October 16 – Where Will Grain Prices Go Next?

FarmLead Breakfast Brief
Monday, October 16, 2017

“You have brains in your head. You have feet in your shoes. You can steer yourself in any direction you choose.” – Dr. Seuss (US author)

Good Morning!

At 8:15 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2538 CAD, $1 CAD = $0.7976 USD)

Dec Corn: -1.3¢ (-0.35%) to $3.515 USD or $4.407 CAD
Jan Soybeans: -4.8¢ (-0.45%) to $10.055 USD or $12.607 CAD
Dec Soybean Meal (per short ton): -$2.20 (-0.65%) to $326.40 USD or $409.23 CAD
Dec Soybean Oil (cents per lbs): -0.01¢ (-0.03%) to 33.68¢ USD or 42.23¢ CAD  
Dec Oats: unchanged at $2.668 USD or $3.344 CAD
Dec Wheat (Chicago): +1¢ (+0.25%) to $4.405 USD or $5.523 CAD
Dec Wheat (Kansas City): +1¢ (+0.25%) to $4.373 USD or $5.482 CAD
Dec Wheat (Minneapolis): +1.8¢ (+0.3%) to $6.157 USD or $7.733 CAD
Jan Canola: 0.7¢/bu / +$0.30/MT (+0.05%) to $9.157/bu / $403.75/MT USD or $11.48/bu / $506.20/MT CAD

Friday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.57 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.10 USD or $7.821 CAD
Dec Milling Wheat: unchanged at $5.014 USD or $6.287 CAD

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Where Will Grain Prices Go Next?

Thanks to some profit-taking and a slightly stronger U.S. Dollar, grain prices this morning are mixed with corn and soybeans down from their Friday highs when the bulls were playing.

Managed money last week got a little more bullish on soybeans. Still, they were net sellers of corn and wheat on the futures boards. [1]

As pointed out by our friends at AgChieve, canola prices on the Winnipeg ICE futures board hit a 6-week high on Friday. Even with snow falling in the Canadian Prairies over the weekend, canola prices seem rangebound between CAD $480 and $520 per metric tonne. [2]

In the cash canola markets, there are CAD $11.00/bushel handles available in some areas for deferred delivery into 2018.

For corn, soybeans, and wheat, cash prices are still under pressure thanks to weaker-than-normal basis levels. [3]

“Why?” you ask?

On Thursday last week, the USDA said that American farmers would take off a record soybeans crop and the second-largest corn crop in history.

Today we’ll get NOPA’s September crush number.

The market expects that the number of soybeans used last month will total 138.1 million bushels. That figure would be about 6% higher than what was used in the same period in 2016 and provide a signal of increasing demand for soybeans.

january-2018-canola-hits-six-week-high
January 2018 canola hits a 6-week high

 

Free Trade Negotiations Accelerate

This week, NAFTA talks will continue in Washington, D.C.

Mexico and Canada have committed to forcing the U.S. to bring a “win-win-win” deal to the table. [4]

The U.S. continues to demand a “sunset clause” to any deal that would require renegotiations of trade agreement every 5 years.

The NAFTA renegotiation seems to be getting a little testy. It remains unclear if a deal can be reached. U.S. corn producers will want to continue to monitor the situation. Should this trade agreement collapse, it could dramatically reduce overall demand for U.S. corn in the medium to long-term.

While things look negative on NAFTA, the Canadian trade delegation will start negotiations with the South American trade block, Mercosur, in December. [5] Trade between Canada and the Mercosur group – Argentina, Brazil, Paraguay, and Uruguay – is small at just under $6 Billion in 2016.

This figure about 10% of total America’s trade with the Mercosur nations. It’s not major, but a deal would offer Canadian producers with another outlet to major international grain producers and new markets for their product.

Soybean Yields in the Midwest?

Central Illinois farmers are finding some better than expected yields. Among these farmers is our own Doug Kirk, who talked last week about how his 2017 soybean yields are looking very similar, if not better than 2016.

The onslaught of rains in Iowa this month has caused soybean plants to weaken. This is causing pods to shatter with beans falling out, leaving bushels on the ground. [6]

Rains in Nebraska are making more farmers about further slowdowns to the 2017 harvest. [7] The delays in harvests in the U.S. and planting in Brazil have provided support to soybean prices over the last week.

Some argue that talking about the weather means that not much is happening in the grain markets. However, continued extreme weather in two of the world’s largest producing soybean regions would only offer greater short-term support prices.

Considering how wet It is across the Midwest, with nearby corn prices on the cash market are near USD $3.00/bushel. It’s tough for many producers to pencil out drying costs. [8]

The process of selling grain at the optimal weight (read: moisture) continues to a finicky challenge, especially given today’s grain prices. [9]

Expectations for Grain Prices

With U.S. corn carryout still above 2 billion bushels, long-time analyst Jerry Gulke thinks it’ll be pretty tough for corn prices to reach USD $4.00/bushel on the Chicago futures board anytime soon. [10]

However, the December 2018 corn futures contract is sitting just a touch under USD $4.00/bushel today. Comparably, the November 2018 soybeans contracts are sitting just above $10.00/bushel. Typically, if the price ratio of beans-to-corn is above 2.5, more soybeans tend to get planted in the U.S.

Of course, there are other factors to consider.

  • First, it’s quite early for more farmers to be discussing pricing out 2018/19 crop – they’re just focused on getting this year’s harvest off;
  • Second, there’s a lot that can happen in the next few months in South America that could determine the direction of soybean and corn prices; and,
  • Third, without a little more about said South American crop known, it’s hard to determine if that USD $10.00 or $9.00/bushel handle for soybeans will be the trigger price for more soybean acres.

Over the weekend, Garrett and I discussed the potential for soybean prices in the next couple of months. The direction of soybeans will also have a strong correlation to the direction of canola (as it always has).

Are the Lows for Grain Prices Behind Us?

All things being equal, most analysts, including yours truly, believe that the lows for grain prices are generally behind us in corn, soybeans, and even wheat.

Pulses are a different story though with lentils looking decidingly bearish, albeit we do see some strength in peas prices into November and December months.

Black Sea competition should probably keep a lid any significant rallies in peas and wheat prices though.

After the grind of the last 5 to 6 months of the growing season, it’s important not to let your grain marketing mind slip.

Take stock of your inventory, when you need cash (a.k.a. have a chat with your banker and accountant before the end of October) and post your cash price targets, both at the elevator and on the FarmLead Marketplace.

To growth,

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

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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