg Cronin from Halo Commodities points outthat despite the futures market going higher, the cash market is sinking (thanks to widening basis) and funds are unwinding their long soy oil – short soymeal spreads, both bearish indicators. While we’re not crying wolf here, we are cognizant at, in June, how quickly the market gave up its gains made over the previous 2 months (and the rally only lasted that long as it needed to know the North American crop size potential).
Have a great weekend!
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.