September 25 – Why March Soybeans Are Below $10

FarmLead Breakfast Brief
Monday, September 25, 2017

“Bad taste is simply saying the truth before it should be said.”
– Mel Brooks (US actor)

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 = $1.227 CAD, $1 CAD = $0.815 USD)

Dec Corn: -1.8¢ (-0.5%) to $3.518 USD or $4.34 CAD
Nov Soybeans: -5¢ (-0.5%) to $9.79 USD or $12.079 CAD
Dec Soybean Meal (per short ton): -$1.40 (-0.45%) to $317.60 USD or $391.86 CAD
Dec Soybean Oil (cents per lbs): -0.28¢ (-0.8%) to 33.94¢ USD or 41.88¢ CAD  
Dec Oats: -1.8¢ (-0.7%) to $2.463 USD or $3.038 CAD
Dec Wheat (Chicago): -3¢ (-0.65%) to $4.663 USD or $5.753 CAD
Dec Wheat (Kansas City): -4¢ (-0.9%) to $4.463 USD or $5.506 CAD
Dec Wheat (Minneapolis): -0.5¢ (-0.1%) to $6.343 USD or $7.825 CAD
Dec Canola: -5¢/bu / -$2.20/MT (-0.45%) to $9.055/bu / $399.25/MT USD or $11.172/bu / $492.60/MT CAD

Friday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.612 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.242 USD or $7.702 CAD
Dec Milling Wheat: +10.9¢ (+1.75%) to $5.118 USD or $6.314 CAD

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Why Soybeans Prices are Below $10

Grain markets this morning are mostly in the red as the complex pulls back from Friday’s rally and decent weather in the forecast.[1]

Grain prices rallied on the back of ongoing weather issues in the Southern Hemisphere and some decent demand fundamentals.

As Garrett mentioned in Grain Markets Today, the March 2018 soybeans contract topped $10 on Friday. The price is back below that psychologically important level this morning, but May and July 2018 contracts are still in double digits.

Soybeans prices have also received a boost by solid demand fundamentals.[2]

Meanwhile, the sentiment appears to be that corn prices will only rise from current levels.[3]

Later today, we’ll learn how far American farmers are with their winter wheat planting campaign. While the tractors roll, the question is “how many acres will they plant?”[4]

Wheat prices did grind higher on Friday, but those values remained below ideal selling levels.[5]

According to the executives of wheat groups in Texas, Oklahoma, and Kansas, there’s not a lot of price incentive to put more winter wheat in this fall. Last year, farmers planted the second-smallest amount of winter wheat in more than 100 years.

Many farmers in the Southern Plains are planting soybeans and cotton instead. However, they also must contend with drier conditions and the rise of wheat mosaic.[6] After all, the virus cost Kansas nearly 6% of its 2017 winter wheat crop.

In Ukraine, the fall seeding campaign is ahead of schedule.[7]

Winter wheat seeding is sitting about 27% ahead of where it was last year. Thus far, over 4.1 million acres have been seeded, or about 27% of the expected crop.

Winter barley and rapeseed planting remain ahead of schedule. Only about 4% of the Ukrainian winter barley crop has been seeded (or about 100,000 acres), but that’s up 40% compared to a year ago.

More than 1.9 million acres of winter rapeseed has also been seeded, which would represent the total number of acres expected in Ukraine year.

In Australia, wheat crop development has been hindered by dryness and frost events.[8] The weather has impacted the nation’s competitiveness in global wheat markets.

Delivered into the major market of southeast Asia, Australian standard white wheat is sitting at a price of about $6.65 USD/bushel (or about $8.25 CAD/bushel).

US winter wheat and Russian wheat would compete directly with this Aussie product. Today, they have a delivered price of roughly $6.40 USD or $7.90 CAD per bushel and $5.85 USD or $7.20 CAD respectively.

It’s becoming clearer that Russia’s crops have the potential to leave a bitter taste in wheat growers’ mouths, regarding prices, through to the 2018/19 crop year.[9]


Soybeans Prices / Planting Update

As Karen Braun of Reuters explains, it’s still early in the seeding game for Brazilian farmers.[10]

Planting right now is akin to starting to seed early April in the US Corn Belt and mid-April in Western Canada.

Accordingly, AgResource thinks that the market may be hesitant to add any price premiums to the market unless rains don’t materialize by mid-October.[11] This is noteworthy as the two largest-producing states plant the majority of their soybeans in October:

  • Mato Grosso grew 27% of Brazil’s soybean crop last year and planted two-thirds of their crop in October[12]; and
  • The state of Parana plants over half of its crop in October; last year they produced 17% of the total Brazilian soybean crop.[13]

Blue Reef Agri-Marketing made a solid point last week that this time a year ago, the November 2017 contract rallied up to $10.43 on the Chicago Board of Trade before the end of 2016.[14] This, despite record soybean yields (and, subsequently, a record crop) being in the mix.

Currently, November 2018 soybeans are sitting just below $10.

They (and we) are wondering if there’s the possibility of that similar rally happening again before the end of 2017.

My feeling is that South American weather will have a significant impact on prices moving forward.

From a technical standpoint, Rich Nelson of Allendale was hoping that we’d see the Sunday night trade gap up above $9.87 level to push the market even higher.[15]

However, we are back near the double-top level of $9.78. As such, Rich notes that Friday’s close higher feels more like a bull trap.

Who’s the Wheat Boss?

The USDA attaché in Egypt says that the country will produce 8.1 million tonnes of wheat this year, based off 3.1 million acres planted. [16]

Imports for the North African country are pegged at 11.7 million tonnes in 2017/18.

This figure is up slightly from the official USDA forecast for 2016/17 of 11.4 million tonnes. 5.85 million tonnes of this was bought by the state grain buying agency, the GASC.

Between both the public and private sector procurement, Russia was the largest supplier at 4.5 million tonnes, Romania shipped over 1.26 million tonnes, and Ukraine exported 560,000 MT to Egypt.

Check out our piece last week regarding the rise of Russia as a power player in the global wheat trade.

It’s worth noting, however, that “inflated prices charged for private-sector baked goods have driven consumer demand down by 20% to 25%.” Egypt’s inflation was tracking at about 32% this year, mainly because food prices are up by 38% year-over-year.

As an indication of this, flour used in the private sector and large retailers has increased 100% in the past year!

Comparably, bread sold through the government-subsidized system is done at literally 1/10 the cost of its production.

Considering the devaluation of the nation’s currency, the cost to procure abroad has risen dramatically, meaning the cost of food prices domestically have increased in stride.

The obvious concern is the government-subsidized bread becomes more expensive. There are about 45 million people in Egypt who demand on this cheap source of nutrition. With a higher price, we might see some more geopolitical tension as the impoverished with a bad taste in their mouth.

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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