FarmLead Breakfast Brief
Wednesday, January 25th, 2016
“An expert is someone who has succeeded in making decisions and judgements simpler through knowing what to pay attention to and what to ignore.”
– Edward de Bono
At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3099 CAD, $1 CAD = $0.7634 USD)
Mar Corn: -1¢ (-0.3%) to $3.623 USD or $4.745 CAD
Mar Soybeans: -4¢ (-0.4%) to $10.545 USD or $13.813 CAD
Mar Soybean Meal (per short ton): -$1.80 (-0.5%) to $341.20 USD or $446.95 CAD
Mar Soybean Oil (cents per lbs): -0.03¢ (-0.1%) to 35.25¢ USD or 46.175¢ CAD
Mar Oats: +1.5¢ (+0.6%) to $2.583 USD or $3.383 CAD
Mar Wheat (Chicago): -2.5¢ (-0.6%) to $4.243 USD or $5.557 CAD
Mar Wheat (Kansas City): -1.8¢ (-0.4%) to $4.40 USD or $5.764 CAD
Mar Wheat (Minneapolis): -0.5¢ (-0.1%) to $5.603 USD or $7.339 CAD
Mar Canola: -1.4¢/bu OR -$0.60/MT (-0.1%) to $9.052/bu / $399.11/MT USD or $11.857/bu / $522.80/MT CAD
Yesterday’s Winnipeg ICE Close
Mar Barley: unchanged at $2.31 USD or $3.026 CAD
Mar Milling Wheat: -2.7¢ (-0.4%) to $4.945 USD or $6.477 CAD
Hard To Ignore
Grains this morning are mostly in the red as the “America First: platform new U.S. President Donald Trump is pushing out is leaving an ugly cloud hanging over global commodity trade, and subsequently creating more risk in the markets. Add in the many unanswered questions on biofuels policy in Washington, D.C. right now and the American farmer is watching the news a bit closer as the small-town worker is likely to gain more from new President Trump policies. Separately, with Chinese-U.S. trade relations up in the air the new Chinese DDG and ethanol import taxes were felt all the way back in December (when the taxes were still being discussed). As such, Allendale Brokers are correct this morning in questioning where the demand is going to come from in order to keep grain prices elevated. Simply put, the production levels we’ve seen are hard to ignore and when supply is great than demand, we all know what happens then (if you don’t, read this quick tutorial on the subject).
I don’t like to get into politics too much in the Breakfast Brief but when the politics affect trade, it’s hard to ignore. So, with that, in just a few short days, U.S. President Donald Trump is already leaving a fairly lasting impression with some quick executive action. First, Trump officially pulled out of the Trans-Pacific Partnership, the Pacific Rim deal that would allow more open trade between countries representing 40% of the world’s GDP, including Canada, Australia, & Japan. Second, he has started to the process to renegotiate NAFTA, (in which, the market didn’t really react to it) and it’s been made fairly clear that the new U.S. government is more interested in the Mexican side of the deal, Canada has a better spot to negotiating from but it’s not out of the woods with beef and softwood lumber likely back on the negotiating table. Finally, yesterday’s big news was that President Trump is reviving the Keystone and Dakota Access pipelines, in the first move of the many expected to broaden infrastructure investment in America in an attempt to lift up the economy (and make it great again!). With the pipelines though, this is supportive of the Canadian energy industry, and thus why the Canadian Loonie is back above 76 cents USD today.
Apart from the trade policy action, the market’s focus continues to be on South America where better weather in Argentina and new forecasts in Brazil continue to suggest a record soybean and corn crop for the total continent. With Brazil at the point where only harvest rains could negatively affect numbers, the early January rains across the country were welcomed by the additional acres planted this year (as per CONAB, soybeans +2% YoY to 83.8M acres while corn area is up 7% from last year to 39.8M acres; wheat is unchanged at 5.2M acres). As per AgRural, Brazilian farmers have sold 37% of their 2016/17 soybeans, compared to 48% at this time a year ago and an average of 44% over the past 4 years. Next door in Argentina, the drier weather of late has relaxed bullish tensions in the market but it’s estimated that 4.9M acres of soybeans (or about 10% of total area) still needs to be planted, and these acreage would equal nearly 4M tonnes of production.
Speaking of acres, Informa Economics pulled back its estimate of 2017 American soybean acea by about 150,000 to 88.65M acres. Considering where soybean prices are at today (still above $10/bushel in Chicago!), these are profitable levels for most producers, but we are still cognizant of the 2016/17 record production carryout, 2017/18 production, and the aforementioned fact that South American farmers are behind in their sales, meaning as that ramps up, pressure will get put on the market. On the flipside, there’s a case that if the corn market can get closer to $4/bushel by another quarter or so, the likelihood of 2017 U.S. corn acreage staying similar to that of 2016 would increase (we’ll still see above 90M no matter what in my opinion). Thinking about some Canadian acreage, Chuck Penner of Left Field Commodity Research believes that peas acreage could expand again to another new record to roughly 4.4M acres while lentils will likely pull back from its monster area last year to something closer to 5M acres (still about 1M acres above the 2015/16 crop). Right now, market prices are supporting all the aforementioned acreage, and accordingly, managing some of the price risk exposure of that area / production and locking up profitable levels is hard to ignore.
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.