January 22 – Grain Markets Heating Up the Bears vs Bulls Battle

Good Morning!

Grain markets this morning are mostly in the green as North and South American weather premium are supporting the complex.

“Those who cannot understand how to put their thoughts on ice should not enter into the heat of debate.” – Friedrich Nietzsche (German philosopher)

graincents-trial

Grain markets are mostly on the green this morning as South American weather premium – namely that out of Argentina – continues to support soybean prices. Rains that were supposed to materialize over the weekend didn’t show up, and now weather models are looking even drier moving forward.

As Garrett noted in Grain Markets Today on Friday, soybean prices were on the rise thanks to said weather premium. The big data point that the market was going off was the crop report from Buenos Aires Grains Exchange. Just 37% of the soybean crop in Argentina was rated as good-to-excellent. This time a year ago, it about 53%.

Argentina is the largest exporter of soymeal, which is why you see soymeal soaring this morning.

Also supporting soybean prices improving was US export sales, with over 1.5 million tonnes being contracted, which was above the market’s expectations.

Corn was in a similar boat as nearly 1.9 million tonnes of US corn was contracted. Add in BAGE’s crop rating of just 12% of Argentina’s corn crop qualifying as good-to-excellent (compared to 45% a year ago); you can understand a little more bullish sentiment.

Managed Money and Deep Thoughts

However, hedge fund managers last week continued to get more bearish on the grain complex, except for Kansas City hard red winter wheat. Managed money reduced the net short position by over 5,000 lots, but this still puts it at a net short of over 12,000 contracts.

Dryness in the US Southern Plains continues to be closely watched. Right now, Kansas – the largest winter wheat-producing state in the US – is showing that more than 52% of the Jayhawk state is experiencing some level of drought. Next door in Oklahoma – the second-largest winter wheat producing state in the US – 84% of the Sooner state is experiencing some level of drought!

Soymeal is the only player in the grains-related complex that is enjoying a net long position. However, last week, this net long position was cut in half to just over 8,000 contracts.

While we did end the week mostly higher, these numbers continue to suggest a lot of bearishness in the market. FocusEconomics says that they’re expecting agricultural commodities by the fourth quarter of 2018 to improve by nearly 13%, compared to the fourth quarter of 2017. [1] According to the firm, “greater demand for food, feed, and industrial usages are expected to boost agriculture prices this year.”

On Friday, we took a look at where palm oil production is going in 2018 for our canola GrainCents readers and what effect another hike in the vegetable oil in import tax by India will have on canola prices. Canola prices are finding some legs after touching multi-month lows last week, make our specific call on a canola marketing strategy initiated last week in GrainCents already profitable.

Soybean subscribers got to understand the true cost of converting soybeans into biodiesel, in addition to looking at the issue of viable/productive land in China while trying to feed over a billion people.

And while I talked about it in Friday’s Breakfast Brief, for our GrainCents corn readers, we dug deeper into the effect of China’s corn reserves jumping up to 322 million tonnes.

march-2018-canola-prices-higher
Canola prices are creeping higher

 

Pulse Acres (and Prices) Up in the Air

We’ve talked about it many times in GrainCents, but with tradeshow season presentations wrapping up, all the analysts’ acreage predictions in 2018/19 are coming out of the woodwork. Our good friend, Chuck Penner of Left Field Commodity Research says 3.2 million acres of peas and 3.4 million acres of lentils in Canada. [2] These estimates are a little below mine for peas and a little bit above my forecast for lentils.

As discussed on Friday in GrainCents, prices in India don’t see too much upside for peas and chickpeas.

With fewer pulses getting seeded in Western Canada, most agree that spring wheat and canola acres will be up in 2018, but there’s more buzz for crops like mustard and canaryseed. While canaryseed prices have been on a downward trend the past few years, there might be some hope on the horizon thanks to a smaller crop in Argentina. [3] However, more acres would intuitively mean more supply, so the price appreciation will more than likely be minimal.

Mergers and Acquisitions

The big news heading into the weekend was the headline that ADM was trying to buy or merge with Bunge. [4] It was previously rumored that Viterra’s parent company, Glencore, was trying to buy Bunge. Anyone up for a bidding war?

Bunge is the largest exporter of agricultural products, and both ADM and Glencore would like to diversify their operations to include a bit more South American flavor. There are also rumors that ADM and Glencore could buy up different parts of the business with ADM going after the value-add, downstream businesses (i.e., food processing), while Glencore would scoop up the ag commodity/grain origination business.

Any deal would be subject to government approval in multiple countries since all three entities operate in dozens of countries. The problem as is it’s viewed from the supply side is the amount of competition. With fewer buyers to go around, are you getting a fair price?

post-grain-farmlead

This is a question that helped catalyze the start of FarmLead. With nearly 600 credit-verified grain, oilseed, and pulse crop buyers on the Marketplace, there’s no shortage of healthy competition. Lately, we’ve seen some healthy trading activity in feed grains (including corn), canola, yellow peas, and green lentils.

If your grain isn’t posted though, no one can compete for your grain.

To growth,

Brennan Turner
President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

Due to travel, there are not futures markets data in today’s Breakfast Brief but you can review them here.

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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