May 16 – Sailing Into Icebergs

In today’s Breakfast Brief, we talk about the weather and the market’s reaction to the most recent WASDE.

“The mind is like an iceberg, it floats with one-seventh of its bulk above water.”

– Sigmund Freud (Austrian physiologist)

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Good Morning!

Grains this morning are mostly weather as the market continues to digest last week’s game-changing WASDE report, changes in the overall commodity complex (Goldman Sachs is now bullish on oil!) & ongoing weather fluctuations in North America.
 Despite the warmest April ever, cooler temperatures over the weekend definitely saw below zero conditions for more than a few hours in a few hours, which usually means Replant 2016 is starting up. Making a snap decision on replanting though has been replaced with waiting a day or two is a healthy choice. There is a convex of weather expected this week with Ontario, lake states, & part of the Midwest continuing to see cooler temperatures while some very warm weather is forecasted for Western Canada.
On the macroeconomic levels, people inside the Chinese government are now anonymously discussing their concerns of soaring debt levels in the People’s Republic and the “systemic financial risks” it could lead to. With a debt-to-GDP ratio sitting at 270% and things slowing (or possibly stalling), the massive ship that is the Chinese economy is sailing in waters that we’ve seen the likes of the US and Europe hit a few icebergs and sink (just keep in mind that China’s effect to be greater than those other 2 entities combined).

Post-WASDE Conundrums

A lot of discussion continues to be had around the soybeans market as last week’s WASDE report still has people scratching their heads. There’s obviously bullish thoughts out there, given the price increase in the market the last 2 months, but something to keep in mind is that USDA’s demand pump-up for beans was based on a price range of $8.35 to $9.35 (or an average of $9.10). With markets almost a dollar & a half higher than that, one could argue that some of this demand will be lost and that the highs are in.

Corn On An Upward Trend

Complimenting a bearish thesis is the fact that with cooler temperatures, some soggier weather, and now being past our May 15th optimal corn yield planting date, those acres that didn’t get into corn could very well go into soybeans instead(this would be on top of the 1 or 2 million acres that likely have been bought since March).
The flipside of this argument is that the main US competitor right now seems to be Brazil and their competitive position seems to be waning. With less corn production because of drier conditions affected the 2nd/ safrinha crop, plus the Brazilian Real appreciating because of President Dilma Rousseff’s impeachment, international buyers may look to America to fill its needs.
In Chicago, corn has been able to join soybeans in the upward trend and if we see the December contract touch $4, one could start to assume that we are seeing some of that international demand shift back to the northern half of the equator (especially given the US export sales lately which have been unusually strong for this time of year). Add in the aforementioned 1 or 2 million acres (or more?) of corn being lost to soybeans, it’s very likely you see the US corn carryout number drop below 2 Billion bushels again.

Icebergs On The Horizon

Given the rumbling of money flows and the rise to glory on the futures markets over the past number of weeks, it’s hard not considering locking up something on new crop sales. Hedge funds are now holding more than 200,000 long soybean positions, while the net-long corn position continues to sit around 43,000 lots (Chicago wheat is net short at more than 78,000 contracts).  From a basis standpoint, the question we’re asking is what has more downside risk – futures or basis? With futures values increasing lately, we’ve seen basis levels widen a bit and so, should futures pull back a bit, you’d likely see basis improve (for our Canadian readers, we’re assuming currency effects are mute for now). Ultimately, we continue to watch weather reports, but more than anything, we should expect some acreage changes in the June WASDE report. More simply, there are icebergs on the horizon that the current bullish armada is sailing into and while we can’t ignore replanting numbers, this soybean market is feeling very top heavy.
To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
1-306-665-8740 (Office)
www.FarmLead.com
@FarmLead (on Twitter)

At 6:00 AM CDT in the North American futures markets:

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.2906 CAD, $1 CAD = $0.7749 USD)

July Corn: -2.8¢ (-0.7%) to $3.88 USD or $5.008 CAD
July Soybeans: -1.3¢ (-0.1%) to $10.638 USD or $13.729 CAD
July Soybean Meal (per short ton): -$1.80 (-0.5%) to $361.20 USD or $466.17 CAD 
July Soybean Oil (cents per lbs): +0.10¢ (+0.3%) to 32.60¢ USD or 42.07¢ CAD 
July
 Oats: +1.3¢ (+0.25%) to $1.965 USD or $2.536 CAD
July Wheat (Chicago): -0.3¢ (-0.05%) to $4.745 USD or $6.124 CAD
July Wheat (Kansas City): -1.3¢ (-0.25%) to $4.548 USD or $5.869 CAD
July Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.348 USD or $6.901 CAD
July Canola: -2.9¢/bu / -$1.30/MT (-0.25%) to $9.042/bu / $398.69/MT USD or $11.669/bu / $514.80/MT CAD

Friday’s Winnipeg ICE Close

July Barley: unchanged at $2.902 USD or $3.745 CAD
July Durum Wheat: unchanged at $6.264 USD or $8.083 CAD
July Milling Wheat: unchanged at $4.977 USD or $6.423 CAD

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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