September 20 – Are Grain Markets Past the Lows?

FarmLead Breakfast Brief
Wednesday, September 20th, 2017

“You learn a lot more from the lows because it makes you pay attention to what you’re doing.”
–  John Elway (NFL Hall of Fame quarterback)

Good Morning!

At 7:10 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2244 CAD, $1 CAD = $0.8167 USD)

Dec Corn: +1.3¢ (+0.35%) to $3.495 USD or $4.279 CAD
Nov Soybeans: +3.5¢ (+0.35%) to $9.69 USD or $11.865 CAD
Oct Soybean Meal (per short ton): +$1.60 (+0.5%) to $310.30 USD or $379.94 CAD
Oct Soybean Oil (cents per lbs): –0.02¢ (-0.05%) to  34.74¢ USD or 42.54¢ CAD  
Dec Oats: +2.5¢ (+1.05%) to $2.428 USD or $2.972 CAD
Dec Wheat (Chicago): +2.8¢ (+0.6%) to $4.458 USD or $5.458 CAD
Dec Wheat (Kansas City): +2.8¢ (+0.6%) to $4.448 USD or $5.446 CAD
Dec Wheat (Minneapolis): +1.5¢ (+0.25%) to $6.188 USD or $7.576 CAD
Nov Canola (Winnipeg): unchanged at $9.115/bu / $401.90/MT USD or $11.161/bu / $492.10/MT CAD

Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.632 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.29 USD or $7.702 CAD
Dec Milling Wheat: unchanged at $4.957 USD or $6.069 CAD

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Are Grain Markets Past the Lows?

Grain markets were in the green this morning as prices tried to rebound from a down day yesterday.

NAFTA trade talks are set to being their third round of negotiations in Ottawa next week.[1] We have heard buzz that things are moving along with negotiations, but my doubts prevail. Canada is hoping that trade talks will take less than 2 years, while Mexico is hoping for things to be done before its 2018 presidential election.

As recapped by Garrett in Grain Markets Today, Statistics Canada came out with a bearish grain production report yesterday. It may have a few people re-thinking the “lock the bin doors” mentality that came about after a decently-bullish StatsCan report on August 31 (I dig into the details below).

Despite a much larger canola number, prices were up yesterday on the Winnipeg ICE futures exchange, thanks to colder and wet weather in Western Canada.

Also supporting canola prices are the conditions in Australia. Frost continues to make a hit on crops while rainfall remains limited. Over halfway through September and most of Australia has received less than 20% of its monthly average of precipitation.[2]

With the North American production season about a month out from being confirmed and in the bin, there’s a high likelihood we are moving past the lows and are starting to price in a premium for Southern Hemisphere production issues.

Grain Prices Bottoming Out?

In yesterday’s Breakfast Brief we made some comparisons to last year’s grain markets.

Last year, soybeans prices touched bottom 4 times between the beginning of September and middle of August before trending higher for the next 5 months. The price began sinking at the beginning of March after US acreage intentions and the size of the South American crop became clearer.

For corn prices, it was slightly similar, with the lows being the made in late August / early September before trending higher.

We’re about to see a lot more combines roll in America and many are looking for yield monitors to tell a more bullish story than what the USDA is crafting.[3] I can share that the conversations that we have with FarmLead growers across the US and Canada, yields continue to surprise.

Specifically, across the Corn Belt, the earliest-combined soybeans fields are coming in near last year’s yields (which were records by the way). For corn, it’s more of a mix of optimism and skepticism, depending on the area.[4]

For wheat prices, there are ideas that we’ve seen the bottom.[5] Production concerns in Australia (dryness) and Argentina (wetness) are likely to get priced in more. Acres in the US aren’t expected to increase a whole bunch in 2018 either.

Yesterday, Egypt locked up another 175,000 MT of Russian wheat at a delivered price $212 USD / MT (or $5.75 USD and $7.10 CAD / bushel ).[6]

This price is about $10 USD/MT above the last purchase price back in late August.

To date, over 3 million tonnes of wheat has been purchased by Egypt, but there are concerns regarding payment. Egypt has a history of fiscal issues, and it has recently halted wheat cargoes at the port because of traces of poppy seeds (which can be used to make opium, of course).[7]

Despite the higher prices, traders’ confidence in trading with Egypt has started to wane. Truthfully though, this sort of action is just noise and has limited impact on general wheat prices globally.


Another Statistics Canada Report

Yesterday morning, Statistics Canada released its satellite and climate data-based grain production estimates.[8] Compared to their estimates back on Aug. 31, this report was more bearish for all crops grown in Canada. Technically, the only crops that got smaller were canaryseed , flax, and mustard.

statistics-canada-september-2017-grain-production-estimates
StatsCan’s Grain Production Estimates Are Much Higher in September

 

For canola, Statscan’s satellites show a potential record crop of 19.7 million tonnes. This figure is a far cry from their previous phone call-survey based estimate of 18.2 million tonnes!

Soybeans yields in Canada are estimated to average 42.2 bushels per acre for a total crop of 8.3 million tonnes. The previous estimate in August was 7.74 million tonnes. It’s worth noting that average yields in Ontario will hit a new record of 49.3 bushels per acre. That’s a full bushel better than the previous record set in 2012.

Total wheat production is estimated at 27.1 million. This number is slightly above the USDA’s estimate last week of Canadian wheat output this year of 26.5 million tonnes. It’s also a far cry from StatsCan’s August estimate of 25.5 million tonnes.

More notably, spring wheat is estimated at 20.1 million tonnes, much better than the 18.9 million tonnes forecasted back on August 31st. National average spring wheat yields in Canada are expected to come in at 47.2 bushels per acre. This is down more than 9% from 2016’s 52 bushel-per-acre- average haul.

statistics-canada-september-2017-grain-yield-estimates
Canadian Grain Yields Are Lower This Year

 

From a provincial perspective, Alberta will hold the title of largest spring wheat producer this year at an estimate of 8.4 million tonnes. Comparably, StatsCan’s survey-based estimates pegged Alberta spring wheat production at 7.87 million tonnes. Average yields are expected to fall 10% in 2017 to 53.5 bushels per acre this year in the Wildrose province. The reason for the title is mainly because harvested acreage is up almost 17% from last year.

In Saskatchewan, spring wheat output in 2017 is pegged by the satellites at 7.4 million tonnes, thanks to an average yield of 39.6 bushels/acre. In August, that estimate from StatsCan was 7 million tonnes.The 5-year average is 9.1 million tonnes.

For durum, the satellites suggest a 4.3-million-tonne crop. This is a healthy improvement from the 3.9 million tonnes forecasted 3 weeks ago. However, the 5-year average is still nearly 5.9 million tonnes. Average yields are pegged at 31 bushels per acre, a drop of more than 1/3 from last year’s crop. Adding to a smaller crop is acreage is down 13% from 2016.

For corn, StatsCan’s satellites estimate a 14.3 million tonnes.

In the Great White North. August’s estimate from StatsCan was 13.65 million tonnes while the USDA is currently calling for a 13.9-million-tonne crop.  Worth noting is that Ontario’s average corn yields are estimated at 169.5 bushels per acre. The record was 170.6 set in 2015.

On the pulses, peas production out of Canada was pegged at 3.86 million tonnes, only slightly higher from the 3.79 million tonnes previously estimate. Lentils got a bigger boost, with the new estimate now at 2.44 million tonnes. In August, it was 2.29 million tonnes.

Finally, let’s turn to barley. The satellite estimate was very similar to August’s at 7.3 million tonnes. For oats, the satellites suggest 3.8 million tonnes of production in Canada this year, versus the previous survey-based estimate of just under 3.7 million tonnes. Rye production was also similar at 333,6000 MT this turn versus the August estimate of 326,000 MT

While the numbers on barley are somewhat bearish, there has been some improvement in the price of late.[9] The flipside is that the USDA’s Canadian attache is pegging the cattle herd in the Great White North at a 28-year low.[10] This suggests feed grain demand may wane a bit.

We think that now is a pretty good time to lock in some movement of either feed grains (i.e., feed barley or feed wheat) and winter cereals (i.e., winter wheat or fall rye).

Click here and post your next lot on FarmLead today.

It will put some cash in your pocket while we wait for better prices in oilseeds and milling wheat (Get your wheat tested! Know your grain!)

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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