Holding wild cards

This week's FarmLead looks at weather forecasts and markets such as soybeans and global markets.

Through mid-May, eyes continue to be watch the weather forecasts for frost events (and any subsequent damage or replant needs) and whether or not enough moisture will fall on the western half of the Canadian Prairies. Nonetheless, field activity continues ahead of the normal average on both sides of the 49th parallel, which puts pressure on the markets without new headlines to chase. The Canadian Dollar has quieted a bit despite oil creeping up to multi-month highs on production concerns, but the market still believes supply holds the wild card over demand.

A lot of discussion continues to be had around the soybeans market as this month’s W.A.S.D.E. report still has people scratching their heads. There’s obviously bullish thoughts out there, but something to keep in mind is that the U.S.D.A.’s demand pump-up for beans was based on a price range of $8.35 to $9.85 (or an average of $9.10). With markets much higher than that, one could argue that some of this demand will be lost and that the highs are in. Complimenting a bearish thesis is the fact that with cooler temperatures, some soggier weather, and now being past our May 15th optimal corn yield planting date, those acres that didn’t get into corn could very well go into soybeans instead.

A more aggressive scenario was put forth by grain company The Andersons, who estimated 3.5 million acres more of soybeans going into U.S. soil. The even money may be on Dr. Cordonnier of Soybean and Corn Advisor, who has lifted his soybean area to 84 million acres, 1.8 million above the U.S.D.A.’s projection in their March 31st report. This would peg U.S. bean output at 3.88 Billion bushels off of a 46.7 bu/ac average yield. For corn, the Doc dropped corn acres by 1.6 million from the U.S.D.A.’s estimate to 92 million acres, and at a 166 bu/ac average yield, this would peg production at 14 Billion bushels on the nose. With current U.S.D.A. demand projections, one can expect a 1.72 Billion bushel carryout for corn and 385 million bushels in ending stocks for soybeans.

We made the call earlier in the year that given the global supply of grain out there, there may be 2 or 3 rallies to take advantage of this calendar year. Definitively, we are in 1 of those rallies, especially for the oilseed markets, and given the continued buzz in the markets about acreage switches, the upside seems unknown but the downside is omni-present. Not to be the doom and gloom guy but I’m about managing price risk exposure. Profiting to the upside on 100 per cent of inventory for sale is one way to look at it, but leaving profit exposed to the downside on 100 per cent of said grain is another. With futures values increasing lately, we’ve seen basis levels widen a bit and so, should futures pull back a bit, you’d likely see basis improve (assuming currency effects are mute for now). Sure, weather can intuitively be the wild card, but over the next 2-3 months, playing “sky roulette” and gambling on the clouds (or lack thereof?) isn’t necessarily the best risk management strategy.

To growth,

Brennan Turner

President and CEO | FarmLead.com

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, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available) that has moved almost 250,000 MT in the last 2.5 years. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653)

 

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