September 26 – Looking to Friday’s Grain Stocks

FarmLead Breakfast Brief
Tuesday, September 26th, 2017

“Mondays are a good day to make statements, not Friday.”
– Ernie Els (South African pro golfer)

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 = $1.2385 CAD, $1 CAD = $0.8074 USD)

Dec Corn: -1¢ (-0.3%) to $3.528 USD or $4.369 CAD
Nov Soybeans: -3.3¢ (-0.35%) to $9.68 USD or $11.989 CAD
Dec Soybean Meal (per short ton): -$2 (-0.65%) to $312.30 USD or $386.80 CAD
Dec Soybean Oil (cents per lbs): -0.15¢ (-0.45%) to 34.16¢ USD or 42.31¢ CAD  
Dec Oats: +0.5¢ (+0.2%) to $2.513 USD or $3.112 CAD
Dec Wheat (Chicago): +1¢ (+0.2%) to $4.55 USD or $5.635 CAD
Dec Wheat (Kansas City): +0.5¢ (+0.1%) to $4.525 USD or $5.604 CAD
Dec Wheat (Minneapolis): -1.5¢ (-0.25%) to $6.473 USD or $8.016 CAD
Dec Canola: +1.6¢/bu / +$0.70/MT (+0.15%) to $9.083/bu / $400.47/MT USD or $11.249/bu / $496/MT CAD

Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.602 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.219 USD or $7.702 CAD
Dec Milling Wheat: +13.6¢ (+2.15%) to $5.208 USD or $6.45 CAD

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Looking to Friday’s Grain Stocks

Grain markets this morning are mostly in the red due to a stronger U.S. Dollar and reduced fears of weather delays to harvest season. [1]

Wheat prices are bucking the trend as they continue to try and grind higher.

Corn basis levels are widening at elevators across the U.S. as stocks are plentiful and storage is becoming rarer. [2]

Many analysts, including us, believe that the lows are in, but wider basis levels aren’t helping anyone.

Are you still hoping for corn to get to $4.00 per bushel at the Chicago Board of Trade? The probability of that happening before seeding begins next spring is declining with each passing month. [3]

While U.S. soybeans sales have been robust, a similar theme is happening in Brazil.

AgResource noted that Brazil shipped out 863,000 MT of soybeans last week (or 31.7 million bushels if you’re using GrainUnitConverter.com). [4]

Some analysts might respond: “Well America exported 37.9 million bushels last week.”

Yes, the U.S. did.

However, we are getting close to the ceiling for American soybean export sales.

In Brazil, their export season is supposed to be winding down.

Comparably, a year ago in Brazil, less than half this past week’s amount was exported. The week before last, 559,000 MT of soybeans got shipped out. Thus far, sales commitments are sitting at a record 61.8 million tonnes. This figure is up 22.5% compared to last year, or 11.3 million tonnes more.

It’s worth noting though that this week is the Chinese mid-Autumn holiday. Bean buying typically slows down during holidays in the People’s Republic. Regardless, this continues to align with our thesis that the most bearish thing about soybeans is Brazil.

Speaking of slowing down, we continue to see headlines on smaller-than-expected cattle herd sizes in Canada. [5] This is intuitively bearish for feed grains.

While grain production in Canada is certainly going to be down from last year’s numbers, last year was a relatively big crop, and that means that there’s a healthy amount of carryout.

I’m not trying to be a Debbie Downer.

I’m just trying to help you gauge your price expectations.

We’ve been recommending making sales on feed grains these past few weeks.

Post your lot on FarmLead today.

What’s certain is that we’re in the last week of September and the third quarter of the calendar year.

As fund managers short up their books, we could see some fireworks, highlighted by the Quarterly Stocks Report on Friday (more on that later).


USDA Crop Progress Update

As Garrett mentioned in the Grain Markets Today, traders were a bit disappointed with the pace of the corn harvest. However, they were unsurprised by the crop ratings.

Corn’s good-to-excellent G/E ratings were unchanged from last week at 61%. [6]

Soybeans G/E ratings gained 1 point to 60%.

What’s notable is that the percentage of corn rated mature continues to lag behind. Just 51% is rated mature, compared to 70% a year ago and the 5-year average of 64%.

As for harvest speed, the market was expecting 14% of the U.S. corn crop to be combined thus far. This number would match last year’s pace, but the USDA said that farmers only cleared 11% of American corn fields. The 5-year average is 17% by this time of year.

For soybeans, the U.S. harvest is now at 10% complete, slightly behind the 5-year average of 12%.

On the flipside, 24% of the U.S. winter wheat crop has been seeded thus far. This is a bit behind the 5-year average of 28%. It also comes at a time though when U.S. winter wheat prices are rebounding a bit.

As AgChieve notes, the reversal that we saw earlier in the month has propelled commonly traded Chicago soft red winter wheat. Yesterday, the December contract saw its highest close in the last six weeks!

cbot-wheat-price-reversal-september-2017
Chicago Wheat Prices Have Seen A Nice Run This September

 

Looking at the other side of the equation, the Southern Plains are expected to get some good rains this week, which will certainly help seeds that just got planted. [7]

This also coincides with Russian wheat prices for 12.5% protein also rallying. [8]

FOB Black Sea prices are currently sitting around $5.15 USD or $6.35 CAD per bushel.

However, higher oil prices recently will support the Russian Ruble, making it more expensive in U.S. Dollar terms to purchase products from Russian ports.

That being, Russian President Vladimir Putin wants to end trade all Russian seaports in U.S. Dollars.[9]

The problem is that the U.S. Greenback is the most liquid currency in the world and is not subject to the incredibly volatile swings that a currency like the Ruble will experience.

Conclusion: Vlad might not get his way anytime soon.


Friday’s Stocks Reports

This Friday we’ll get the USDA’s quarterly stocks report. This is an important one as it gives U.S. the data for corn and soybean inventories as of Sept. 1, or the official beginning of the 2017/18 crop year.

The average estimate for available U.S. corn stocks to start the new crop marketing year is 2.246 billion bushels. [10] That figure would be 29% higher than where we have begun the 2016/17 crop year.

For soybeans, the average guesstimate is for 339 million bushels.

This figure would be 72% more than the 197 million that was available as of Sept. 1, 2016.

While this report is mainly about what we have going forward, it also sheds some light on how much corn went into the feed category. For the most part, demand factors like corn-for-ethanol use and soybeans crush are better-known.

These numbers are reported on a regular basis. Livestock demand is not.

Finally, what usually happens in this report?

Historically speaking, things are, often and unfortunately, bearish.

Soybean prices tend to fall more than two-thirds of the time, and a week later, 71% of the time they continue to fall.

For corn, things are a bit better.

It’s worth noting that 63% of the time, corn prices fall after the report, but a week later, 54% of the time corn prices rebound.

In my opinion, the reason behind the perpetual bearishness is that the market becomes too optimistic on how much grain is being used. Even if over by a couple of million bushels, that will move the needle down.

However, if they underestimate demand, then prices will move a bit.

That improvement will build in overtime. It doesn’t mean that it will happen right away.

Friday’s grain stocks report will give some fresh insight into expectations moving forward.

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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