Eyeing the Competition — This Week in the Grain Markets

The new John Deere W550i combine harvester. © Deere & Company

Grains in the past week have started to improve a bit as concerns over quality and a lower U.S. Dollar are supporting more international demand. The wetter weather in the Canadian Prairies is widening out quality premiums, especially in lentils and a little less so in durum, but it’s becoming more apparent with every growing season that knowing the quality of your grain gives an automatic competitive advantage in grain marketing (you can order your SGS test through FarmLead).

Oil prices touched multi-month highs this week, thanks to the U.S. Dollar dipping 1.3% since last Friday. With the main-commodity pricing currency down, the value of most commodities joined oil, with corn coming in as the big winner, up 3.75% (a surprise given last Friday’s bearish USDA report) and 74% of the U.S. crop still rated in good-to-excellent condition. The justification for the buzz? Higher demand and strong ethanol action.

Soybeans were up almost 3% for the week, with canola not faring so bad either with a 1.5% gain for the week, mainly thanks to disease pressure in North America and smaller palm oil inventories than expected. Cereals did okay this week, rebounding from some low levels a week ago, with wheat up 1% and oats up 1.2%.

Photo by Brennan Turner, from the family farm in Foam Lake, SK.

Photo by Brennan Turner, from the family farm in Foam Lake, SK.

Looking south, Argentinian farmers trying to plant wheat and corn have been slowed by some rains, with flooding in some areas likely forcing over 2 million acres to either get reseeded or be written off. Next door in Brazil, Cargill and Louis Dreyfus are each idling two of their soybean crush plants (or 4 of the 11 between them) thanks to declining available supplies and margins dropping like the yield monitor as you start cutting into flooded out areas (we saw a bit of this as we started into yellow peas this week on the family farm in Foam Lake, SK, but yields across eight quarters suggest an average of 60+ bu/ac!).

Soymeal prices in Brazil are down about 12% month-over-month, mainly because of the weakened position of the poultry industry in Brazil, the largest user of the oilseed crush byproduct. One crusher, Algar Agro, says total soybean crush volumes will likely fall about 5% this year but Abiove says it’ll be little changed from last year at 40.7 million tonnes. If there are soybeans left to crush in Brazil, farmers are holding onto them in hoping for a price rebound as they start planting the 2016/17 crop starting September 15th. So, while we are taking crop off in North America, the South Americans are just getting ready to start their engines again.

Conversely, with some poor quality wheat coming off, France is readily importing wheat from Eastern Europe with cargoes from Bulgaria and Romania already on boats and headed west. While it’s been noted at least some of this may be used to deliver against a contract into the U.S. for feed wheat, it’s cheaper to source from the Black Sea, versus buying locally and cleaning the poor quality product. With additional demand, Black Sea wheat prices are improving, as indicated by demand for better quality wheat that international buyers usually pick from France first. Russian and Ukrainian milling wheat prices are up 6% in the past month as France’s share of the world market is likely to fall about five points year-over-year to 7%.

What’s certain is that Russia is taking off another monster crop. They’re already sending it out of the country in droves, making sure they remain the world’s number one wheat exporter. So far in the first five weeks of the 2016/17 wheat marketing year, Russia has exported 2.35 million tonnes, up 40% from last year’s already impressive numbers. Next door in Ukraine, farmers are likely taking off 63 million tonnes of grain (+5% year-over-year), including a potential 27 million tonnes of wheat. The country has also exported 2.4 million tonnes of the cereal already this year (they could reach a record 41 million tonnes of grain exports in 2016/17).

While Russian and Ukrainian farmers continue to produce, the countries’ politicians do not: accusations are being hurled back and forth between Moscow and Kiev about sovereignty. Currently, troops from both countries are building up at the borders, with both sides at “combat ready” status. Like we saw briefly in spring 2014, this Black Sea tension may be a catalyst for wheat prices to pop briefly.

Being aware of this opportunity from our competition is mandatory marketing knowledge these days. We might just be getting into this year’s harvest in North America, but a lot of competitive eyes are on the Black Sea as they’re currently the only place with some verified big yields and available supplies to meet some big, new crop year demand.

 

Brennan Turner

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, he spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available for iOS & Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email ([email protected]) or phone (1-855-332-7653). @FarmLead

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