Sept 5 – Trying to Catch a Falling Knife

FarmLead Breakfast Brief
Tuesday, September 5, 2017

“A mind that’s all logic is like a knife that’s all blade: It makes the hand bleed that uses it.”
– Rabindranath Tagore (Indian author)

Good Morning!

At 7:35 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2392 CAD, $1 CAD = $0.807 USD)

Dec Corn: +3.5¢ (+1%) to $3.588 USD or $4.445 CAD
Nov Soybeans: +11¢ (+1.15%) to $9.605 USD or $11.902 CAD
Oct Soybean Meal (per short ton): +$3.70 (+1.25%) to $299.20 USD or $370.76 CAD
Oct Soybean Oil (cents per lbs): +$0.08 (+0.25%) to 35.50¢ USD or 43.99¢ CAD  
Dec Oats: +3.5¢ (+1.5%) to $2.398 USD or $2.971 CAD
Dec Wheat (Chicago): +6.3¢ (+1.4%) to $4.45 USD or $5.514 CAD
Dec Wheat (Kansas City): +6.5¢ (+1.5%) to $4.453 USD or $5.517 CAD
Dec Wheat (Minneapolis): +0.3¢ (+0.05%) to $6.32 USD or $7.831 CAD
Nov Canola (Winnipeg): +5.7¢/bu / +$2.50/MT (+0.5%) to $9.149/bu / $403.42/MT USD or $11.338/bu / $499.90/MT CAD

Friday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.548 USD or $3.157 CAD
Oct Durum Wheat: -2.7¢ (-0.35%) to $6.479 USD or $8.029 CAD
Oct Milling Wheat: -16.3¢ (-2.5%) to $5.095 USD or $6.314 CAD

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Trying to Catch a Falling Knife

Grain markets this morning are in the green to start off the shortened-trading week on a positive note.

Frost in Australia is supporting the bulls in the wheat complex this morning.[1]

The US dollar continues to slip on concerns over the effectiveness of the Trump government and getting legislation passed.

Over the weekend, Garrett and I recapped really what went down in grain markets in August. High-level takeaways are that oats and wheat prices sank big time on the futures boards, while corn, soybean, and canola had limited losses.

Canola is currently being pressured by the corresponding stronger Canadian Dollar. It hit a 2-year high on Friday, topping 81 cents USD. This puts pressure on the canola complex as a stronger Loonie makes it more expensive for international buyers who purchase in USD. Tomorrow morning we’ll get StatsCan estimates as to how much canola will be carried over into the 2017/18 crop year.

We may see even higher CAD levels as the Bank of Canada looks to raise interest rates again this week. This is mainly because of a positive economic report that shows Canada’s economy is growing at twice the rate that America’s is.[2]

Canola losses have been limited though by gains in the soybean and soyoil complex.  On Friday, Allendale Brokers also came out with their annual US-farmer yield survey.[3] It showed an estimate of 47.1 bushels per acre.

Comparably, FC Stone raised their estimate last week to 49.8, well above their estimate from August of 47.7. The USDA’s forecast is currently 49.4 but it is likely to be revised next Tuesday in their September WASDE report. Allendale claims that if their survey results are accurate, soybeans are undervalued by $1 USD bushel right now.

Key technical points that they’re looking at on the November soybeans contract is $9.07 for support and $9.60 for resistance.

The debate also continues over how much demand will come back to the US after taxing Argentinian and Indonesian biodiesel imports. Argentinian growers certainly are not happy about the levies but are optimistic about other demand regions, like the EU.[4]

In the broader oil complex, the main pipeline that moves gasoline from Texas refineries to the American East Coast is getting turned back on today. Refineries who shut down because of Hurricane Harvey are resuming operations faster than the market was anticipating.


Capturing Carry in Corn Prices

For corn, the Allendale survey showed an average of 166.7 bushels per acre. Comparably, the USDA is currently sitting at 169.5 from the August WASDE report. On Friday, FC Stone moved from 162.8 to 166.9!

Right now, corn prices are paying the farmer to hold their grain and/or lock-in available better prices a few months out.

Are the lows in? It’s not an exact science but unless there’s another very bearish report, like the USDA saying average yields are 170 bushels per acre or something, I would say we’re close.

Bryan Doherty of Top Farmer says it’s easy to get complacent when corn prices are low.[5] Really though, that’s applicable for pretty much every crop.

Right now, long-time analyst Jerry Gulke says that the carry in the corn market could be as much as 45 – 65 cents USD / bushel.[6]

As AgChieve points out in their chart, we saw corn futures started to turn up in the first week of September 2016.

This in mind, plus how harvest pressure and old crop sales are starting to negatively impact basis levels, making cash sales on your new crop corn doesn’t make a lot of sense. Trying to keep in mind where your cost of production is, today might not be the best time to make a sale.

However, I remind you that if you have cash or storage needs, you should put it up on FarmLead to have the entire market play ball with you.

corn-prices-improving-after-old-crop-contract-expiry
Corn Prices Improving After August Slide

 

Durum Prices Sliding

Over the last few days, I’ve heard some rumours in the durum wheat market. The first rumour came from a grain marketing company who says that durum prices have practically no upside because ofthe amount of feed supplies still in the Canadian pipeline.

This means that there are farmers with #3, #4, or #5 Canadian-grade durum quality who are looking to sell it into the milling market. The company says to move to 30% sold.

The second rumour is from some buying agents who argue that US mills are bought up through February.

On the latter, I’ve talked with these mills and it doesn’t appear to be true. If they’re bought up to February, you wouldn’t have seen sales above $10 CAD / bushel in July.

On the first rumour, there’s definitely some lower-quality 2016/17 supply that will make it into the pipeline. Sure, this will weigh on the upside potential but there’s still upside potential nonetheless. Second, making sales during harvest time is a big no-no in my books.

Finally, the company making this call missed the highs of the durum market in November 2014. They were telling farmers to wait for higher prices when $12, $13, and $14 CAD / bushel that was already trading at that time.

How many times in your durum wheat farming career (or any crop for that matter) have you seen the best price of the year in the first week of September?

“Very rare” and “nothing comes to mind” were the answers I got when I asked a few wily veterans who’ve planted more than 40 durum crops each.

A week ago, in the August 29th, 2017 Breakfast Brief, I discussed what we’re selling right now. Durum wheat is not one of them. Yes, durum prices have fallen. But don’t be the one trying to catch a falling knife.

Know your grain and get it tested (easily order from GrainTests.com here). If you’re a Canadian producer, I strongly recommend you get US grading tests done too. And take some good samples, would ya? Here’s the FarmLead grain sampling cheat sheet. Download, print, and have your harvest team read it. It’s a simple job to do, especially for the youngest of your harvest team members.

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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