July 29 – Hurting The Books

In today’s Breakfast Brief, we are going to discuss smaller than expected grain harvest in Europe, IGC’s increasing estimates, and the US Wheat Quality Council’s spring wheat tour.

“Life is not always like chess. Just because you have the king surrounded, don’t think he is not capable of tingting you.”

– Ron Livingston (US actor)

 

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Good Morning!

Grains this morning are mostly in the red (echoing last Friday’s start) on poor export sales numbers from last week and new rains in the forecast are putting pressure on the bulls calling for crop-killing heat (again) the next few weeks. The World Meteorological Organization is calling for a weak La Nina to develop by September but more than likely to taper off towards the beginning of 2017. With some of the drier weather in Western Canada (finally!) combines are starting to roll, with fall cereals and the earliest of peas getting taken off first.

Shrinking Grain Exports

On a macro front, the U.S. Federal Reserve has suggested that they may raise interest rates as soon as September, citing less near-term risks as a catalyst for the move, which would bring strength to the US Dollar and put pressure on the commodity complex. A stronger US dollar would certainly put pressure on US grains’ exportability, but Bunge believes that it’s poised to benefit with good crush margins and exportability if the US crop comes off as large as things are poised to do.

Conversely, slower farmer selling and smaller crops in South America are expected to keep hurting Bunge books.The earliest harvested fields in the freshly-Brexit-ed United Kingdom are coming in a little bit lower than were originally expected in terms of size and quality as “think lush crops” got hit with some heavy rains in the past month, leading to crop lodging. In addition to now missing out on EU common agricultural policy subsidies, UK farmers are also dealing with lower test weights and higher percentage of screenings have become commonplace, especially on winter barley with loads being rejected or stiff discounts being applied.

The first rapeseed crops getting harvested are a little smaller than expected as well, which could drop the potential for exportability. In that theme, the International Grains Council cut the EU’s rapeseed output to a 4-year low of 21.1 million metric tonnes (-500,000 metric from last month) as both French and Germany’s crops were downsized by 300,000 metric tonnes a piece to 4.8 million metric tonnes and 4.9 million metric tonnes respectively.

Feeding The Bear

Unless you’ve been hiding under a rock, you’re well aware right now of our bearish outlook on the markets right now. To cement these ideas, the IGC raised their expectations for the global grains harvest, calling for a 2.046 Billion-tonne crop, only the 2nd time in history the 2 Billion-tonne mark has been crossed (the other being the record set 2 years ago of 2.047 Billion tonnes). The main cause of the upgrade was the corn crop, raised by 14 million metric tonnes from last month to 1.017 Bilion tonnes, which would be a 5% jump year-over-year, with most of the upgrade attributed to a bigger American crop. The global wheat crop was upped to 735 million tonnes, thanks to bigger harvests out of the Black Sea and the US, while world soybean production was increased to 321 million metric tonnes (+1.6% YoY) with better prospects in America and likely more acres in Brazil.

The 3rd day of the US Wheat Quality Council’s spring wheat tour through the Dakotas and Minnesota continues to show a slightly smaller crop than past years. With some drier conditions that farmers planted into this spring, the tour is estimating an average yield of 45.7 bu/ac for hard red spring wheat, down from last year’s 49.9 and the 5-year average of 46. Conversely, durum wheat yields are expected to fare much better, estimated by crop tourers at 45.4 bu/ac, a 16% jump from last year’s 39.2 bu/ac, and even better than the 5-year average of 38.3 bu/ac. Overall, the US total wheat crop continues to impress, as do those in the Black Sea and potentially here in Canada as the crop gets closer to coming off.

Kansas author and historian Leo Oliva says that in 2016 dollar terms, wheat prices are currently the worst they’ve ever been with current levels of sub $4/bushel (accounting for basis) is well behind any other prices when adjusted for inflation (i.e. Kansas wheat sold for 38 cents/bushel in 1932, which, accounting for inflation, would be $6.67/bushel). From an aggregate perspective, this obviously hurts, but the sooner we can come to grips with the game in front of us, the sooner we can form a plan.

Right now, we’re recommending posting another 10% block or 2 of yellow peas (low $8s CAD targets on FarmLead) and looking at locking up late 2016 basis for canola (targeting $5 to $10 under the January Winnipeg futures). Post these targets on FarmLead and give your grain the ability to get bought by more than just one buyer.

Have a great weekend,

To growth,

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

At 6:20 AM CDT in the North American futures markets:

(all prices in dollars per bushel unless otherwise indicated)

$1 USD = $1.3158 CAD, $1 CAD = $0.76 USD)

July Corn: -1.3¢ (-0.4%) to $3.30 USD or $4.342 CAD
July Soybeans: -7.5¢ (-0.75%) to $9.858 USD or $12.97 CAD
July Soybean Meal (per short ton): -$3.20 (-0.95%) to $339.60 USD or $446.85 CAD 
July Soybean Oil (cents per lbs): -0.05¢ (-0.15%) to 29.59¢ USD or 38.94¢ CAD 
July
 Oats: -1.8¢ (-0.8%) to $1.965 USD or $2.586 CAD

July Wheat (Chicago): -2.5¢ (-0.6%) to $4.078 USD or $5.365 CAD
July Wheat (Kansas City): -2.3¢ (-0.55%) to $4.068 USD or $5.352 CAD
July Wheat (Minneapolis): -0.8¢ (-0.15%) to $4.86 USD or $6.395 CAD
July Canola: -2.5¢/bu / -$1.10/MT (-0.25%) to $7.758/bu / $342.08/MT USD or $10.208/bu / $450.10/MT CAD

Yesterday’s Winnipeg ICE Close

July Barley: -10.9¢ (-3.35%) to $2.399 USD or $3.157 CAD
July Durum Wheat: unchanged at $5.378 USD or $7.076 CAD
July Milling Wheat:
 unchanged at $4.282 USD or $5.634 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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