October Grain Prices in Review: Are Corn Prices at a Seasonal Low?

It’s time to look at October grain prices.

Each month, Brennan Turner and I sit down to recap North American grain prices. We base our insight on the dozens of grain reports we read, conversations we have, and individual analysis that we conduct on the markets each day.

There are countless factors impacting prices and thus farmers’ bottom lines across North America. We’re focusing on what really matters and how it impacts your grain.

As we engage in this daily analysis and conduct these monthly recaps, we are looking for signals to help determine when farmers should capture gains and ensure they are getting the best price possible for their crop.

First, let’s look at the performance of front-month contracts during October.

  • Canola: +3.85%
  • Soybean Oil: +6%
  • Soybeans: +1.80%
  • Corn: -2.05%
  • Oats: +8.05%
  • Minneapolis Spring Wheat: -1.6%
  • Chicago Soft Red Winter Wheat: -6%
  • Kansas City Hard Red Winter Wheat: -6%
  • Canadian Dollar: -3.35%
  • U.S. Dollar +1.95%

Corn Prices Approach Seasonal Lows

Corn prices were tracking toward seasonal lows ahead of next week’s WASDE report.

The December contract shed more than 2% over the month as farmers accelerated their harvest pace, and the world remained awash in the yellow stuff. At the start of the month, corn stocks around the globe were sitting at a 30-year high after the release of the quarterly inventory report.

Rather than sell their grain, farmers have been storing corn across the United States. Tack that onto the news that U.S. exports are expected to fall by 20% from the year earlier, and we’re now sending out the smallest amount of corn since the 2012 drought.

There had been some optimism for price potential at the time because farmers were well behind the five-year average on the harvest. The last two weeks, however, has seen a sharp uptick in harvest activity. This period has been marked by a continuous flirtation with the $3.50 level on the futures board. That December contract has bounced above and below that line since mid-September.

The December contract has not been above $3.60 since September 6, and there hasn’t been any major bullish catalyst to push contracts within range of that level. The huge harvest in South America once against tested traders’ sentiment this month.

Heading into next week’s WASDE report, we’re beginning to hear more bearish numbers out of INTL FCStone.

Analysts have set the U.S. corn harvest at 14.43 billion bushels and a yield of 173.7 bushels per acre.

Back in mid-October, the USDA had set the yield at 171.8 bushels per acre. The firm is not banking on much of this corn crop drying and losing weight out in the fields.

Soybean Prices Find Small Monthly Gains

Soybean prices saw a small uptick in prices over October. The November contract, set for expiration soon, added 1.8%. October began with a flurry of harvest activity.

But November prices fell sharply from the monthly highs that we saw shortly after the USDA’s October WASDE report. The November contract popped above $10.00 a day after the USDA slashed its expected soybean yields, a surprise across the markets. However, the price quickly slumped back down to the $9.75 range as markets focused on two factors: The acceleration of the harvest and increasing rains in Brazil.

Starting the month, soybean farmers were well behind the five-year average in the United States. By the end of the month, they were just a percentage point back of the average.

Meanwhile, key soybean producing regions of Brazil started October desperate for wet weather. Persistent dryness across these areas fueled a sharp downturn in seeding compared to historical averages. On days where we saw very little data from the U.S. agencies, traders were checking the weather down in Brazil. It seemed that every time that a lull in U.S. headlines occurred, traders were talking more and more about weather patterns in the Southern Hemisphere.

Turning into November, all eyes again will focus on next week’s WASDE report.

Last month, the USDA pegged yields at 49.5, a figure was a reduction from the previous month. However, the first analysts at INTL FCStone anticipate that we might see yields go right back to where the agency pegged them in September: 49.9 bpa.

While the WASDE report will be key to prices heading into the winter months, we also have to turn back to one key factor that has generated a wealth of headlines but fallen short on analysis: Brazil.

Tomorrow, look for our latest update on Brazil’s production expectations and what that will mean for November and January contracts across the United States.

Canola Prices Poised for Positivity?

Palm oil production improving in 2017 was one of the main bearish catalysts for vegetable oils that we pointed out back at the beginning of the year.

The USDA’s attaché in Malaysia pointed out that 2017/18 palm oil production should be 21 million tonnes. This means palm oil production in the southeast Asian nation has grown by nearly 10% each of the past two years since the El Nino event of 2015/16. That year, just 17.7 million tonnes were produced.

However, Malaysian palm oil exports have also been strong. Two years ago, 16.6 million tonnes were shipped out. In 2017/18, they’re expected to hit 3 million tonnes.

As such, 2017/18 palm oil ending stocks are forecasted to drop 8% year-over-year to 1.54 million tonnes.

So, are we poised to see vegetable oils break out from here?

Since canola tracks soy oil and palm oil very closely, it’s important to note that we’re looking eerily like where we were a year ago.

Soy oil saw its 2016 fall lows seen in mid-September before rallying up above 38 cents per pound by early December. Currently, they are sitting above 35 cents.

Canola prices were similar, with the market rallying up above $530 CAD / MT on the Winnipeg ICE futures last fall. Currently, the January futures contract holding above $520.

Strategie Grains says that rapeseed acreage in Europe will fall in 2018 to 16.4 million acres.

This would be a 3-year low but still not that far behind 2010 record of 17.3 million acres.

The reason for the decline is some challenging conditions to plant into in southeastern Europe and Germany. Specifically, for the latter, rains have made it difficult to plant the fall-seeded rapeseed crop. This story is notable as Germany is the second-largest producer of rapeseed.

The Canadian Dollar lost more than 3% in October to fall below 78 cents for the first time in 3 months.

As a reminder, the Loonie hit a 15-month-low in early May 2017, dipping below 73 cents USD before going on the rally we’ve seen the last five months. 

The next big factor for the Canadian Dollar will be whether the U.S. Federal Reserve increases its interest rate in December. The market (and the Fed) is indicating that it will.

Wheat Prices: What the Heck?

Over October, wheat prices traded sideways to lower.

On the futures board, spring wheat prices in Minneapolis lost 1.6% in October.

Chicago soft red winter wheat and Kansas City hard red winter wheat prices both lost more than 6% for the month.

So, what happened?

Frankly, the unknowns of Australia and Argentina’s wheat harvests are being outpaced by surprising harvests in the northern hemisphere.

We saw the Russian wheat crop continue to get upgraded in October. The USDA is now at 82 million tonnes while private analyst IKAR is at 83.7 million tonnes.

With these sort of numbers, our Insights piece from September on the rise of Russian grain production (and corresponding exports) continues to hold.

We also dug into Ukraine wheat production and its increase in exports.

Australia finally got some rains, which the market interpreted as bearish. The weather should help the summer crop, but it slowed the pace of the winter crop harvest. National Australia Bank still thinks that there will only be 18.7 million tonnes of wheat produced in the Land Down Undaa in 2017/18.

This figure would be a 10-year low and half of the monster crop produced last year. The USDA’s attaché in Australia dropped its forecast to 20 million tonnes.

In Argentina, Lanworth raised its forecast for the 2017/18 wheat harvest to 16.8 million tonnes. Lanworth’s number is still below some other forecasts, but given the rains there, we have a lot of unknowns of Argentinian wheat production (and quality) at this point.

New estimates out from the USDA’s attaché office in Buenos Aires suggest that anywhere from 12 million to 25 million acres of cropland are flooded or severely damaged due to extensive rains.

In North America, any rain on wheat acres has been welcomed.

Technically, the rain has slowed down the pace of winter wheat seeding of the 2018/19 crop in America.

However, the moisture is needed.

What we do know though is that the best yields of the US winter wheat crop happen when the crop is planted earlier.

Overall, the market won’t make much of a squeak on winter wheat prices until there appears to be the problem with it. This means that the market will be watching winter weather in the US Southern Plains, Black Sea, and to a certain extent, what happens in the Southern Hemisphere (read: Australia and Argentina).

On the demand side, lower wheat prices have encouraged some more buying activity. Egypt continues to grab a lot of attention and earlier and earlier this week, we looked into whether Egypt matters or not.

Finding A Pulse in Pulse Markets

Demand for North American pulses continues to be slow. This is namely thanks to slower sales to India. In fact, the Indian government is considering putting an import tax on yellow peas to prop up domestic demand. Prices in the second-most populated country in the world are dramatically lower, thanks to record production last year and likely the second-largest crop ever this year.

Further, Black Sea competition is getting pretty serious. Peas from the likes of Ukraine and Russia are being sold and delivered to India as much as CAD $50 per metric tonne cheaper than Canadian product can get there. And that doesn’t include the new cost of roughly $15 per metric tonne for fumigating at the point of origin, now that India hasn’t extended the fumigation exemption for Canadian pulses.

As such, every analyst and their mother expect Canadian inventories of pulses to grow.

This trend is not bullish for pulse prices. In mid-October, we took a deep look prices for pulses and where they’re going.

We started advocating for yellow peas sales back in September. There still is some action happening on those, as well as all colors of lentils on the FarmLead Marketplace.

However, those expecting last year’s prices for their pulses will not get them. Green lentils are the only crop that we think have legitimate upside opportunity at this time. For other pulses to go higher, there’ll have to be a demand story that comes about.

Holy Oats!

Finally, we saw a big jump in October oat prices on the Chicago Board of Trade.

That front-month contract added more than 8%.

But we have to take into account that oat prices have tanked since 2014 when they hit an all-time high on the Chicago Board of Trade. With current prices hovering at multi-year lows it’s not surprising that American farmers seeded far fewer acres in 2017/18.

In the U.S., total domestic production is expected to fall by 23.7% to 717,000 metric tonnes (or about 46.5 million bushels if you’re converting those tonnes into bushels at GrainUnitConverter.com).

Total acres this past year in the US is slated to have declined by 8.5% from last year and more than 10% from the 5-year average to nearly 2.6million acres.

We’re going to need to dig deeper into the November WASDE report when it’s released next week.

Right now, the number of acres harvested is expected to hit 801,000 acres in 2017/18, a total that is roughly 18% lower than the previous year’s figure. The USDA projects that just five states will see an uptick in oat acreage this year.

The USDA projects that just five states will see an uptick in oat acreage this year.

While prices play an important role, so does weather in the decisions of farmers.

In drought-plagued North Dakota, total area harvested will fall from 110,000 acres to roughly 80,000, according to the USDA. In South Dakota, the figure plunges from 110,000 to 60,000. We’re anticipating a big decline in yields as well.

The USDA says that the nationwide average for oat yields will hit 61.7 bushels per acre. That’s about 6.5% down from last year and the five-year average.

With U.S. production falling and the U.S. dollar getting stronger, buyers are continually looking beyond the borders to locate cheap oats. The chart below outlines the year-over-year import totals for oats into the United States.

While the sharp downturn in 2015 imports is tied to record prices the year prior and ensuing surge in domestic production, US oats imports have been steadily increasing over the last five years by an average of 2.3%.

Daily Grain Insights and October Grain Prices

Remember, FarmLead’s President and CEO Brennan Turner releases the Breakfast Brief each morning. It’s a smart and blunt assessment of factors that farmers and traders need to know each morning. When you want to dig past the headlines and three-sentence blurbs about crop prices, read his insight.

Next, remember that Grain Markets Today appears on FarmLead.com shortly after trading in Chicago. We’ll take you inside the Chicago Board of Trade and offer perspective on the news impacting trading.

Finally, we’re looking at more ways to help farmers help them get the best price possible. We’ll be taking a deep dive into a few crop categories and helping farmers make sense of grain markets, bullish and bearish factors around the world. Also, we’ll help you separate the noise of the markets from the key variables that will affect your grain marketing in the future.

After all, it’s about making more cents per bushel, is it not?

Stay tuned.

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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