December 14 – Raising Grain Markets Expectations

Good Morning!

Today’s Breakfast Brief looks at grain markets expectations going forward with an interest rate increase, some new wheat trade statistics, and the most important areas of South America that you need to know as it relates to soybean production.

“The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools.” – Confucius (Chinese philosopher)

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Grain markets this morning are lower with no solid fresh headlines to trade off.

Canola prices on the Winnipeg ICE Futures board dropped below the psychologically-significant level of CAD 500 /metric tonne. This isn’t necessarily positive as the market will likely slow down over the next two weeks with Christmas holidays approaching.

The big news yesterday in outside markets was that the US Federal Reserve bumped their interest rate up by 25 basis points (or 0.25%). [1] It’s expected that the Fed will raise rates again another three times in 2018. However, there are some who think there might be more interest rate increases than just three, given the positive economic activity and reporting seen in the United States.

South American Crop Update

Heat and limited showers are on the table for the next week for Argentina, the country that most market players are watching as a bullish price catalyst.

However, in the second half of next week (Dec 20 — 23), 1 – 3 inches of rain could fall on the northern two-thirds of Argentina. AgResource calculates that next week’s rains are worth roughly 6 million tonnes of corn in Argentina.

The Rosario Grain Exchange in Argentina raised its 2017-18 wheat crop estimate by one million tonnes to 17.3 million. The USDA didn’t change their estimate on Tuesday, keeping the Argentine wheat estimate at 17.5 million tonnes. The reason for the upgrade was above-average yields.

RGE also pegged the Argentine soybean crop at 54.5 million tonnes (USDA at 57 million tonnes) and kept corn production in the country at 41.5 million tonnes (USDA at 42 million tonnes).

Some wetter weather is also expected in southern Brazil, which is pretty important, given the corn crop, there is just starting to pollinate.

The soybean crop in Brazil is basically all planted, minus a few fields here and there.

There are a few areas in Brazil that we’re watching closer than others, as it relates to soybean production.

What’s more interesting though is Brazil is allowing Russian wheat imports. For Brazilian meat to get into Russia, the Kremlin used their massive amount of wheat crop as a pawn and negotiated for some to get bought by Brazil.

Usually, American HRW wheat is sold into Brazil if the Argentine wheat crop is too small to meet Brazil’s need.

Russia Not Giving Up Wheat King Title

More simply, Russia has pushed passed America in another wheat market with its cheap wheat. There are some indications that US wheat prices are low enough to now compete with a product from the Black Sea.

This sentiment is shared by Angie Setzer, VP of Citizens Grain Elevator. Check out our interview with her here!

farmlead-marketplace-grain-negiati

The impact is surely being felt on the likes of France, who has also seen some of its wheat market share taken away by Black Sea players like Russia. French soft wheat exports outside of the European Union are sitting at just over 2 million tonnes, according to FranceAgriMer. [2] That’s up 11% year-over-year but nowhere near the 91% growth rate that the firm was originally expected at the start of the 2017/18 crop year.

Within the EU, French soft wheat exports are up 67% year-over-year at 2.65 million tonnes. For the full year, FranceAgriMer is forecasting a 29% increase to just under 8.1 million tonnes. Thus, we can tell that things are tracking well.

Coming back to Russia though, with its rise, the country set two new records in November: total grain exports of 5.375 million tonnes and wheat exports of 4.214 million tonnes. The previous monthly wheat export record was set in August 2014 (right after their harvest) with 4.211 million tonnes of wheat getting shipped out.

Also, Russian wheat exports to Egypt in the 2017 calendar year have now topped 5.5 million tonnes!

Who might be looking to import as much wheat in 2017/18 though is India? It’s estimated that there was still 24 million tonnes of wheat in Indian storage as of November 1, 2017. That’s up 27% year-over-year. We also know that a lot of India’s wheat goes bad because of poor storage facilities.

Not to fear! On Tuesday, the USDA said that farmers in India would harvest 98.4 million tonnes of wheat for the 2017/18 crop year. That’s a jump of 13% year-over-year.

One of the reasons for the increase is that acreage has expanded by 5% this year. A second reason prices, but for two sub-reasons. First, the India government continues to have a bit more preferential treatment towards wheat and rice production. The second sub-reason is that the Indian government has implemented a 20% import tax on all wheat coming in from abroad.

Last year, India mainly imported wheat from the likes of Russia and Ukraine but this year their expectations might be different. While we know Russia is holding the crown, it seems like India won’t need to do any wheat deals with Russia as Brazil did.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2834 CAD, $1 CAD = $0.779 USD)

Mar Corn: +0.3¢ (+0.05%) to $3.493 USD or $4.483 CAD
Jan Soybeans: -4.5¢ (-0.45%) to $9.748 USD or $12.513 CAD
Jan Soybean Meal (per short ton): -$1.50 (-0.45%) to $325.30 USD or $417.59 CAD
Jan Soybean Oil (cents per lbs): -0.19¢ (-0.55%) to 33.02¢ USD or 42.39¢ CAD  
Mar Oats: -1.5¢ (-0.6%) to $2.475 USD or $3.177 CAD
Mar Wheat (Chicago): +2¢ (+0.5%) to $4.188 USD or $5.375 CAD
Mar Wheat (Kansas City): +3¢ (+0.7%) to $4.193 USD or $5.382 CAD
Mar Wheat (Minneapolis): +5.5¢ (+0.9%) to $6.18 USD or $7.933 CAD
Jan Canola: -5.7¢/bu / -$2.50/MT (-0.5%) to $11.254/bu / $496.20/MT CAD or $8.767/bu / $386.54/MT USD

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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