October 23 – Grain Prices Under Pressure

More supply is putting pressure on grain prices to climb off of harvest lows.

“Discipline is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.”
– George Washington (1st US President)

Good Morning!

At 5:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2509 CAD, $1 CAD = $0.7994 USD)

Dec Corn: +0.3¢ (+0.05%) to $3.448 USD or $4.353 CAD
Jan Soybeans: +0.8¢ (+0.1%) to $9.90 USD or $12.502 CAD
Dec Soybean Meal (per short ton): -0.60 (-0.2%) to $316.50 USD or $399.67 CAD
Dec Soybean Oil (cents per lbs): +0.16¢ (+0.65%) to 34.32¢ USD or 43.34¢ CAD  
Dec Oats: -1.8¢ (-0.65%) to $2.68 USD or $3.384 CAD
Dec Wheat (Chicago): +0.3¢ (+0.05%) to $4.235 USD or $5.348 CAD
Dec Wheat (Kansas City): +0.8¢ (+0.2%) to $4.235 USD or $5.348 CAD
Dec Wheat (Minneapolis): +2¢ (+0.35%) to $6.133 USD or $7.744 CAD
Jan Canola: +5.7¢/bu / +$2.50/MT (+0.5%) to $9.213/bu / $406.25/MT USD or $11.635/bu / $513/MT CAD

Friday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.552 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.013 USD or $7.593 CAD
Dec Milling Wheat: -2.7¢ (-0.45%) to $4.979 USD or $6.287 CAD

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Supply Numbers Grow More Bearish

Grain markets are in the green this morning as the market tries to swing back up from its lower Friday close last week.

It’s an early morning start for me as I’m on a plane to Calgary for some meetings to discuss FarmLead but also the direction of some Canadian crops.

Except for oats and canola prices, futures markets ended in the red last week.

This was surprising for corn. Despite bullish optimism regarding President Trump’s focus on the EPA, nearby corn prices couldn’t seem to break above $3.50 USD / bushel, it seems. [1]

While the EPA’s is muddling the ethanol game, a bright spot is the feed demand of corn.

As Garrett discussed on Friday afternoon, U.S. livestock herds – namely cattle and hog – are expanding.

This trend means more feed demand.

Basically, “giving a cow” might, in fact, be bullish for corn prices.

For wheat prices, values on the futures board are falling back down to levels of support, especially Kansas City hard red winter wheat, which had a tough week.

One of the factors in this decline last week that we noted in Grain Markets Today is that SovEcon raised its Russian wheat export forecast by 1.5 million tonnes.

The firm believes that Russia could export 33 million tonnes of wheat in 2017/18.

This figure would be basically in line with the growth of Russian wheat exports over the past 20 years, as we explained back in September.

Our friends at AgChieve noted the impact of Russia and other bearish sentiments on the wheat complex.

 

kansas-city-hard-red-winter-wheat-price-resistance
Kansas City HRW wheat prices are testing lines of support

Grain Prices in Australia Going Forward

As we noted last week, the USDA’s attaché in Ukraine continues to be bullish on grain production and the nation’s exports.

In Australia, the USDA’s attaché recently downgraded the crops again to be more in line with private estimates. [2] The agency projects that Aussie wheat production will hit 20 million tonnes. That said, domestic wheat prices in Australia have increased nearly 40% year-over-year.

This uptick has led to a lot of wheat flowing from southern regions to the north, where prices are more attractive. [3]

Wheat ending stocks in Australia are expected to fall back significantly from 2016/17’s 8.2 million tonnes. Specifically, a 60% drop is expected by the end 2017/18 at nearly 3.4 million tonnes left over.

For barley, Australian production is pegged at 8 million tonnes.

This figure is due to drier growing conditions and lower acreage expectations. Aussie feed barley prices in early 2017 hit a 15-year low. However, by September, prices were sitting back closer to about $235 USD per metric tonne (or about $5.10 USD and $6.40 CAD per bushel at the time).

This figure represents a 50% jump year-over-year.

The higher price is somewhat aligned with the expectation from the Canberra USDA attaché that Australian barley 2017/18 ending stocks will be 54% lower than 2016/17 at just under 700,000 MT.

Brazilian Farmers Sell Corn Instead of Soybeans

Ahead of today’s crop progress report, we have to continue to focus on the global markets.

In Brazil, both the USDA and the USDA’s attaché believe that Brazil harvest will come in as a 95 million-tonne corn crop in 2017/18. [4]

That figure is just 3% below the record production of 2016/17.

Despite the small decrease in production, Brazilian corn exports in 2017/18 are expected to match the 2016/17 record at 35 million tonnes.

With that in mind, the USDA attaché thinks corn ending stocks in Brazil should climb 3%.

Brazilian farmers are opting to sell corn at or below break-even prices. They’ve been hoarding soybeans and hoping that higher prices will come in the future.

This trend is one of the main reasons we continue to think that Brazil is the most bearish thing about soybeans.

Moving forward, here are some ideas of how to play soybean prices moving forward.

For corn, we have heard more chatter in Brazil about the government investing in more ethanol plants.

However, as noted in another Brazil attaché report from September, the main hindrance to this happening is geography. [5]

Ethanol production makes the most sense in the areas where there is demand, but most of the corn is grown in areas where it’s a lot of population (and accordingly, not a lot of demand).

Where Are Grain Prices Going?

Over the weekend, we dug into where the prices of pulses are going.

What is definitive is that we are not going to see lentils prices and peas prices like we did the last 2 years.

More specifically, there is some optimism regarding the prices of green lentils and yellow peas.

For other crops, the status quo seems more likely to prevail.

The University of Illinois says that the prices that we’ve seen the last few years are likely to continue. [6]

Through to 2021, $4 corn is not on the radar of the USDA, the University of Missouri’s FAPRI think tank or the Congressional Budgetary Office.

Currently, the average futures price sits at just $3.89 per bushel.

For soybeans, $10 still doesn’t appear to be on the horizon according to these same three agencies, but it sure is close.

As we look toward the 2018 calendar, we have to stress the importance of patience and less tunnel-vision in this market.

It’s very easy right now to sell your grain out of frustration. But it’s not super smart to sell grain for immediate movement at a cheap value when there are an alternative, deferred delivery options on the table.

To find those options, it will indeed require a bit more work. Of course, it’s equally easy to hold onto your grain with unrealistic expectations of future price turnarounds. Heck, for a lot of crops, we’re basically at the same price we were at a year ago!

Remember, our goal here at FarmLead is to provide you with the tools necessary to help you maximize your gains and time the grain markets accordingly. Discipline in your grain marketing calendar is vital.

On our side, I can promise you my team at FarmLead is disciplined in its relentless pursuit of building a complete suite of tools to help you find the best grain price possible. This includes one of our recent tools, GrainTests.com and, obviously, the FarmLead Marketplace.

At the end of the day, it is your grain. From content like this though, our goal is to give you perspective to both sides of the market as you try to keep your operation profitable. .

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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