January 3 – Winter Wheat Driving the Bus

Good Morning!

Grain markets are mostly in the green following yesterday’s activity, led by winter wheat, on weather concerns in both North and South America.

“Rather than being a luxury, emotions are a very intelligent way of driving an organism toward certain outcomes.” – Antonio Damasio (Portuguese neuroscientist)

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Grain markets this morning are mostly in the green as the market tries to build up some weather premium.

Supporting the broader commodity complex is some geopolitical unrest. First you have anti-government protests in Iran, which are helping oil prices a bit.[1] Then you’ve got US President Donald Trump reminding North Korean leader Kim Jong Un via twitter that he has a bigger and more powerful nuclear button (and that his button works). [2]

Canola prices are finding some ground again this morning, despite the Canadian Loonie nearly touching 80 cents USD. Add in the fact that there is just more crop to go through in Canada, in addition to likely record acres in 2018 (and not just in Canada).

Yesterday’s Breakfast Brief walked through our 2017 review of grain markets, but it also gave a hint as to what was likely to pop on the first day back in trading

Garrett confirmed them in Grain Markets Today, as winter wheat prices sizzled thanks to the lower temperatures. Garrett went into further detail here about the damage to winter wheat crops and the potential impact on wheat prices.

How Are Winter Wheat Crops Doing?

A recent report out of Ukraine shows that a little more than 17 million acres of winter crops were seeded in Ukraine. This included 14.6 million acres of winter wheat, a little more than 2 million acres of winter barley, and 363,000 acres of fall rye.

UkrAgroConsult says that nearly 88% of winter crops are in good-to-satisfactory condition. [3]

The USDA did say that winter wheat conditions deteriorated across the American Southern Plains in December thanks to cold and dry conditions. [4]

In the top winter-wheat producing state of Kansas, 37% of the crop rated good-to-excellent (G/E). That’s down 14 points from 51% at the end of November and the lowest reading to end a year since 2012. It’s also a sharp dive from the five-year average of 46% G/E. It’s not all that surprising though when 77% of soil moisture in Kansas is rated short or very short (compared to just 39% in November).

In Oklahoma, 15% of the winter wheat is rated G/E. This rating is the worst since 2012 and half of the 30% G/E rating it had at the end of November. 76% of the Sooner state was in moderate-to-exceptional drought by the end of December.

In the Midwest, 64% of Nebraska winter wheat is rated G/E, which is up 5 points month-over-month. Next door, in Illinois, 56% of the winter wheat crop there (most of the soft red type) is rated G/E. That’s down 6 points from the 62% it was at by the end of November.

Further north, South Dakota’s winter wheat crop rating sits at 20%, up from 18% where it ended in November.

This provides obvious support for wheat prices, but how far could the rally potentially go? We’ll be digging into this in GrainCents over the next few days, so login to view our expectations for winter wheat, spring wheat, or durum prices.

India Opening Its Doors to Pulses Again?

Yesterday, it was announced that India is extending its fumigation extension for six months. [5]

This means that through the end of June 2018, “India will accept cargoes not fumigated with methyl bromide in the country of origin.” This includes Canada and the US, but also Australia and the Black Sea.

While certainly welcome, it doesn’t make up for India’s 50% import tax on peas, 30% import tax on lentils, and 30% import tax on chickpeas.

The last one is most meaningful for Australia, considering they’re the number one exporter of chickpeas to India. For the record, the Australia government is taking the action of asking for a “period of transition.” The farmers in the Land Down Undaa are dealing with a smaller chickpeas harvest (albeit, relatively-speaking, it’s still not that small).

Soybean Prices Have a Noose on Them

Anywhere from two-tenths to 1.25 inches fell across northern and central regions of Argentina over the New Year weekend. Will that be enough to handle the next ten days of basically no rain and lots of high temperatures?

Truthfully, some weather models are forecasting drier weather through early February for southern Brazil and northern parts of Argentina.

So, where’s the weather premium in the soybeans market? There are a couple of different reasons that we went into over the holiday break, but there’s one factor that’s tightening the noose on the soybeans market.

Further, Brazilian soybean sales have been more than strong (and there’s still lots of Brazilian soybeans left to be sold), and that’s what’s keeping US soybean ending stocks higher. While it was projected but never realized a year ago, there’s some pretty strong consensus that 2017/18 could end with 400 million bushels of soybeans still available in the U.S. This, despite a stocks-to-use ratio that’s projected at 10.3% versus the 11.7% it was pegged at this time a year ago.

With the January WASDE coming up next Friday, on January 12th, it’s widely expected that the USDA will lower its expectations for US soybean forecast. Regardless, we and many others expect soybeans to be the breadwinner on most American farms in 2018 and that’s why more acres of it will go into the ground.

Conversely, corn prices will still need to see some seasonal rallies in order to buy any additional acres in fringe areas in 2018. Corn acres are likely dropping enough to lose its King Corn title for most area seeded by American farmers.

When you factor the large grain supplies in pretty much every category, complacency cannot be acceptable in 2018 when it comes to optimizing a grain marketing plan.

At the end of the week, we’re going to dig into our expectations of when said 2018 price rallies could happen, not just in corn, but also in the 11 other crops we cover in GrainCents.

Sign up for your annual GrainCents subscription for your crops today – this week’s 2018 outlooks alone will be worth it.

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To growth,

Brennan Turner
President | CEO
FarmLead
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2511 CAD, $1 CAD = $0.7993 USD)

Mar Corn: +1¢ (+0.3%) to $3.543 USD or $4.432 CAD
Mar Soybeans: +3.5¢ (+0.35%) to $9.683 USD or $12.114 CAD
Mar Soybean Meal (per short ton): +$0.70 (+0.2%) to $318.60 USD or $398.60 CAD
Mar Soybean Oil (cents per lbs): +0.26¢ (+0.75%) to 33.81¢ USD or 42.30¢ CAD  
Mar Oats: +1.3¢ (+0.5%) to $2.438 USD or $3.05 CAD
Mar Wheat (Chicago): +2¢ (+0.45%) to $4.355 USD or $5.449 CAD
Mar Wheat (Kansas City): +3.8¢ (+0.85%) to $4.385 USD or $5.486 CAD
Mar Wheat (Minneapolis): +4.8¢ (+0.75%) to $6.228 USD or $7.791 CAD
Mar Canola: +6.1¢/bu / +$2.70/MT (+0.55%) to $11.192/bu / $493.50/MT CAD or $8.946/bu / $394.46/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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