FarmLead Breakfast Brief
Wednesday, October 4th, 2017
“Many a trip continues long after movement in time and space have ceased.”
– John Steinbeck (American author)
Good Morning FarmLead User!
Due to travel, there is no grain pricing data in this morning’s Breakfast Brief. Please click here to review some yourself.
Looking for Grain Movement
Grain prices on this hump day are mostly in the red as grain markets search for the next headline to provide direction.
Oats prices are hanging around despite harvest pressures, which is why we’ve been advocates locking a price.  One negative headline out there is that Indian officials didn’t extend the fumigation exemption for Canadian pulse crops. 
This matter likely adds about $15 CAD/metric tonne in inspection fees, which would make Canadian pulses relatively noncompetitive in the Indian market. It’s worth noting that France and America continue to enjoy an exemption, but it does expire at the end of 2017.
Overall though, there is some healthy optimism that ag commodities may be in the early days of a bull market.  Without any new fundamentals in play though, there’s more discussion about trading the technicals. 
For corn prices, Allendale Brokers points out that key support is around that $3.44 USD / bushel level, which we’re near today. Soybeans are likely to find some support at $9.50, but if that gets passed, the next line will be at $9.20.
Strategie Grains says that rapeseed acreage in Europe will fall in 2018 to 16.4 million acres.  This would be a 3-year low but still not that far behind 2010 record of 17.3 million acres.
The reason for the decline is some challenging conditions to plant into in southeastern Europe and Germany. Specifically, for the latter, rains have made it difficult to plant the fall-seeded rapeseed crop. This story is notable as Germany is the second-largest producer of rapeseed.
Speaking of planting, winter wheat seeding in America is behind schedule. Just 36% of the expected crop is in the ground as of Sunday. The five-year average is 43%. Kansas produces the most amount of winter wheat, and they’re only at 21% seeded. The 5-year average is 39%. Rains are to blame for the below-average field activity.
Wheat continues to fall out of favor compared to corn and soybeans in fringe areas like South Dakota. Just over 2 million acres of the spring and winter wheat got planted in 2017 in the Mount Rushmore state.
Comparably, a record 5.4 million acres of soybeans and 5.2 million acres of corn were planted. 
There continues to be a lot of chatter on how much carry the American corn market has, mainly thanks to river barge traffic on the Mississippi River being backed up. 
These sorts of problems are seemingly inevitable though when you’re running on the original technology that was implemented when the locks were built in the 1930s. 
With slower traffic, there’s a hefty carry in corn prices into the winter months. For some farmers, they don’t have a choice but to store on the farm as elevators can’t accept any corn until they’re able to move some. Because of this, basis levels along the Mississippi and Ohio rivers are the worst since harvest in 2009.
What’s certain though is that as the movement picks up, you’ll see the spread between nearby and deferred delivery start to narrow. This trend will be accelerated if corn futures go up as well.
One should conclude that those better-deferred prices should be considered actionable.
What China’s Ethanol Plan Looks Like
The USDA’s attaché in Beijing says that China’s corn stocks to end 2017/18 will drop to a 5-year low of 79.2 million tonnes. 
This year’s Chinese corn acreage will come in at 86.5 million acres. There are now ideas that corn acreage in 2018 will decline again, but with a new ethanol mandate coming down in China, it seems a bit unlikely.
To produce estimated requirement of 12 million tonnes of ethanol per year, China would need 36 million tonnes of corn. You can easily argue that they already have two years’ worth of supply sitting in reserves as we speak. Some estimates are even higher.
The only challenge that China will have in ramping up their ethanol production is the infrastructure needs. 
Today, they can only produce a maximum of three million tonnes of ethanol per year, and that’s at a full-out, no-days-off, no-shut-downs pace.
Ultimately, it will take time for the ethanol production to build up. This story means that additional corn demand from the People’s Republic won’t be immediate. Further, the likelihood that corn imports start skyrocket is incredibly unlikely.
Garrett put out a piece this morning echoing this statement.
For corn producers in the Americas, the ethanol announcement by China should just be categorized as “noise.”
The side effect of increasing ethanol production is the increase in byproduct production. Simply put, there will be more DDGs in the Chinese feedstuffs pipeline if they start increasing corn-for-ethanol processing.
This will compete with other feedstuffs like sorghum and barley, as well soy meal, which gets processed from imported soybeans.
South American Grain Update
Thanks to the heavy rains in Argentina, corn planting ended September at just 9.5% complete. By the end of September, corn planting was 22% finished.
The wet season in Brazil continues to be slow to appear. 50% of the soybean production areas – the three states of Mato Grosso, Mato Grosso du Sul, and Goias – are expected to be dry through to mid-October. Ag Resource says that first-half-October rainfall totals will likely come in at just 2%.
That’s just 30% of October’s usual precipitation.
Compounding this is that temperatures are supposed to be high next week (into the 90s Fahrenheit).
As such, there’s a lot of memories coming back to a year ago when a drought drastically reduced the safrinha /second crop corn crop.
Coming back to infrastructure, the National Association of Grain Exporters says that 60% of grain/oilseed transportation is handled via road. Railways only account for 30%!
Waterways (i.e., river barge traffic) account for the other 10%. 
Where things are certainly getting interesting is in the north. Brazilian soybean exports out of northern ports have nearly doubled in the past five years to more than 11 million tonnes. Might this accelerate?
What we do know is that there have been some significant investments by the likes of Cargill, ADM, and Bunge in the northern river and port systems.
Today, four main unfinished infrastructure projects in Brazil should help alleviate the bottlenecks that they’re seeing. The big one is the paving the rest of main grain-hauling highway, BR-163. There are just under 60 miles to go, and it should be done before soybeans are coming off in February.
The other three projects are railroads, with the most important being the Ferrograo Rail, which will run parallel to the BR-163. Once completed, it’s expected to handle 42 million tonnes of grain movement every year.
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