August 4 – The Ugly Facts

In today’s Breakfast Brief, we look at the size of the 2016/2017 wheat crop, the direction of the pulse market, and supply and demand factors of the U.S. crop.

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Good Morning!

Grains this morning are in the green as the market continues to try to find fresh bullish headlines to run with. Some of these include concerns that Brazil will run out of corn in early 2017 and will have to start importing from the US (quite possible but Ukraine, Argentina, or Paraguay still may be a cheaper option).

 Wheat Crop Looking Big

Given the large short position in the wheat market, we did get some covering action yesterday to help push wheat up a bit (any tick higher from these levels would be welcome with the crop starting to come off). To be fair and look at both sides of the price equilibrium, Hillary Clinton’s camp is reportedly looking at alternatives to the US ethanol mandate. Meanwhile, another Russian analyst, RusAgroTrans, increased their estimated for Russian grain production to an outstanding 115.8 million metric tonnes. Another bearish factor isn’t necessarily a headline but just the vegetation and crop condition maps that present an ugly fact: the US crop is looking big.

Speaking of ugly, Western Canada continues to get hit by some inclement weather as more wind and hail lays down crop that’s not far away from a combine header (fingers crossed from here on out). That being said, crop ratings across the Canadian Prairies still remain above their long-term averages for this point of the year (not to mention the crop is a little more developed this year too).

Direction of The Pulse Market

Our friend Chuck Penner at Left Field Commodity Research points out that India continues to be the big question in terms of price direction for pulse markets, especially peas. As it stands, things are in a downward trend with yellows sitting in the $7s (per bushel in the Prairies and green peas trading about a dollar premium, levels we can still support selling another 10% block at, given US and Black Sea competition, and the aforementioned elephant in the room, India.  As a reminder, if it looks like you’re going to be short on a contract because of Mother Nature, you can post those “missing” tonnes on the FarmLead Marketplace (we just need more details like who the contract is with, specs, delivery period and location, etc.).

The Ugly News About Grain Demand

In the last week, both Bunge and ADM reported on how their companies are faring in the decline of commodity prices, and what we’ve seen is that it can be fairly regional-dependent. For Bunge, crushing Canadian canola and European sunflowers are proving to be profitable (positive, considering the record crop coming off in the Black Sea) with total company profits for the 2nd quarter of 2016 up 50% year-over-year to $109M USD and revenues down 2.2% to $10.54B. However, both Bunge and ADM’s South American margins are under pressure with farmers holding onto grain and currency effects. ADM had a tougher time turning a profit in 2Q2016 in North America, as, despite record crush volumes, margins were weak. More specifically, ADM’s net profit dropped 26% from a year ago, mainly due to profits in oilseed processing and grain handling dropping by 47% and 57% respectively.

However, ADM is optimistic that their North American operations will improve as domestic “demand continues to be strong and the US is competitive now for the future months.” Basically the major is expecting more export business down the line as America is poised to take off a giant crop. With this in mind, a lot of people other than ADM are claiming that US exports are poised to grow, but I’m going to have to challenge this a bit. When currency and freight costs are factored in (the latter still being fairly low mind you), the US isn’t yet the most financially-savvy option to secure grain from. Even though Paris wheat futures are trading at a premium to both Chicago & Kansas City futures, the cash difference is still to significant at this point to see substitution start but not yet). Simply put, price is dictated by supply and demand. When demand stays flat (or barely increases), and there is bigger supply, prices will intuitively have to move lower. With this in mind, my concern is that we may not have seen the lows in corn and soybeans that harvest can bring, and as crop tours are starting up, the fact remains that the corn and soybean market could get uglier yet.

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 = $1.3070 CAD, $1 CAD = $0.7651 USD)

Sept Corn: +0.5¢ (+0.15%) to $3.255 USD or $4.254 CAD
Sept Soybeans: +8.3¢ (+0.85%) to $9.818 USD or $12.831 CAD
Sept Soybean Meal (per short ton): +$3.10 (+0.95%) to $332.60 USD or $434.71 CAD 
Sept Soybean Oil (cents per lbs): +0.27¢ (+0.9%) to 30.69¢ USD or 40.11¢ CAD 
Sept
 Oats: +1.5¢ (+0.8%) to $1.905 USD or $2.49 CAD

Sept Wheat (Chicago): +4.8¢ (+1.15%) to $4.15 USD or $5.424 CAD
Sept Wheat (Kansas City): +3¢ (+0.75%) to $4.153 USD or $5.427 CAD
Sept Wheat (Minneapolis): +2¢ (+0.4%) to $4.945 USD or $6.463 CAD
Nov Canola: +5.7¢ / +$2.50/MT (+0.55%) to $7.782/bu / $343.15/MT USD or $10.172/bu / $448.50/MT CAD

Yesterday’s Winnipeg ICE Close

Oct Barley: unchanged at $2.299 USD or $3.005 CAD
Oct Durum Wheat: unchanged at $5.414 USD or $7.076 CAD
Oct Milling Wheat:  +2.7¢ (+0.5%) to $4.289 USD or $5.606 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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