September 18 – Feeling The Weather

FarmLead Breakfast Brief
Monday, September 18th, 2017

“We may achieve climate, but weather is thrust upon us.”- William Sydney Porter (US author)

Good Morning!

At 7:15 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2203 CAD, $1 CAD = $0.8195 USD)

Dec Corn: -2¢ (-0.55%) to $3.528 USD or $4.304 CAD
Nov Soybeans: -0.5¢ (-0.05%) to $9.683 USD or $11.815 CAD
Oct Soybean Meal (per short ton): +$1.30 (+0.4%) to $309.40 USD or $377.40 CAD
Oct Soybean Oil (cents per lbs): –0.36¢ (-1.05%) to  34.45¢ USD or 42.04¢ CAD  
Dec Oats: -0.8¢ (-0.3%) to $2.353 USD or $2.871 CAD
Dec Wheat (Chicago): -3.8¢ (-0.85%) to $4.453 USD or $5.433 CAD
Dec Wheat (Kansas City): -3.3¢ (-0.75%) to $4.428 USD or $5.403 CAD
Dec Wheat (Minneapolis): -1¢ (-0.15%) to $6.205 USD or $7.572 CAD
Nov Canola (Winnipeg): unchanged at $9.09/bu / $400.82/MT USD or $11.093/bu / $489.10/MT CAD

Friday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.641 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.312 USD or $7.702 CAD
Dec Milling Wheat: -16.3¢ (-2.6%) to $5.018 USD or $6.123 CAD

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Feeling the Weather

Grain markets this morning are mostly lower after finishing last week in the green.

Before going red this morning, soybean prices were leading the charge in the overnight trade on decent August crush numbers and the market’s continued disbelief in the USDA’s numbers from last week’s WASDE report.[1]

Frost talk continues to whittle across most of America. However, in Western Canadian, temperatures are touching that freezing mark in more than a few places.

Hurricane Maria is barreling down on an already-torn-and-tattered Caribbean region.[2] It’s expected to hit the British and US Virgin Islands by midweek.

Although it’s only rated a Category 1 (90 MPH winds), its intensity will likely increase to a Category 3 or 4 by the time it makes landfall.

Personal side note: My brother, an oil & gas consultant in Saskatchewan, is currently in the Caribbean helping clean up the mess in the Caribbean. He spends a few months of the year sailing out of the British Virgin Islands ( BVIs ) and so put his decent-paying job on hold to wear his humanitarian hat and help (he bought 8 chainsaws in Calgary, AB and flew down there with them). To get out of the way of Hurricane Maria, they’ve sailed out of its path to Grenada for the time being.

US new crop soybean export sales are running 28% behind where we were a year ago with just 624 million bushels sold thus far.

Friday saw the release of NOPA’s August soybeans crush numbers, which were relatively bullish.[3]

The market was expecting some 137.5 million bushels of soybeans used in August before the report.

However, the actual number used by American processors came in at 142.4 million bushels. This number is down from 144.7 million bushels in July but 8% above August 2016’s usage.

Moreover, soy oil stocks of 1.417 Billion pounds were above the market’s expectations of 1.396 Billion pounds. This miss is weighing on soy oil and canola values this morning.

Corn markets continue to hold a nice carry into winter months. Top farmers suggest you can do 1 of 3 things with your corn.[4]

  1. Keep it in storage (but don’t mix old and new crop.)[5]
  2. Sell your corn and buy futures
  3. Buy a call option

Worthwhile reading: last Friday, Garrett looked at the 5 Must-Haves of Your Grain Marketing Consultant.

Garrett also asked in Friday’s Grain Markets Today if corn would react to a stronger possibility of a La Nina event in 2017/18.

In a La Nina event, cooler temperatures prevail from the US lake states over to the Midwest. The model also suggests a more stormy/snowy winter.[6]

The greater impact on La Nina can often be felt by South American weather (more on that later).


South America Planting Behind

Dryness in Brazil and too much moisture in Argentina are expected to slow down planting in South America over the next few weeks.

Agresource notes that “there is no evidence of any moisture for Brazilian crop areas north of Rio Grande du Sul over the next 2 weeks, with dryness becoming an increasing worry and planting will be delayed.“[7] In Argentina, they note “heavy showers” through the end of September are expected to hit areas that represent 70% of the country’s corn and soybean production.

Already, some of the earliest production forecasts are pegging Argentinian soybean output for the 2018 crop at 52 million tonnes. This is due to fewer acres getting planted because of (1) too much moisture to plant and (2) high government-imposed export taxes on soybeans.

The latter means farmers keep more from selling corn or wheat into export markets, so they plant those crops instead.

Given some of the current conditions, one can expect some South American production/weather risk premium getting priced into the market. We shouldn’t expect this today or tomorrow but likely towards the beginning of October.

As a reminder, we saw a similar premium added to the market in October / November 2016. As such, we’re looking for some of this premium to make a next oilseed sale.

Looking beyond that, the International Research Institute for Climate & Society (or IRI, as it’s commonly known) is seeing some patterns that suggest above-average temperatures in South American from October to December. In early 2018, the IRI sees below-normal precipitation shifting towards northern Argentina & southern Brazil.

While possibly optimistic for other pricing opportunities, keep in mind that these forecasts are 3-5 months out. It’s hard to accept when the 3 to 5-DAYday forecasts are hardly realized.


Canadian Canola Update

november-canola-prices-fall-dead-cat-bounce
November canola prices finding a bounce?

The Canadian Ag Ministry updated its canola balance sheet on Friday, putting 2017/18 ending stocks at a snug 650,000 tonnes.[8] This, of course, is based off a StatsCan-forecasted harvest of just 18.2 million tonnes, which pretty much no one agrees with (my number is still at 19 million tonnes).

Ag Canada is expecting 9.9 million tonnes of Canadian canola exports in 2017/18 and 9.1 million tonnes in domestic use (crush, feed, and dockage). These two numbers are down about 1 million and 360,000 tonnes from 2016/17 values.

Canola deliveries in Canada have been cruising thus far with the harvest. The Canadian Grain Commission reports that 627,000 MT of canola were delivered in the week of September 4 – 10.[9]

This figure is the third-largest amount of canola delivered in one week in the past decade. It also brings total visible stocks back above one million tonnes, a sight not seen in the past four months.

It’s worth noting that the Western Canadian harvest is cruising ahead of its normal pace, which might explain the high deliveries. 45% of Alberta’s fields are combined (5-year average is 32%), including 28% of canola now in the bin.[10]

In Saskatchewan, roughly 65% of all fields have been harvested (versus the 5-year average of 40%), including 50% of the expected canola crop.[11]

On the exports front, nearly 100,000 MT of canola was shipped out from Canada from September 4 – 10. Total exports were 2/3s higher than the week before. Marketing-year-to-date, 662,800 MT of canola has been shipped out of Canadian ports. That’s running about 14% behind last year’s pace.

Domestic crush is starting to improve as well with nearly 180,000 MT of canola processed for the processing week of September 7 to 13.

That’s using about 80% of capacity. The figure is up 14% from the previous week.

Overall, canola bids in Western Canada continue to be pressured by a stronger Canadian Loonie and the accelerated harvest deliveries. With temperatures turning colder though, we might see some pops in prices.

However, you won’t see me getting excited about these little pops, relative to where we’ve been, or that it’s the time of the year when we must put more layers on to go out in the morning.

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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