FarmLead Breakfast Brief
Thursday, September 7th, 2017
“People who demand neutrality in any situation are usually not neutral but in favor of the status quo.”
– Max Eastman (American author)
At 6:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2194 CAD, $1 CAD = $0.8201 USD)
Dec Corn: -1.5¢ (-0.4%) to $3.595 USD or $4.384 CAD
Nov Soybeans: +4.8¢ (+0.5%) to $9.758 USD or $11.898 CAD
Oct Soybean Meal (per short ton): +$0.40 (+0.15%) to $306 USD or $373.13 CAD
Oct Soybean Oil (cents per lbs): +$0.41 (+1.15%) to 35.71¢ USD or 43.54¢ CAD
Dec Oats: +1¢ (+0.45%) to $2.348 USD or $2.862 CAD
Dec Wheat (Chicago): -1¢ (-0.2%) to $4.448 USD or $5.423 CAD
Dec Wheat (Kansas City): +0.3¢ (+0.05%) to $4.49 USD or $5.475 CAD
Dec Wheat (Minneapolis): +5.5¢ (+0.85%) to $6.50 USD or $7.926 CAD
Nov Canola (Winnipeg): +2.7¢/bu / +$1.20/MT (+0.25%) to $9.27/bu / $408.74/MT USD or $11.304/bu / $498.40/MT CAD
Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.589 USD or $3.157 CAD
Oct Durum Wheat: -5.4¢ (-0.7%) to $6.495 USD or $7.92 CAD
Oct Milling Wheat: +8.2¢ (+1.3%) to $5.245 USD or $6.396 CAD
Looking for Grain Demand Consistency
This morning, grain markets are mostly in the green.
A lower US Dollar and some increased buying are fueling the uptick. The US Dollar hit a 2-year low yesterday against both the Canadian Loonie and Euro.
Today, European Central Bank leader Mario Draghi will speak on monetary policy, but it’s unclear what his team has planned on interest rates.  In Canada, however, it’s a different story.
Yesterday, the Bank of Canada raised its benchmark interest rate to 1%.  The policy makers based their hike on strength in business investment and exports. However, the Canadian economy tends to slow down in the 4th quarter.
This means the rate hike may have arrived a bit too early.
Further, Canadian households already hold a staggering amount of debt. Higher borrowing costs aren’t necessarily a great thing.
Across the 49th parallel, the US Federal Reserve is toying with the idea of raising interest rates again.
However, Federal Reserve governor Lael Brainard recently warned that it could be tough to raise interest rates with persistently low inflation. 
Moving to weather, last week, we saw the devastating impact of Hurricane Harvey on the US Gulf Coast, namely Texas. The market is now eyeing Category 5 Hurricane Irma. 
The strongest storm ever recorded in the Atlantic Ocean should make landfall in Florida by Sunday after wreaking havoc in the Caribbean with winds as high as 185 MPH. 
How will Irma potentially affect crops and/or logistics?
East Coast ports are more vulnerable than others. However, there’s a larger question of whether the remnants of the hurricane will bring some needed rain into the Eastern Cornbelt. Garrett discussed some of the potential negative impacts in Grain Markets Today yesterday.
Coming back to logistics, Russia’s Ag Ministry is proposing subsidies for railways to move more grain to southern Black sea ports.  Grain prices in Russia are falling as international demand is looking for consistent options since their ability to move product efficiently is limited by infrastructure. 
What’s Up in Brazil and Argentina?
As we head into the weekend, Brazilian farmers are allowed to start planting first-crop soybeans on Sept. 10 in the south and Sept. 15 in Mato Grosso. 
Both regions are a little drier than most farmers would like and there doesn’t look to be much rain in the 10-day forecast.
Nonetheless, it’s estimated the Brazilian producers will seed nearly 86 million acres of soybeans for their 2017/18 crop. Production estimates are mostly around 110 million tonnes, slightly behind the 2016/17 record harvest of 114 million tonnes.
Soybeans continue to offer the most profitability in Brazil, according to a recent study by CONAB. 
However, the Brazilian Real has appreciated nearly 10% against the US Dollar in the past two months. 
This has happened as grain markets fell from mid-summer highs (as recounted in the August Grain Markets review). Net-net, the combo of a stronger currency plus weaker US futures markets equals lower domestic grain prices in Brazil.
This all adds up to slower producer selling down there.
Next door in Argentina there are some wetter concerns, but it’s not enough to write off the wheat crop that recently got planted there.  Southern provinces are the wettest while northern areas have enjoyed the much better weather.
Despite some of the wetter planting challenges, the Buenos Aires Grains Exchange things that farmers in Argentina planted 13.2 million acres of wheat this year. That’s up almost 5% from last year. The increase is mainly due to the government scrapping wheat export taxes.
With more wheat potentially coming out of Argentina, it will have to compete with the likes of Australia and Russian wheat.
StatsCan 2016/17 Grain Stocks Report
Yesterday morning, Statistics Canada came out with their estimates of available grain still left in Canada for the 2016/17 crop year.  At first glance, canola numbers were low, durum numbers were high, and there’s a lot of barley still available.
On wheat, the market was expecting 6 million tonnes of all types, but StatsCan served up a bit of a bearish number at 6.865 million tonnes. It’s also about nearly 18% below the 5-year average.
At the end of the past five crop years, Canadian farmers have owned about 43% of all total wheat inventories at the end. This year, it’s just 35%, meaning commercials own product than usual to end 2016/17.
Available durum stocks in Canada jumped nearly 70% year-over year to 1.86 million tonnes. That’s also 45% higher than the 5-year average. From a holdings standpoint, Canadian farmers still have a lot of durum in the bin. Specifically, over the past five years, they’ve usually had only 443,000 MT left in the bin by the end of July.
This year it’s 980,000 MT.
This means farmers are holding onto more than 50% of total available Canadian durum supplies, instead of the 35% they usually do. I still think that there’s upside in durum prices but as we discussed in Tuesday’s Breakfast Brief, upside potential will be limited by old crop carry over trying to earn a premium.
There’s certainly lots of barley also carrying over into the 2017/18 crop year in Canada. The market was expecting 1.8 million tonnes, but StatsCan delivered a 2.1 million-tonne handle. That’s 47% above last year and 56% more than the 5-year average!
For other crops, total available oats are sitting at 690,000 MT (-33% year-over-year, -12% from 5-year average) while there’s still 135,000 MT of rye available (+225% YoY, +300%. Yes, these numbers are accurate).
Available flax inventories of 191,000 MT are more than 40% above what’s usually seen at the end of a crop year, but it is a 31% drop year-over-year. There are also 301,000 MT of peas still available in Canada (+73%, -7.4%) and 405,000 MT of lentils (+455%, -21%).
Canola stocks in Canada dropped to a four-year low of 1.35 million tonnes. 
This is down 25% from the 5-year average. Average pre-report guesstimates were for 1.5 million tonnes. Accordingly, giving the diminished potential of this year’s Canadian canola crop, many farmers are optimistic about better prices.
I would also say that I’m in that camp, but there’s an interesting fact in the numbers this year: farmers are holding on to a lot less canola than in years past. Specifically, only 430,000 MT of canola was still left in Canadian farmers’ bins by the end of July 2017. This amount is 52% lower than what is normally held by farmers to end a crop season.
Digging deeper, the allocation of canola stocks at the end season is usually a 50-50 split between farmers and commercials. However, going into 2017/18, commercials are holding more than 2/3s of all available inventories (basically a similar story to total wheat stocks allocation).
There are two possible scenarios here that play out:
It may suggest that the commericials’ willingness to bid up for more canola supply may be suppressed in the short term. Conversely, because they still own an absolute amount of about 918,000 MT or just 2% above what they normally have at the end of the July, buying will continue.
My conclusion: it’s business as usual, but you certainly should not expect better basis for canola prices in the short-term.
Nonetheless, with the International Grains Council recently raising their estimate of Canadian canola exports to 11.1 million tonnes for the 2016/17 crop year, we should expect that sort of demand to consistent in 2017/18, meaning higher canola prices in the longer term.
“How high?” is the next question to be answered.