In today’s Breakfast Brief, we cover weather forecasts, where canola is going, and falling wheat prices.
“The most reliable way to forecast the future is to try to understand the present.”
– John Naisbitt (US author)
Grains this morning are mixed after the complex took a bit of a nosedive yesterday thanks to fresh forecasts for rains across the US Corn Belt through the end of June alleviating heat stress fears. With the updated weather pattern on the books, fund managers looked for the exit signs, dumping long positions that, as of last week, were sitting at a net-long of more than 250,000 contracts in corn and 200,000 in soybeans, 2 year highs.
Also pushing the complex lower was the weekly USDA’s crop progress report, which showed the portion of the US corn crop rated good-to-excellent (G/E) remains high at 75%, with soybeans not far behind at 73% of the crop in G/E health. Further, the US winter wheat harvest continues to accelerate while there’s fears and polls are subsiding that Britain will leave the EU. Overall, we’ve been due for a correction (we called for it back at the beginning of the month) and given how traders are weighing the changing weather forecasts, we may not be done rebalancing yet.
Where Is Canola Going?
Canola had a tough day yesterday, following soybeans lower, but things were accelerated by a higher Canadian Loonie, thanks to oil prices bumping higher as the market turns cautious. Despite the bearish news, the Canadian Ag Ministry forecasted Canadian canola prices to jump to 4 –year high of $540/MT thanks to ending stocks dropping to 700,000 by the finish of the 2016/17 season. The AAFC is forecasting canola production in the Great white North to fall more than 10% this year to 15.4 million metric tonnes, mostly a result of acreage dropping 4% year-over-year to less than 19 million. Given the run up prices though through May, my thoughts are that some more acres got bought to push it above that 19 million acres. Coming back to production, at this point, the plausible scenario is something near average yields, meaning a bigger crop than last year’s 17.2 million metric tonnes and a lot more than the AAFC is expecting.
The Aussie USDA, ABARES, is less optimistic than the AAFC today, forecasting that global rapeseed consumption will drop 4% year-over-year to 67 million metric tonnes. This includes their estimate that China’s imports will drop by 6% from 2015/16 to 3.9 million metric tonnes, despite domestic output there also dropping there, mainly due to the release of rapeseed & canola oil reserves.
Also playing a role in the demand drop is soybean (duh), as 2016/17 demand (325 million metric tonnes) will outpace supply (318M tonnes), again with China playing a larger role. This is because they continue to import a tonne of product (pun intended) with more than 87 million metric tonnes forecasted in 2016/17, but also domestic production is expected to increase due to Chinese farmers switching over into beans after the minimum price support for corn was dropped.
Wheat Prices Falling
As for wheat, ABARES is expecting prices to fall to 15-year lows in 2016/17, as they expect supply to again outpace demand as there remains a large amount of carryout that needs to be worked through yet. Favourable conditions across most major growing regions suggests another decent year of production, except possibly in western Europe where rains have created question marks around quantity and quality. The EU’s crop monitoring body, MARS, recently downgraded their expectations in France and Germany, but upward ideas for Spain, Italy, Portugal, and a few other regions are keeping production forecasts elevated.
Across the EU, MARS is forecasting a 90.3 bushel/acre soft wheat yield average (4% above the 5-year average), while rapeseed average yields were seen at 55 bushels an acre. It wouldn’t be a growing season without some forecasts changing, be it the weather or production estimates. Taking into account what we know today though helps frame our expectations for the future, and we manage price risk exposure accordingly.
As such, our call remains to post on FarmLead, to put your grain in front of more verified buyers, & lock in said price risk for at least some of whatever’s left in the bin, while also considering selling new crop, especially in pulses at up to 40% sold by this time (when was the last time you locked in new crop chickpeas above 50 cents/lbs with an Act of God? Exactly.)
At 6:45 AM CDT in the North American futures markets:
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2773 CAD, $1 CAD = $0.7825 USD)
Sept Corn: -1.8¢ (-0.4%) to $4.25 USD or $5.429 CAD
Aug Soybeans: +1¢ (+0.1%) to $11.463 USD or $14.641 CAD
Aug Soybean Meal (per short ton): +$.50 (+0.1%) to $402.60 USD or $514.24 CAD
Aug Soybean Oil (cents per lbs): -0.02¢ (-0.1%) to 31.76¢ USD or 40.57¢ CAD
Sept Oats: +0.3¢ (+0.1%) to $2.175 USD or $2.778 CAD
Sept Wheat (Chicago): +1¢ (+0.2%) to $4.885 USD or $6.24 CAD
Sept Wheat (Kansas City): +0.5¢ (+0.1%) to $4.695 USD or $5.997 CAD
Sept Wheat (Minneapolis): +0.8¢ (+0.15%)
Nov Canola: -1.1¢ / -$0.50/MT (-0.1%) to $8.996/bu / $396.65/MT USD or $11.496/bu / $506.90/MT CAD
Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.922 USD or $3.734 CAD
Oct Durum Wheat: unchanged at $6.325 USD or $8.083 CAD
Oct Milling Wheat: -8.2¢ (-1.3%) to $4.919 USD or $6.287 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.