Deep Translations

Breakfast Brief

Grains started August a bit slow with rain hitting most growing areas across North America and even Australia, which has prompted a few estimate increases despite the threat of an El Nino event still present. However, Friday brought the action as a lower U.S. dollar and some strong U.S. export sales helped pull the complex higher for most sectors to close in the green. All week, the market had been relatively quiet as the complex tossed and turned over direction of technicals and sizes of crops. The Canadian dollar is sitting near an 11-year low as oil continues its sell-off, something consumers may appreciate (albeit that depends on whether or not it actually translates to lower prices at the pump!).

With the corn yield debate raging, analysts on the technical side of things continue to figure out secrets but here’s a free pro-tip: if something hits a one-year high, that’s a signal to sell at least something! While it’s good to look at the past, most technicals are pointing to targets between $4.60 and $4.90 on the futures board, with cash prices averaging around $4.25/bu. One catalyst for higher corn prices could be Argentina, where producers there are forecasted to pull back on seed acres in October by as much as 15-30 per cent (per the U.S.D.A.’s attaché). The second corn price catalyst could be Europe as Bloomberg’s latest survey pegs E.U. corn production closer to 62.8 million tonnes, or a 19 per cent drop from last year’s record 77.75 million tonne crop, as the heatwave in July took a toll on the coarse grain. The E.U. Commission also cut their rapeseed production forecast for this year by one million tonnes to 20.7 million tonnes (if you recall, we forecasted for a sub-21 million-tonne number in this column all the way back in March!). Conversely, private firms are forecasting a record wheat crop in France as estimates for soft wheat production range from 37.9 million to 39.4 million tonnes, with yields averaging above 110 bu/ac! Add in drier conditions during harvest, and what you get is a complete opposite from last year’s French wheat harvest when rain significantly affected progress and the crop’s quality.

I’m getting a fair amount of phone calls lately as to where guys should be making sales off the combine right now. Generally, I think it’s good to have about 20-40% of the crop contracted by the time it comes off the field (dependent on storage space and market fundamentals of course) – whether that’s through forward contracts or making sales literally as you’re out harvesting (literally no better solution to do this with than the FarmLead Mobile app!). Let’s keep things relative though where are prices today compared to their historical averages? It would be great to see some hiring pries in the near term but it will totally depend on how much sun shines down over the next two to four weeks – I think most producers across the major agricultural production regions of North American can agree that we could take a break from the rain. Of course, some fundamentals suggest we could go a bit higher, but I will never challenge anyone looking to lock in a profit for 10% or 20% of production and managing price risk versus speculating and hoping for another 20% move to the upside. Translation: making smaller sales when you can, equals not having to sell a bigger quantity when you have to.

To growth,

Brennan Turner


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