November 17 – Weather Keeping Bulls Out of Grain Markets

Good Morning!

Today we look at the impact that weather might have on grain markets over the next few months, namely that in South America. We also dig into any optimism for flax prices, in addition to some early expectations for 2018 American corn and soybean acres. 

“I inherited that calm from my father, who was a farmer. You sow, you wait for good or bad weather, you harvest, but working is something you always need to do.” – Miguel Indurain (Spanish cyclist & 5-time Tour de France winner)

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Grain markets are mostly trading higher this morning.

Grain prices are benefiting from a weaker U.S. Dollar as they try to bounce off yesterday’s lows.

On Thursday, the markets started on the mend, but, as Garrett mentioned in Grain Markets Today, corn prices and soybean prices just can’t catch a bullish wind.

It doesn’t help that managed money is betting against the bulls. It’s widely expected that in this afternoon’s Commitments of Traders report from the CFTC, a new record short position in corn futures and options will emerge.

U.S. corn export sales last week came in at 954,500 tonnes, a figure well below expectations. American wheat export sales reached the higher end of expectations with more than 519,000 tonnes sold. Soybean export sales fell in-line with the pre-report forecast at nearly 1.18 million tonnes.

Palm oil prices in Malaysia have been falling this week on weakness in the broader oil markets and a stronger local currency. This, in turn, has put some pressure on canola and soy oil values.

In pulses, the buzz is that India is not going to move from its import taxes on peas and may look to other pulses as well. This aligns with India’s goal of becoming domestically self-sufficient in pulses by 2022. [1]

Coming back to America, Informa updated their estimate of U.S. 2018/19 acres yesterday. They’re expecting U.S. farmers to plant 91.42 million acres of corn and 89.63 million acres of soybeans next spring. Their previous estimate was 90.46 million acres of corn and 90.35 million acres of beans.

Ultimately though, Benign South American weather is keeping the grain markets’ bulls in the pen.

Will the bears go into hibernation mode soon though?

Hint: with the amount of grain that we have in the world, it’s unlikely.

Flax Prices Finally Getting Some Love

Flax prices in Western Canada are on the move lately with trades happening from $12.50 CAD per bushel and higher.

Post your flax now on the Marketplace now and start a negotiation with any of the 35 credit-approved flax buyers on FarmLead.

It’s great to be off the harvest lows, but the question mark is China.

Russia and Kazakhstan had some logistical challenges getting flax into China lately. [2] This has led the Chinese government to explore how its new “Silk Road” initiative could connect the nation to exporters along the Black Sea.

Though the $1.2 trillion infrastructure project is a few years away from really getting started and more than a decade away from getting finished, you must start thinking about the competitive challenges for Canadian flax producers.

As of last week though, the Canadian Grain Commission says that over 82,000 metric tonnes of flax have been exported from Canadian ports this year. That’s up nearly 19% versus the pace set last year.

Still, producer deliveries thus far have been almost 124,000 metric tonnes, or nearly 45% higher year-over-year.

As a reminder, Statistics Canada expects Canadian Farmers to harvest over 500,000 tonnes of flax. That’s down 14% year-over-year and 30% lower than the five-year average.

StatsCan says that there were 191,000 tonnes of flax still available in Canada as the end of July 2017. This is 42% higher than the 5-year average but 31% lower year-over-year.

Bottom-line: should we expect to see $13 CAD/bushel like we did last year?

I think we could get there but it might a few months before Chinese purchasing gets stronger.

Keep in mind that stronger Chinese purchases happening is not a for sure thing. The market has moved up a good amount in the past few months and selling a block of 10% or 20% at these levels isn’t a wrong idea.

Post that block on the FarmLead Marketplace now.

What’s Up with The Weather?

Brazil looks to be getting a lot of rain in the next two weeks. In the central and northern states of Minas Gerais, Goais, and Mato Grosso do Sul, as much as 5-7 inches is expected to come down.

According to AgResource, rain will start falling again in Argentina but only in the northern parts of Cordoba and Santa Fe. [3] The area does account for about 15-20% of the Argentine corn/soybean belt.

Speaking more broadly, those who are looking for a La Nina weather system to make a substantial impact on crop production this year may be disappointed.

The NOAA says that La Nina is underway and will likely last through the winter, but that’s about it.

However, it will happen during South America’s main growing season. As I discussed in yesterday’s Breakfast Brief, La Nina is a catalyst for some better grain prices.

The Weather Network gave perhaps one of the best analogies of what to expect if a La Nina event truly develops:

“When a star player is the starting pitcher, quarterback or goalie for your favorite team, the potential for a particular outcome (a win) is much higher when that player participates versus when they are sitting on the bench. However, no two games are alike, and having a star player on your team does not guarantee the same outcome every time. There are many other factors (players) that determine the final outcome.”[4]

Although the quote above suggests that one should not expect the usual weather patterns, a typical La Nina event in North America calls for some below-average temperatures in the Northern Plains. [5]

This matches up with Western Canada who tends to get cold temperatures but average snowfall.

Higher-than-usual precipitation tends to hit the northern states but does reach down into parts of the Corn Belt. Southern states should expect some above-average temperatures with some below-average precipitation (another way of saying: it’ll be a bit drier).

Eastern Canada often sees some milder temperatures but wetter conditions.

As mentioned above, South American weather is driving grain markets. Hopefully snow falls in the areas that need it most – namely southern regions of Western Canada and the Northern Plains.

Without some wet weather in those areas over the next couple months, the spring 2018 weather might be the most significant variable affecting grain prices.

Have a great weekend!

To growth,

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

At 7:20 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2763 CAD, $1 CAD = $0.7835 USD)

Mar Corn: +1¢ (+0.3%) to $3.50 USD or $4.467 CAD
Jan Soybeans: +3.3¢ (+0.35%) to $9.753 USD or $12.447 CAD
Jan Soybean Meal (per short ton): +1.40 (+0.45%) to $313.90 USD or $400.64 CAD
Jan Soybean Oil (cents per lbs): +0.09¢ (+0.25%) to 34.68¢ USD or 44.26¢ CAD  
Mar Oats: -2.8¢ (-1%) to $2.745 USD or $3.504 CAD
Mar Wheat (Chicago): +2.8¢ (+0.65%) to $4.408 USD or $5.625 CAD
Mar Wheat (Kansas City): +3.3¢ (+0.75%) to $4.378 USD or $5.587 CAD
Mar Wheat (Minneapolis): +1¢ (+0.15%) to $6.463 USD or $8.248 CAD
Jan Canola: +2.3¢/bu / +$1/MT (+0.2%) to $11.757/bu / $518.40/MT CAD or $9.212/bu / $406.17/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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