In today’s Breakfast Brief we discuss Egypt’s grain import policy change, soybean planting, and what’s going on with feed grain prices.
“The best opportunities are often ones where you’re being contrarian. That doesn’t mean being contrarian for contrarian’s sake, but it means you’re thoughtful about the risks of following the crowd.”
– David Sze (US venture capitalist)
Grains this morning are mostly in the green on a lower US dollar, continued wet Harvest 2016 forecasts, and Egypt smartening up. The Egyptian government is apparently getting the message: they’ve changed their wheat import policy back to a 0.05% ergot tolerance on its wheat imports. With about 4-5 months worth of wheat in their coffers, playing chicken with the international wheat trade would not have been a smart move, as it would’ve seen domestic prices increase significantly, meaning more expensive bread. For a country where 2/3s of their population rely on bread subsidies, that could’ve gotten ugly quick.
Every Thursday morning at 8:30AM ET, the USDA releases its US grain export sales from the week prior and so far this year, the show hasn’t been a disappointment to the bulls. Thus far in 2016/17, US soybean exports sales are up 112% compared to the same start to the 2015/16 crop year, corn is up 50%, and wheat is up 25%. With Brazil dry (both literally and in terms of their soybean corn supply), the easy call to make is buying from a guaranteed source and the US is illustrating that stability (don’t let your mind float, we’re talking about grains here).
Soybeans To Decline?
Northern Brazil farmers are starting to hit the fields now, planting soybeans into drier-than-usual soil beds. However, the number of additional bean acres getting seeded will be the smallest year-over-year gain in the past decade, with some even suggesting that acres might decline as it’s going to be more profitable to plant corn given where domestic prices are. This would still likely produce at least 100 million metric tonne crop (comparatively, the USDA is calling for 114 million metric tonnes American crop this year), but it’s incredibly impressive considering that 2 years ago, production was 25% of what it is today (AKA 25 million metric tonnes) on account being about 30% lower and acres being 1/3 of what they are today. The good news for farmers there though is after a dry safrinha season, the next 2 weeks show promising rains. That being said, given the trends, it’s certainly within reason that Brazil could top its 46.4 bu/ac yield record achieved in 2010/11. In America, the earliest soybeans fields getting taken off are showing big numbers on the yield monitors with numbers as high as 80 bu/ac getting reported (the first fields are always the best right?).
Switching gears, the big macro news yesterday (apart from the Bank of Japan being irresponsible in trying to manipulate bond yields), the Federal Reserve opted to keep U.S. interest rates unchanged. After previously suggesting that they were going to raise rates 4 times in 2016, it appears that Fed chairwoman and Co. will only raise rates when they have no other choice (basically saying that they’ll policies are going to be reactive and “behind the curve”, not proactive and ahead of the curve…. The latter is the what we like to employ for a grain marketing strategy!)
Feed Grains To Remain Depressed
Watching some of the comments being passed along in negotiations on FarmLead these days (is your grain posted?), Canadian feedlots are losing about $400/head right now with fed cattle prices down about 30% from a year ago. That being said, one of Canada’s largest feedlots, Western Feedlots, which has capacity for 100,000 head, is closing its doors. Doing some rough back-of-the-envelope math, at 20 lbs of feed consumption per day per head, this would suggest, on annualized basis, about 250,000 – 300,000 metric tonnes of feed demand loss from the closing of one operation. Given some of numbers you’ve just read, our call remains that feed grain prices will remain depressed. Thus, moving lower quality grains now is likely easier to do and better for your balance sheet, than selling the higher grade bins.
At 6:35 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3023 CAD, $1 CAD = $0.7679 USD)
Dec Corn: -0.5¢ (-0.15%) to $3.395 USD or $4.421 CAD
Nov Soybeans: +2.3¢ (+0.25%) to $9.778 USD or $12.733 CAD
Dec Soybean Meal (per short ton): +$0.60 (+0.2%) to $309.30 USD or $402.79 CAD
Dec Soybean Oil (cents per lbs): +0.29¢ (+0.85%) to 33.95¢ USD or 44.21¢ CAD
Dec Oats: +0.5¢ (+0.3%) to $1.768 USD or $2.302 CAD
Dec Wheat (Chicago): -0.3¢ (-0.05%) to $4.075 USD or $5.307 CAD
Dec Wheat (Kansas City): -2.8¢ (-0.65%) to $4.195 USD or $5.463 CAD
Dec Wheat (Minneapolis): +0.5¢ (+0.1%)
Nov Canola: +2¢/bu / +$0.90/MT (+0.2%) to $8.10/bu / $357.15/MT USD or $10.548/bu / $466.10/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.257 USD or $2.939 CAD
Dec Durum Wheat: unchanged at $5.747 USD or $7.484 CAD
Dec Milling Wheat: unchanged at $4.514 USD or $5.79 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.