FarmLead Breakfast Brief
Thursday, October 6th, 2016
“In terms of long-term durable storage, the human mind, paradoxically, is pretty good, but very fragile.” – Jonathan Nolan (British screenwriter)
At 7:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3187 CAD, $1 CAD = $0.7583 USD)
Dec Corn: -1.3¢ (-0.35%) to $3.465 USD or $4.569 CAD
Nov Soybeans: -4.8¢ (-0.5%) to $9.52 USD or $12.554 CAD
Dec Soybean Meal (per short ton): -$2.30 (-0.75%) to $303.10 USD or $399.71 CAD
Dec Soybean Oil (cents per lbs): +0.07¢ (+0.2%) to 32.91¢ USD or 43.40¢ CAD
Dec Oats: -0.5¢ (-0.25%) to $1.835 USD or $2.42 CAD
Dec Wheat (Chicago): +2.5¢ (+0.6%) to $4.075 USD or $5.374 CAD
Dec Wheat (Kansas City): +2¢ (+0.5%) to $4.17 USD or $5.499 CAD
Dec Wheat (Minneapolis): +3.8¢ (+0.7%) to $5.283 USD or $6.966 CAD
Nov Canola: +1.6¢/bu / +$0.70/MT (+0.15%) to $8.043/bu / $354.66/MT USD or $10.607/bu / $467.70/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.188 USD or $2.885 CAD
Dec Milling Wheat: +2.7¢ (+0.45%) to $4.747 USD or $6.26 CAD
Grains this morning are mostly lower with wheat finding some legs after a strong day yesterday. The cereal was the big winner as it finished up almost 3% on short-covering and weather concerns on the remaining crop standing in North America that has been getting rains or, as was the case in parts of Western Canada (mainly Saskatchewan), snowed on. Corn followed wheat, with the December contract closest at its highest level since mid-July and almost touching $3.50/bushel on the Chicago board but it looks the move higher was also a case of short-covering. That being said, for those areas in the western cornbelt that are getting combined, big yields continue to be reported with 240 – 250 bu/ac corn and 65-70 bu/ac soybeans. At the current levels, soybeans are profitable for most farmers so one could expect corn to win the war of storage on the farm in the US, with beans getting sold off the combine.
In yesterday’s Breakfast Brief, I talked a bit about some of the political headwinds yet profitable agricultural economic activity in South America, and the sentiment was echoed with Monsanto’s most recent earnings report. The seed company is expecting at least 111M acres of South American farmland will get planted with its Intacta soybeans (Buenos Aires Grains Exchange estimated the 2016/17 soybean crop at 53M tonnes, vs 56M tonnes the past year). Monsanto also has expectations that Argentina will see even more than the 25% increase in corn acres this year. Monsanto also doubled down on its basis for the deal with Bayer, trumpeting the combining of a seed and agrochemical company to help create more innovation. As Monsanto CEO Hugh Grant put it bluntly, “The irony is (we’re) in a tough time in agriculture and there’s never been a greater need for innovation. That’s the reality of the marketplace we’re in. Innovation, quite simply, is the best way to increase productivity to meet projected demand.”
As Karen Braun from Reuters points out, what we do know is that corn and soybeans both fell short in terms of full-year exports in 2015/16 – by 4M bushels for soybeans and 20M bushels for corn! A record 52.7M tonnes of soybeans got shipped out this past year but the 48.1M tonnes of corn was mediocre at best (#19 on the list out of the past 50 years). In the current marketing-year-to-date, soybean sales are sitting at their 3rd-best levels in the past decade while corn sales thus far are just second to the pace seen in 2007. University of Illinois ag economist Darrel Good is currently suggesting that now may be a good time to consider some soybean sales of the 2017/18 crop! With corn prices likely having a tough time getting back to $4/bu and demand for soybeans growing faster than corn’s demand, we may see even more acres of the oilseed in 2017 get planted in America. It’s not a bad idea, but it may be a bit of a premature call in my opinion as any shortfall in South American production could easily see another big rally.
One thing that could pressure both corn and soybean prices is China’s ag policy reforms as they’re trying to rid themselves of their ridiculously-large stockpiles, while also subsidizing more soybean acres. Between removing the minimum price support program for corn and holding weekly auctions, it’s becoming tougher and tougher for imports in the form of DDGS or soymeal to compete with the cheapest domestically-priced corn in the past decade (down 12% since the price support was removed in late March to $208 USD / MT). As such, US DDGs exports were down 44% in the first 8 months of 2016 compared to the same period in 2015. While China battles internal versus domestic trade dynamics, the EU is opening up its doors to more duty-free Ukrainian grain, namely corn and wheat. On that note, Europe may be looking for higher quality wheat after the French crop disappointed this year.
With some late rains and now snow putting pressure on the North American crop, money signs seem to be getting painted on wheat bins of decent quality. Chatter of $6 USD and $8 CAD per bushel wheat has already started but I think it’s overblown right now. Between the carryout from last year and relatively big yields this year that still likely produced a proportionally-large amount, there will be lots of resistance against a major wheat rally. That being said, our call continues to look to contract lower-quality wheat and other feed grains (post on FarmLead today!) while storing the #1s and #2s in your bin yard.
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.