September 22 – Growing Confidence

FarmLead Breakfast Brief
Friday, September 22nd, 2017

“Experience tells you what to do; confidence allows you to do it.”
– Stan Smith (US tennis player)

Good Morning!

At 7:25 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.227 CAD, $1 CAD = $0.815 USD)

Dec Corn: +2¢ (+0.55%) to $3.523 USD or $4.322 CAD
Nov Soybeans: +7.8¢ (+0.8%) to $9.785 USD or $12.006 CAD
Dec Soybean Meal (per short ton): +$3.50 (+1.1%) to $316.40 USD or $388.22 CAD
Dec Soybean Oil (cents per lbs): +0.10¢ (+0.3%) to 34.44¢ USD or 42.26¢ CAD  
Dec Oats: +1.3¢ (+0.5%) to $2.513 USD or $3.083 CAD
Dec Wheat (Chicago): +2¢ (+0.45%) to $4.545 USD or $5.577 CAD
Dec Wheat (Kansas City): +2.8¢ (+0.6%) to $4.523 USD or $5.549 CAD
Dec Wheat (Minneapolis): +4.8¢ (+0.75%) to $6.29 USD or $7.718 CAD
Dec Canola: +5.2¢/bu / +$2.30/MT (+0.45%) to $9.138/bu / $402.94/MT USD or $11.213/bu / $492.10/MT CAD

Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.626 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.277 USD or $7.702 CAD
Dec Milling Wheat: +5.4¢ (+0.9%) to $5.057 USD or $6.205 CAD

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Growing Confidence

Grain markets this morning are mostly in the green.

The US Dollar is falling after a bullish run the past two days, which is supporting commodity prices.

As Garrett mentioned in Grain Markets Today, US grain export numbers from yesterday were positive, but bearish headwinds reined in any rallies.

US soybean export sales for last week were 2.34 million tonnes, well above the market’s pre-report estimate of 1.2 million to 1.5 million tonnes. The big sales bring up the total contracted-for-export volume to 19.3 million tonnes (or 710 million bushels if you’re using GrainUnitConverter.com)

The full-year target by the USDA is for 61.2 million tonnes (or 2.25 billion bushels)

American corn export sales came in below expectations at roughly 527,000 MT or 20.7 million bushels.

US wheat export sales were at the low-end of expectations, with a little more than 307,000 MT or 11.3 million bushels. In another FarmLead insights piece published this morning, we examine the rise of Russia’s wheat production and exports.

Also, we explore how Russia has affected other major exporters and what it means for wheat farmers.

Compared to years past, current US soybean export sales are tracking 12% behind the 5-year average and 18% behind last year’s sales pace.

For corn, exports sales are tracking 16% behind the average for this time of year. However, US corn total-marketing-year exports are expected to fall 7% compared the average of the past few years.

Switching gears into pulses, the prices for peas are likely to trade sideways as ample global supplies curtail any “panic buying.”[1] The main cause of the supply is increased production in the Black Sea, as well as 2 years of good monsoon rains in India supporting crops there.

The National Weather Service says temperatures across the US for the last 3 months of the year will likely be above-average.[2] This may be concerning, considering some of the drought conditions in the Northern Plains and Midwest that exist right now. For the latter area and into the Southern Plains, the NWS says lower-than-normal precipitation is more likely than average rainfall.

The flipside to this sort of weather forecast is that you should have strong confidence to get in harvesting corn and soybeans this fall without disruption.

Soybeans Prices Look Upward?

Veteran analyst Jerry Gulke says that soybean prices have come full circle from where we were at the start of the 2008/09 crop year.[3]

He also believes the October WASDE will have “huge price and acreage implications for 2018”.

The problem with Jerry’s comments is that he bases too much of his analysis on the word “if.

For example, he discusses “if South America had failed to experience record production.” We recently looked at the most bearish things about soybeans and the factor is South America. And it’s not an “if”.

Much like American area this year, Brazilian soybean acreage is expected to increase again.

Yes, there are some dry conditions across Brazil, but it still pays more to plant and harvest a bean crop than corn in most places.

Further, considering where corn prices are trading in the US, there’s a strong possibility that we see US acreage increase even further

The flip side of the soybeans price story is demand, and it’s got one elephant hanging around the room: China.

While the elephant is, figuratively-speaking, getting bigger (in the form of more soybeans imports), more soybeans are being grown in China.[4]

This year, Oil World says that Chinese producers will produce as much as 17 million tonnes. That would be a 32% jump over last year’s 12.9 million-tonne crop. To be fair, the USDA is only forecasting a 14 million-tonne soybeans crop in the People’s Republic in 2017/18.

What we do know is that soybeans are taking over corn acres in China as the government there has moved away from minimum price supports for the coarse grain.

However, Shanghai JC Intelligence thinks that China will need to import between 10 – 20 million tonnes of corn in starting in 2020 when ethanol production is supposed to start ramping up.[5]

If you use history as a measuring stick, corn acres should rebound in China thanks to an expected rise in ethanol demand. For perspective, US corn acres were just 79.5 million acres in 2000.

Then the ethanol mandate came along, and 91 million acres of the coarse grain got planted.[6]

Of course, soybean acreage has also expanded in the US, but with corn area expansion, it’s been at the expense of wheat, oats, barley, sorghum, and cotton.

Overall, soybeans prices would need a production issue to push back to the levels that Jerry Gulke is seeking. Further, corn exports to China won’t start for another 2 years, if they do at all. China is the number 2 producer of corn, after the US, and it’s still sitting on a pile of leftover stocks.

Bigger EU Rapeseed Crop Expected

EU grain industry group Coceral says that the EU rapeseed crop might be larger than originally thought, but that the 2018/19 crop could also be large.[7]

Coceral is estimating this year’s EU rapeseed crop at 22.11 million tonnes. Last year’s crop was 20.55 million tonnes.

Comparably, Strategie Grains’ estimate is 21.65million tonnes, the International Grains Council is at 21.8 million, the USDA is at 21.95, and the European Commission is at 21.86 million tonnes.

The main catalyst behind Coceral’s estimate is that French and UK yields came in better than expected. In France, a 5.48 million tonnes this was forecasted off average yields of nearly 64 bushels per acre. The official estimate of the European Commission’s agricultural meteorology unit, MARS, is just over 62 bushels per acre.

In the UK, the harvest there is pegged at 2.17 million tonnes by Coceral thanks to yields jumping 25% year-over-year to 65.5 bushels per acre (the tops in the EU). MARS’ estimate is just 58 bushels per acre. Pretty big difference there.

In Germany, Coceral is expecting average rapeseed yields to drop 12% year-over-year to roughly 56 bushels per acre for a 4.35 million-tonne crop. MARS has German average rapeseed yields at 61.

Considering where EU wheat prices are right now, more rapeseed is expected to get planted in 2018. The key contracts that the market is watching are the Paris-based November 2018 rapeseed price and wheat’s December 2018.

The average ratio between these two “end-of-the-calendar-year” contracts Is usually 1.9, but today it sits above 2, suggesting more rapeseed in 2018.

It’s also worth noting that the last couple of years, farmers have been unable to use certain seed and chemical treatments on their rapeseed crops. One would think this is a detriment to planting more acres.

However, alternative insect management strategies are being employed, and it appears to be bringing the confidence back in to successfully grow a profitable rapeseed crop in Europe.

Have a great weekend!

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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