June 23 – Short-Term Caution

 In today’s Breakfast Brief, we take a look at the current pressures facing the grain markets, shifting soybeans acres and up and coming crop reports

“Human decision-making is complex. On our own, our tendency to yield to short-term temptations, and even to addictions, may be too strong for our rational, long-term planning.”

– Peter Singer (Australian philosopher)

$10/bu new crop green peas with Act of God
$12/bu new crop brown flax with Act of God
~$9/bu old crop #1 durum for June/July movement
 

Good Morning!

Grains this morning are mixed as the complex sits quiet after the sell-off from earlier in the week with traders sitting idle ahead of what likely will be a volatile next couple of weeks, especially with the June 30th acreage and quarterly stocks report next week.

Grain Prices In The Red

Monday and Tuesday were sell-off days as better weather, better prospects for South America and prices pulling back a bit there (namely Brazil as 2nd crop / safrinha harvest speeds up), and the Brexit vote today are all pushing volatility on the market. Funds headed for the exit signs in droves, pushing corn back below $4/bushel on the futures board, canola below $11/bushel, wheat to new monthly lows, and soybeans into the bottom half of the $11s. With crop ratings remaining elevated and the long-term outlook becoming for satisfying, the production/supply outlook is becoming more optimistic.

In the event of a Brexit (Britain leaving the EU) actually occurring with today’s vote, we would expect the US dollar to strengthen, putting downward pressure on the commodity complex in general. Historically, as Citibank analysts point out via the Financial Times, “commodities underperform during periods of significant macro/political uncertainty, at least over the short term.”

On the weather front, the sell-off could’ve been worse had it not been for some of the premium that’s currently priced in for a La Nina event negatively affecting North American crops this year.  That being said, a large swath of buyers have already left the ballpark as they believe that the rally is over, but we’re not yet at the critical pollination phase for corn (early July) and pod-filling stage for soybeans (August).

Optimistically, drier areas of the Midwest are expected to see some rainfall through the weekend, while drier parts of Ontario are likely to miss this week’s system, and the eastern half of the Canadian Prairies are expected to get doused again. Specifically, for Manitoba and SE Saskatchewan, we’re hoping that Mother Nature turns the tap off soon as crop quality and quantity potential is starting to be concerning (especially for edible beans!)

Shifting Soybean Acres

In Argentina, the Ag Minister says they’re expecting corn acres to jump 20% next year to produce a corn crop of 53 million metric tonnes, which intuitively means less soybean acres, pushing soybean production down to 55 million metric tonnes  Why the switch? After 1 year of no export tax on corn but still a 30% tax on soybeans, it’s not hard to figure out the math.  That being said, with President Macri’s government moving out of the way for business, it’s estimated that $58B will be invested into the Argentinian ag industry this year (40% to livestock, 60% to row cropping).

In Brazil, it’s been estimated that soybean acres could bump up by another 1 million acres to continue to compete with the US for the title of top producer. On the flipside, the USDA’s Brazilian attaché dropped its expectations for the Brazilian corn crop to 75 million metric tonnes and increased imports to 1.5 million metric tonnes (the biggest since 1999/2000), compared to the USDA’s forecasts for 77.5 million metric tonnes and 1.1 million metric tonnes respectively, and CONAB (the Brazilian USDA) estimates of 76.2 million metric tonnes and 1 million metric tonnes respectively.

In The Next Week…

Looking at potential production here in North America, 2 big reports are coming out next week: StatsCan’s acreage report on June 29thwhich we’ll be watching lentils, peas, and canola acres closely, in addition to the June 30th stocks and acreage report from the USDA. For the latter, most people are forecasting corn acres to fall about 1 million-1.5 million and soybean acres to jump to somewhere above 84 million acres.

However, Ted Seifried of Zaner Ag Hedge is suggesting that corn acres to actually jump up to 94M acres because (1) farmers wanted to plant corn, (2) last year’s Prevent Plant acres are going into corn, and (3) because wheat prices aren’t great, farmers in those fringe areas are opting for corn instead.

Overall, there’s been plenty of opportunity to manage price risk and lock something in over the past 2 weeks since we made our call on June 7th that this rally would hit a barrier and drop if weather started to cooperate. This in mind, we likely won’t see those levels again without some serious changes to acreage or weather, so the next 2-3 weeks are likely to prove volatile with the aforementioned reports and constantly changing weather forecasts amplifying volatility and fund managers’ short tempers and immediate gratification needs.

Currently recommending that you post on FarmLead and lock up any feed wheat or feed barley still in the bin to move before Harvest 2016 as we feel values are dropping the closer we get to the combines coming out.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
1-306-665-8740 (Office)
www.FarmLead.com
@FarmLead (on Twitter)

At 6:25 AM CDT in the North American futures markets:

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.2722 CAD, $1 CAD = $0.786 USD)

Sept Corn: -2¢ (-0.5%) to $3.963 USD or $5.041 CAD
Aug Soybeans: -2.3¢ (-0.2%) to $11.35 USD or $14.439 CAD
Aug Soybean Meal (per short ton): +$0.50 (+0.15%) to $392.40 USD or $499.21 CAD 
Aug Soybean Oil (cents per lbs): +0.02¢ (+0.05%) to 31.71¢ USD or 40.34¢ CAD 
Sept
 Oats: +0.5¢ (+0.25%) to $2.113 USD or $2.688 CAD

Sept Wheat (Chicago): +2.3¢ (+0.5%) to $4.745 USD or $6.037 CAD
Sept Wheat (Kansas City): +1¢ (+0.2%) to $4.52 USD or $5.75 CAD
Sept Wheat (Minneapolis): +2.5¢ (+0.45%) to $5.373 USD or $6.835 CAD
Nov Canola: +0.9¢ / +$0.40/MT (+0.1%) to $8.758/bu / $386.16/MT USD or $11.142/bu / $491.30/MT CAD

Yesterday’s Winnipeg ICE Close

Oct Barley: unchanged at $2.935 USD or $3.734 CAD
Oct Durum Wheat: unchanged at $6.332 USD or $8.056 CAD
Oct Milling Wheat: unchanged at $4.813 USD or $6.123 CAD

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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