October 2 – Grain Markets Optimism in October?

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Grain Markets Optimism in October?

Grain markets are in the red this morning as we turn the calendar into a new trading month and quarter.

As we reviewed in our September 2017 Grain Markets Review over the weekend, grain prices were mixed in September. We’ll look deeper into the performance later, but a combination of harvest pressures and bearish data tended to trump any bullish demand sentiment.

Headlines continue to swirl around ethanol heading into October.

A lot of buzz is swirling about EPA and its plans to change some of the factors around the ethanol mandate. [1]

This policy change is dividing Big Oil and Big Ag but ethanol producers are pushing back, and Corn Belt politicians are joining them. [2]

Overall, while September started on the highs, October seemingly wants to start on the lows. Can we only go up from here?

September 2017 Grains Markets Performance

Canola was the biggest loser of the complex in September but only dropped 1.55% from where it started. The decline was mainly owned by last week’s losses of 0.65%.

For the quarter, canola lost 7.25% on the Winnipeg ICE futures board.

Oats was the biggest winner this month, up 5.8%. However, from the start of July through today, the cereal lost 5.3% on the futures board.

Technically, corn saw a nice pop in the final two days of August which made a start to September a bit elevated.

As our friends at AgChieve note, nearby corn futures did gain in September, but it will be challenging to see that push continue as we move into October. The Chicago-traded coarse grain lost 3.6% for the quarter though.

Corn-prices-on-the-rebound
Corn Prices Recover in September but Face Resistance in October

 

Soybeans gained 2.4% over the course of September, helping the oilseed move up 5.1% for the quarter.

Chicago soft red winter wheat improved 3.35% since the end the of August, despite a bit of a bearish report on Friday.

However, wheat prices started July on fire. December Chicago wheat has lost nearly 18% from its price at the beginning of June.

Kansas hard red winter wheat fared worse, dropping more than 24% since the start of the third quarter. For the month though, it gained 1.5%, but it would’ve been more if it didn’t lose 1.7% in the last week of September.

Finally, Minneapolis spring wheat took the biggest hit of the wheat complex this week as the December contract lost 2.3%.

That echoes the 2.6% it lost for September but pales to the quarterly loss of 18%. It lost 3.1% on Friday, September 29th alone because of the bearish USDA production and stocks report. [3]


Friday’s USDA Numbers

Let’s dig into the numbers from last week.

The market was expecting the USDA to show 389 million bushels of spring wheat production in its Small Grains Production Report. However, the number came in at 416 million bushels.

This figure is still a decline in production of more than 15% year-over-year but less than what the market was anticipating, hence the decline in Friday wheat prices.

For durum wheat, the USDA thinks that American output is down 47% year-over-year to just 55 million bushels (or just under 1.5 million tonnes if you’re using GrainUnitConverter.com).

The market was expecting 50 million bushels.

Maybe that drought was overblown? [4]

The USDA isn’t helping any of those most affected by it, unfortunately.

Moving forward though, we’re still cognizant of the USDA’s report in December of how many wheat acres didn’t get harvested in the Northern Plains but baled instead.

Total American wheat inventories to carryover from 2016/17 to 2017/18 will sit at 2.253 Billion bushels. This was about 33 million bushels (or about 900,000 MT) above what the market was expecting. This is where the bearish numbers ended though.

The USDA said that corn inventories as of September 1st would be a 30 year high. At the beginning of the 2017/18 calendar, the USDA estimated nearly 2.3 billion bushels in storage. This was about 55 million bushels below the pre-report estimate from traders.

It is, however, about 32% higher than where we started the 2016/17 marketing year. This echoes the on-farm holdings of corn, up 25% compared to a year ago at 787 million bushels. [5]

Especially worth noting though is that there is 2.5 times as much corn sitting in North Dakota as there was a year ago. More specifically, there is four times as much corn sitting on North Dakota farms.

Given some of the action we’ve seen on the FarmLead Marketplace, we know that there are some bushels heading north into the Canadian feed supply chain. Veteran trader Tommy Grisafi of Advance Trading says that end-users should buy as much corn as they can! [6]

Corn used in feed improved in the third calendar quarter, so we’re optimistic that that trend will continue into the winter months. [7]

For soybeans, the USDA says that 2017/18 will start with 301 million bushels of soybeans in America. That’s up 53% from last year’s carryover, but it is 38 million bushels below the pre-report estimate.

There are also nearly 88 million bushels of soybeans stored on farms across America. That’s 112% more than where we started the 2016/17 marketing year.

Despite the big jump in available supplies year-over-year, soybeans prices on the futures board are still very similar to where they ended the September 2016. Where you see these increased stocks factored is wider basis levels.

As we look to the long term, there is still some bullish bias on the demand side that we’re not discounting, namely soy oil and soy meal. [8]

Turning Our Grain Marketing Focus Forward

As we head into October, we get into the thick of corn and soybean harvest. The optimism that being able to take that crop off translates into optimism for better grain prices as well.

It’s important to stay rational as we get into the fall markets. [9]

Taking a balanced approach is important but understanding that if the market moves higher, that move should be rewarded.

If I’m being honest, the world doesn’t care if you ever sell your grain, and it won’t wait for you to make up your mind.

If I’m even more honest, grain buyers around you don’t care either – they are often hedged and have their profit margin locked in regardless of where you pull the trigger.

If you read the last section too quickly, there’s still a lot of grain out there. If we see a good price, we should take it. Sell into strength, and as the price moves, that sale should happen because it’s a good price (relatively speaking) or it’s a profitable price!

Regardless, we’re optimistic that there will be some good sale opportunities in oilseeds and higher quality wheat markets this month, and more broadly, this quarter.

To growth,

Brennan Turner
President/CEO | FarmLead

1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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