November 8 – What’s Likely in Tomorrow’s November WASDE

Good Morning!

Today we look at malt barley prices, what’s likely in tomorrow’s November WASDE report for soybeans, and if corn prices are going to rally or not.

Also, this Friday, at 1PM EST, I’ll be hosting a webinar on the Challenges of Grain Marketing. Feel free to join me and the other 152 people who have registered for it thus far! Space is limited to secure your spot ASAP.

Also, if you’re in Red Deer, AB this week for Agri-Trade 2017, stop by the FarmLead booth in the Prairie Pavilion and check out the new things we’re bring to the grain marketing table! 

“Past performance speaks a tremendous amount about one’s ability and likelihood for success.”
– Mark Spitz (American Olympic swimmer)

Grain markets this morning are mixed with soybean prices leading the charge for oilseeds.

Purchase headlines out of China are pushing soybean prices higher.

Canola prices are also in the green today, piggybacking on yesterday’s move higher. The oilseed gained on a weaker Loonie and news that some of the Western Canadian crop is still not harvested.

Also supporting oilseeds is higher palm oil prices. Chinese import data for October showed that they imported 470,000 MT of vegetable oils. While that’s technically down 22% from September’s volumes, it is 52% higher year-over-year.

Ultimately, grain markets continue to jockey around for position ahead of tomorrow’s November WASDE.

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Who’s More Content: Farmers or Grain Buyers?

Malt barley prices in Western Canada and the U.S. Northern Plains have faced pressure this fall.

Why? The crop turned out better than expected.

I’ll be digging into the barley market a bit more in an FarmLead Insights piece this week, but the consensus is that production surprised the market. Malt prices aren’t paying the usual $1.50 – $2.00 CAD per bushel premium over feed barley right now in Western Canada. [1]

Do feed prices need to come down? Will malt barley prices go higher?

The quality for the latter is out there. Maybe we see an uptick in the winter, but malt barley buyers seem content right now.

Farmers are the ones who are content in Argentina.

Why? President Macri recently proposed that fertilizer purchases/applications would be tax deductible. This would intuitively incentivize farmers to plant more corn and wheat.

No taxes on fertilizer costs sounds pretty sweet.

Do Corn Prices Have Upside?

Many analysts are looking at China to be the saving grace of corn prices.

But we said last month that the Chinese ethanol headlines are just noise.

It’s more likely that U.S. ethanol will be exported to China as they try to beef up their biofuel program.

Generally speaking, ethanol demand globally is increasing. [2] And it’s helpful that oil prices have been playing around two-year highs this past week.

In fact, OPEC doesn’t think oil demand will peak until 2040. [3]

However, the fact remains that there is just a lot of corn out there in the world.

Chip Flory of Pro Farmer thinks that corn yields could drop because of the drier second-half of the growing season and the delayed harvest. [4] To account for this, he thinks that corn prices will need to rally 10-15% this winter.

Along the way though, he (and I) expect any rallies to be met with farmer selling. As such, “selling into strength” is a phrase that you might need to get more acquainted with in the weeks ahead.

If you need a refresher – “selling into strength” means to make sales as the market is going up. For example, if corn rallies to $3.75 on the futures board, I would sell into the strength of that rally. It might go up more, but I have to move corn to sell into the strength of THAT rally as well.]

As I’ve mentioned a few times, there’s a “carry to” captured in the corn and winter wheat markets. For the cash markets, you can lock in those deferred delivery options and/or start forward contracting 2018/19 crop.

From a hedging perspective, you can sell the futures and buy put options today and then look at owning call options over the summer.

November WASDE Soybeans Expectations

In yesterday’s Breakfast Brief, we discussed what the market was expecting for corn in tomorrow’s November WASDE report.

When it comes to soybeans, no one really expects the USDA to change production numbers too much. More specifically, the average guesstimate ahead of the November WASDE is that the USDA will drop average American soybean yields by 0.2 to 49.3 bushels per acre.

I think they’ll stay at 49.5 bushels per acre. I think there could be a bit more demand on the balance sheet, which is why I lowered my U.S. carryout estimate to 400 million bushels.

As such, in tomorrow’s November WASDE report, I think it’s going to be all about demand.

It’s expected that China will import nearly 100 million tonnes of oilseeds in 2017/18, including 95 million tonnes of soybeans. That’s a 2.5 million tonne increase year-over-year.

Sidenote: the CNGOIC forecast is for 96 million tonnes of soybean imports in 2017/18.

Comparably, from 2015/16 to 2016/17, Chinese soybean imports grew by 9.25 million tonnes.

At this time of year, Brazil tends to slow down soybean exports given that there is just not a lot left. Last week, Brazil shipped out 592,000 tonnes of soybeans versus America’s 2.49 million tonnes of exports.

However, Brazil’s soybean exports are now sitting at a record of 64.4 million tonnes. That’s up 26.4% year-over-year, and there’s still a few weeks left to go.

Will the USDA raise Brazilian soybean exports? It would be surprising if they didn’t.

Comparably, American soybean exports are tracking 1.46 million tonnes where they need to be to hit the USDA’s export target of 61.2 million tonnes in 2017/18.

One positive headline this week is that China pledged to buy more American soybeans. [5] To consummate the deal, there will be a big signing ceremony as US President Trump meets with Chinese President Xi Jinping.

Okay, we know that China buys US soybeans. What matters is how much.

Where else will the demand come from?

Domestic crush is one potential source, especially since the US Department of Commerce slapped some hefty duties on Indonesian and Argentinian biodiesel imports.

Zaner Ag Hedge Group notes that they’re looking for a target of $10.30 on the Chicago futures board for January soybeans if tomorrow’s November WASDE breaks out. [6]

Comparably, Chip Flory thinks that if the US soybean crop comes in under 4.25 billion bushels, then futures values should be 10-15% higher.

But at today’s harvested acreage, this would mean that average US soybean yields would have to come in at 47.5 bushels per acre.

Do you think that’s likely?

Last weekend, we looked at what the most bullish thing about soybeans, and it was seemingly all about the production. But in South America.

The bell will toll at noon eastern standard time tomorrow when we get the November WASDE report.

I’m not necessarily bullish going into the report and I’m not expecting a production decline, but I’d be okay if the USDA surprised us with one.

To growth,

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

At 7:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2724 CAD, $1 CAD = $0.7859 USD)

Dec Corn: -1¢ (-0.3%) to $3.468 USD or $4.412 CAD
Nov Soybeans: +2¢ (+0.2%) to $9.98 USD or $12.699 CAD
Dec Soybean Meal (per short ton): +0.30 (+0.1%) to $315.80 USD or $401.83 CAD
Dec Soybean Oil (cents per lbs): +0.17¢ (+0.5%) to 35.19¢ USD or 44.78¢ CAD  
Dec Oats: -0.5¢ (-0.2%) to $2.70 USD or $3.436 CAD
Dec Wheat (Chicago): -2.3¢ (-0.55%) to $4.25 USD or $5.408 CAD
Dec Wheat (Kansas City): -2.3¢ (-0.55%) to $4.243 USD or $5.398 CAD
Dec Wheat (Minneapolis): -2.3¢ (-0.35%) to $6.325 USD or $8.048 CAD
Dec Canola: +1.1¢/bu / +$0.50/MT (+0.1%) to $11.807/bu / $520.60/MT CAD or $9.279/bu / $409.14/MT USD

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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