September 16 – More Means Less

In today’s Breakfast Brief, we discuss our bearish opinion on corn prices and bullish catalysts on the horizon. 

“Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments.”

– Plato (Ancient Greek philosopher)

 

Harvest 2016 continues with more crop coming off

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Good Morning!

Grains this morning are mostly in the red, pulling back from yesterday’s good start, mainly thanks to a stronger US dollar which is weighing on most commodities including oil (America, not OPEC, may be the one to blame for oil prices remaining depressed, thanks to shale output).

Louis Dreyfus recently joined other companies by saying they expect low ag prices to extend into 2017, and I’m hearing buzz building in lot of places of how farmers can diversify their production away from the major 3 row crops (soybeans, corn, and wheat). Egypt put out a tender yesterday for some wheat, but with their zero ergot tolerance being called ridiculous by everyone and their mother in the grain trading business, it appears Egypt only got one offer and the tender will likely be cancelled! Ultimately, despite there being more grain of every type in the world this year, asking for too much will eventually get your less.

Bearish Corn Prices

We told Ontario growers all week at Canada’s Outdoor Farm Show in Woodstock, ON (great show by the way!) that we’re neutral-bearish on corn prices. With prices trading in the past week in Chicago at the lowest levels since 2009, more analysts are agreeing with us, with suggestions that not only futures will tumble, but basis will worsen as well. With 15 Billion bushels (or close to it) likely coming off in America, South American planting issues may not be enough to help levels rebound off the lows in the next couple of weeks (or possibly months). As mentioned in yesterday’s Breakfast Brief, Argentinian farmers may not plant as much corn as everyone’s expecting and there are soil moisture concerns next door in Brazil. On that note, we’ve been calling for a couple months now that said seeding issues would be one of the major bullish oilseed themes in 4Q2016 as between said drier soil moisture conditions, buzz about lack of seed supply to access, and tougher credit situations. Further, the current domestic price ratio of soybeans to corn is 1.9 (vs 2.7 a year ago), suggesting planting corn instead may be the more financially-rewarding decision in 2016/17 in Brazil.

Bullish Catalysts on The Horizon

Yesterday, NOPA told us that 131.8 million bushels of soybeans were crushed domestically in the US in August, an 8% drop from July and down 3% from August 2015’s numbers. The USDA is predicting US crush volumes could touch 1.985 Billion bushels but some are questioning if that’ll materialize, given the trends. However, the bulls out there are thinking that there may have been no beans left to crush in August (hence the lower crush numbers) but we do know that the USDA estimated 2016/16 US soybean carryout at 195 million bushels and that we’ll get a full understanding of Sept 1, 2016 inventories at the end of this month with the quarterly stocks report.

While new estimates for the Australian wheat crop put it at more than 28 million metric tonnes, meteorologists are saying that a La Nina event making landfall in the next couple months could compromise the quality of the crop (Sidenote: it may be a bit preliminary but “quality” is the frontrunner for the global theme of 2016/17 grain markets). A La Nina event would mostly impact the Eastern seaboard of the Land Down Undaa via excessive rains, but given that this year’s weather phenomena isn’t as intense as it was in 2010 when a lot of Aussie wheat was downgraded to feed, this isn’t necessarily a bullish catalyst of huge proportions.

To the northwest, India’s crops have seen some good rains and as a result, the government is estimating a record year of 270 million metric tonnes of grains, oilseeds, and pulses taken off. Of note for those not heeding our multiple calls in the past month to make some sales off the combine of lentils or peas, it’s expected that India will produce 8.22 million metric tonnes of pulse crops in just the current kharif season, up 48% from last year’s 5.54 million metric tonnes (albeit it was a drought-ridden crop). With adequate soil moisture, there’s still expectations that more acres than last year will get planted with pulses and specialty crops (i.e. mustard) in the rabi winter crop.

Have a great weekend & ensure yourself a continued safe Harvest 2016.

To growth,

Brennan Turner

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

At 6:10 AM CDT in the North American futures markets (not cash market prices):

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3157 CAD, $1 CAD = $0.7598 USD)

Dec Corn: -1.5¢ (-0.45%) to $3.285 USD or $4.322 CAD
Nov Soybeans: -1.5¢ (-0.15%) to $9.49 USD or $12.486 CAD
Dec Soybean Meal (per short ton): -$1.10 (-0.35%) to $306.10 USD or $402.74 CAD 
Dec Soybean Oil (cents per lbs): +0.12¢ (+0.35%) to 32.40¢ USD or 42.63¢ CAD 
Dec
 Oats: –0.8¢ (-0.45%) to $1.723 USD or $2.266 CAD

Dec Wheat (Chicago): -0.8¢ (-0.2%) to $3.988 USD or $5.246 CAD
Dec Wheat (Kansas City): -0.5¢ (-0.1%) to $4.155 USD or $5.467 CAD
Dec Wheat (Minneapolis): +1.5¢ (+0.3%) to $4.928 USD or $6.483 CAD
Nov Canola: +2.9¢ / +$1.30/MT (+0.3%) to $7.875/bu / $347.23/MT USD or $10.365/bu / $457/MT CAD

Yesterday’s Winnipeg ICE Close

Dec Barley: -6.5¢ (-2.15%) to $2.233 USD or $2.939 CAD
Dec Durum Wheat: +5.4¢ (+0.75%) to $5.521 USD or $7.267 CAD
Dec Milling Wheat: unchanged at $4.446 USD or $5.824 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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