FarmLead Breakfast Brief
Thursday, September 28th, 2017
“In a rising market, enough of your bad ideas will pay off so that you’ll never learn that you should have fewer ideas.”
– Daniel Kahneman (Israeli psychologist)
At 7:20 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2469 CAD, $1 CAD = $0.802 USD)
Dec Corn: -1.3¢ (-0.35%) to $3.528 USD or $4.398 CAD
Nov Soybeans: -6¢ (-0.6%) to $9.595 USD or $11.964 CAD
Dec Soybean Meal (per short ton): -$2.10 (-0.65%) to $311.20 USD or $388.03 CAD
Dec Soybean Oil (cents per lbs): -0.18¢ (-0.55%) to 33.04¢ USD or 41.20¢ CAD
Dec Oats: +1¢ (+0.4%) to $2.49 USD or $3.105 CAD
Dec Wheat (Chicago): -2¢ (-0.45%) to $4.595 USD or $5.729 CAD
Dec Wheat (Kansas City): -2¢ (-0.45%) to $4.57 USD or $5.698 CAD
Dec Wheat (Minneapolis): -0.5¢ (-0.1%) to $6.493 USD or $8.095 CAD
Dec Canola: -3.9¢/bu / -$1.70/MT (-0.35%) to $8.931/bu / $393.78/MT USD or $11.136/bu / $491/MT CAD
Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.584 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.177 USD or $7.702 CAD
Dec Milling Wheat: +2.7¢ (+0.45%) to $5.151 USD or $6.423 CAD
Which Rises First: Corn or Wheat Prices?
Grain markets are slightly in the red this morning.
Yesterday, grain prices gained on weather issues and decent soybeans export sales. These factors outweighed the increasing strength of the U.S. Dollar, which has been fueled by recent monetary policy decisions by the Federal Reserve. .
The market is preparing for tomorrow’s release of the USDA’s quarterly stocks report.
I’ll discuss this a bit more Friday before the report.
However, you can get started by my insight checking out Tuesday’s Breakfast Brief.
Canadian Harvest & Exports
Western Canada, specifically central Saskatchewan, is expected to see some rain by the end of the weekend, with some areas more susceptible to see snowflakes. 
Expect some urgency, as there are roughly three days for farmers in those areas to finish up Harvest 2017. If they cannot, they will face similar challenges from last fall.
But the big story today is the depreciation of the Canadian Dollar Wednesday. The Loonie decline the most it ever has in 8 months after the Bank of Canada’s governor Stephen Poloz said there wasn’t a set-in-stone path for further interest rate hikes. 
The market interpreted his comments as evidence that we will see no interest rate hike anytime soon.
But it’s not just the Loonie on our mind this morning.
The Canadian market is having a tough time interpreting India’s current position on the fumigation of pulse crops.  The current three-month exemption of Canadian pulses not requiring fumigation before leaving Canadian ports is set to expire on Saturday, Sept. 30.
This has been an ongoing subject of debate for a couple years now and it continues to be side in the thorn of many exporters doing business into India. Basically, the cost of fumigation at the port of origin would intuitively be passed down to the producer. Today that doesn’t have to happen because of the exemption but if the exemption is lifted, this likely mean lower prices for pulses (or at least those going to India).
Thoughts on Rabobank’s Forecast
In the American Midwest, drier conditions will accelerate the harvest’s pace.
However, the weather could negatively affect any recently seeded winter wheat.
Rabobank, in its most recent forecast update, believes that winter wheat prices have more of a neutral outlook with markets trading sideways until more weather headlines appear. 
Still, the firm’s analysts do believe Chicago corn prices could rally up to $3.80 USD/bushel in Q1 2018.
The primary thesis behind Rabobank’s elevated forecast has two parts. They believe:
- the USDA’s yield forecast of 169.9 for the average American corn acre is too high, and
- domestic prices in Brazil are not encouraging planting there. Local corn prices in Mato Grosso are currently running around $2.00 USD/bushel.
With the U.S. harvest underway, what should we think of Rabobank’s corn rally argument?
My gut tells me that pop is very possible.
However, I want to see tomorrow’s stocks report first. A bearish number would curtail such optimism.
Right now, analyst expectations call for the USDA to report the largest corn inventory number to begin a new crop year since 1988.
There’s one other factor worth considering.
The reduction of Chinese corn acres and production in 2017/18 is becoming more important. 
Without a minimum price support, farmers in China’s top corn-producing province of Heilongjiang are switching from corn-for-grain to corn-for-silage. They are also switching out acres completely for soybeans and other livestock feedstuffs. This will be a key supply factor for U.S. to monitor in the future.
Argentina’s Corn vs. Soybeans Debate
In Brazil, farmers prefer soybeans to corn.
But that’s not happening in Argentina.
The Buenos Aires Grains Exchange (BAGE) now forecasts an Argentinian soybean harvest of 54 million tonnes in 2017/18.
This figure is down from the official 2017/18 USDA forecast of 57 million tonnes and 2016/17 crop of 57.5 million tonnes.
So, what is driving the preference of corn for farmers?
Argentina’s President Macri was elected almost two years ago under the guise that he would remove export taxes on agricultural commodities like corn, wheat, and soybeans.
Today, there are no export taxes on corn or wheat.
But soybeans face a tax that barely moved from 35% to 30%.
As is usually the case, this export tax is passed back to the farmers and leaves them less incentivized to plant beans.
There is some good news for Argentinian farmers though.
The Argentinian government will begin cutting the soybean export taxes by 0.5% each month starting in January 2018.  This reduction will continue for two years. By the end of 2019, the Argentinian soybeans export tax should sit at 18%.
As a result, we could see many farmers hold onto their beans until the tax drops for a better price.
Right now, corn offers a better return than soybeans in Argentina.  In some areas of Argentina, the 2016/17 corn harvest is just finishing up. The USDA pegged this crop at 41 million tonnes whereas the BAGE thought it was below 40 million tonnes.
Moving over into 2017/18, current USDA estimate for the Argentinian corn crop Is 42 million tonnes.
The BAGE thinks the final number will be 41 million tonnes. Today, about 12% of the 2017/18 corn crop has been planted thus far.  This figure is usually about double this by the end of September, but rains have slowed progress.
Those same storms are starting to increase the likelihood of a poorer Argentinian wheat crop. One-third of their wheat fields are rated to have excess moisture while 45% of the fields are said to have adequate moisture. There’s been a stretch of dry weather in the country, but rains are expected to return next week. 
These poor conditions would suggest that maybe a poorer-quality crop but it is way too early in the game to make these assumptions. I discussed in yesterday how your grain marketing plan should not be based on “what Ifs.”
Another Record Russian Wheat Crop in 2017/18?
Finally, Russia continues to be a major bearish factor for the wheat markets.
SovEcon recently released a bold prediction for Russia’s 2017/18 wheat crop: another bumper harvest. 
Their thinking is that the strong start to the fall seeding campaign of winter crops will exceed official acreage targets of 43.2 million acres.
Already, 27.7 million acres have been seeded. That number is running only about 4% above last year’s pace, but SovEcon thinks that a total of 44.7 million acres of winter crops could get seeded this year.
About 87%, or nearly 39 million acres, would be attributed to winter wheat.
Comparably, Societe Generale thinks that U.S. winter wheat acreage will decline to 31.8 million acres.
The obvious question remaining is Mother Nature (it always is in farming).
If we see average weather conditions, then the possibility of a bumper crop is very likely.
Unlike many other parts of the world, wheat is currently an extremely profitable crop to grow. Societe Generale currently pegs the cost of production for Russian wheat farmers at about $2.75 USD/bushel or about $100 USD/metric tonne.
Factors keeping this figure low include cheaper labor costs and the lower cost of fertilizers and land.
With Russia able to produce a lot of wheat, the next question being asked is can they ship it to the world markets?
Garrett looked at this issue in detail last week, and right now, there’s certainly a lid on Russian agricultural export capacity.
Rusagrotrans is suggesting that Russian grain exports in September will set a new record for the month of 5.2 million tonnes.  The previous record was set last September at 4.84 million tonnes.
In conclusion, I argue that wheat prices (especially winter wheat prices) will sway to what the weather’s doing in the Black Sea.
The underlying known factor is that there is still a lot of production potential, even with slightly elevated winterkill percentages.
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