September 1, 2014

North Dakota Department of Ag, Port of Vancouver Announce Shipping Agreement

The state of North Dakota and one of the nation’s leading ports are teaming up to increase the shipment of North Dakota agricultural commodities to the West Coast, while bringing more supplies and industrial products into the state.

Agriculture Commissioner Doug Goehring and Todd Coleman, CEO, Port of Vancouver USA signed a memorandum of agreement Wednesday in Fargo, uniting the state and the port in a collaborative rail service program that supports both the agricultural and energy industries.

“This agreement provides more marketing opportunities for our identity-preserved and specialty crop products, such as food grade soybeans, peas, lentils, dry beans and other commodities, to be transloaded and containerized,” Goehring said. “It also provides a major opportunity for North Dakota commodity handlers, especially smaller and mid-sized companies, to access rail facilities on the same basis as larger companies, enabling them to remain competitive.”

“We expect this agreement to increase capacity and reliability for farmers needing to move their products to market by rail,” said Coleman. “Cargoes, specifically supplies for the energy industry, are already moving east from the Pacific Northwest to the Midcontinent. We’re taking it a step further by leasing boxcars to carry those eastbound cargoes and then, with the help of our logistics partners, filling these boxcars with agricultural products for the return trip to Vancouver.”

Coleman explained that the port’s responsibilities include designating load centers, managing boxcars, coordinating with BNSF Railway and providing monthly service reports.

Goehring said NDDA’s responsibilities include collection of production data, and communicating with the agriculture community, exporters and with small to mid-size shippers.

“We have been working at this more than a year,” Goehring said. “When the Port approached me about the possibility, I saw it as an opportunity to reduce the problem of trying to get out our wheat and other crops to market, a problem we have had for decades and one that has become a greater challenge recently. This agreement will not end that problem, but I believe it can go a long way to relieve it.”

“We’re looking at starting to move full boxcars from North Dakota as early as mid-September,” said Coleman. “The equipment and infrastructure are already there, and we’ll work together to optimize its use and get products moving west and beyond to markets in Asia and Latin America.”

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Weekly Market Analysis with Miller Risk Management

Grain markets had a mixed week, but in many cases if it hadn’t been for the late surge Friday, would have finished in negative territory on the week.  Weather was again a primary focus for all three grains, although corn and soybean markets at times were distracted by discussion out of the Pro Farmer Crop Tour.  Regardless, the markets acceptance of some sort of record crop, even if the total size is still being debated, kept most traders from being too concerned by any hints of growing demand.

Weather this week was basically crop friendly and should help crop conditions at least remain stable next week, if not a touch higher.  Rains fell through the north and western belt through South and North Dakota as well as parts of Minnesota and alleviated much of the driest areas.  However, later week rains that were expected across western Iowa underperformed a bit and left the northwestern half of that state on the drier side (although certainly not tragically so).  Regardless, more rains are expected through the coming week to ten days and should alleviate any stress incurred by the warmer temperatures.  In fact, the heat should be sufficient to push along some of the later planted fields.  The underperformance of rains this week may simply may some traders a bit more sensitive to any signs that a similar pattern will develop this week.  All in all, though, the late season is going to make it tough to have a big impact in yield.

 

Soybeans/Corn

Because corn and soybean markets were similar this week in their news and efforts, we will discuss both together this week. Markets kept their firmness on the last few days of the week, despite early week weakness as rains fell across the northwestern cornbelt.

There was a lot of emotion and anxiety going into Friday’s close as the Ukraine situation took another turn for the worst, with recent reports of the White House warning Putin to pull forces back immediately, “or else” (reportedly as many as 18k troops amassed on border). In addition, the Pro Farmer results are expected to be announced this afternoon, and reportedly the RFS delivered their updated mandate to the White House for final (and very late) approval.

We continue to view the corn and soybean markets as just biding time, arguably working off a minor oversold condition before working lower. Beans should have the most downside risk, and even though the corn balance sheet has shown some recent improvement (and never was as burdensome as the soybean situation), we believe new lows are in all likelihood an eventuality there as well.

As commented earlier, oftentimes markets decide to plateau and move sideways before resuming their trend, and we think this is exactly what is happening right now. Because of this pause in the downward spiral, a lot of analysts are offering reasons why the fall in prices has stopped or slowed down, and many are even suggesting a bounce is likely, but we believe any bounce that does occur will be very minor, and that the combination of improving yields and harvest pressure will take a toll on prices. It’s pointless to target a specific ultimate downside price objective, but we continue to expect November 14 beans to lose at least a dollar from current levels, and for December 14 corn to drop at least 25 cents. If this turns out to be the case, which would put SX4 at $9.42 and CZ4 at $3.36, that would leave the bean/corn ratio still at an extremely high 2.8 to 1. This suggests to us that at that point corn would begin to look like a long term buy possibility, and soybeans would continue to look very expensive.  We would like to point out that if corn does drop another 25 cents, we are probably low enough in the price cycle/range of the past few years that it may not come all at once, rather in a very choppy and treacherous pattern over a month or so.

Many reports of extremely high basis levels for old crop beans as supplies are drying up fast (as much as $3-$4 over the November futures in areas of the central U.S.). Again, pointing out the complete mishandling of the old crop S&D’s by the USDA, as they for some reason insist on keeping the carryover level the same as they (ridiculously) report larger and larger negative “Residual” category estimates.

Here is a chart of the “carrying charge” spread of November 14/July 15 soybeans. The November 14/July 15 carrying charge for soybeans has tightened pretty dramatically in recent weeks which, frankly, we find pretty hard to explain. We expect it to widen back out to new highs, possibly exceeding 40 by fall, but we have to ask if enough producers and elevators are seeing even the smallish 21 cents as a “good enough” carry to lock in.

Weather patterns were addressed above; there are some spotty issues throughout the U.S., but in general conditions are near ideal in many locations.  Additionally, at almost 85 million acres, a few streaky stressed spot aren’t going to have a big impact on total production.

Pro Farmer Crop Tour results seem to provide a lot of immediate interest for the trade, although comparing them to USDA can be difficult if not dangerous due to the variation in statistical methods.  Regardless, scouts throughout the week found a basically strong crop with the “worst” areas having pod counts that were consistent with the local three year average.  No actual yield estimates are issued until the last day, when a formula converts the pod counts to a yield estimate which, in this case, came in at 45.3 bu/ac, a hair below USDA’s yield at 45.4 bu/ac.  Soybeans set yields late enough that weather (i.e. extreme heat, early frost) would still have an impact so “risk” premium, however minor is likely still in play.  Regardless, our bias remains lower for the foreseeable future.

Wheat

Wheat markets were once again stuck in their recent range, starting the week somewhere in the middle, moving down towards the bottom mid week and then finishing at or near the week’s highs.  Wheat and corn are in similar fundamental situations, although the production cycle of wheat is leaving price a bit further along in their price patterns as well.  Supportive factors this week were ongoing weather patterns in Europe that continue to interfere with harvest, Stats Canada projecting a wheat crop on the low side of trade expectations, and weather forecasts that aren’t particularly conducive to spring wheat harvest (further underscored by a deterioration in condition in a crop that’s held relatively steady all year).  Limiting factors continue to be the overwhelming global crop and the fact that the U.S still persists in being uncompetitive on world markets in many tenders.

In terms of weather, spring wheat harvest is underway attempting to get underway in both North and South Dakota with USDA reporting harvest at 17% complete in it’s weekly crop progress report 0n Monday.  That’s well below the 33% average with rains continuing at various points over the week.  Progress is likely to continue falling behind, which the market could likely live with if condition ratings didn’t also post a slide.  Vomitoxin is also becoming a bigger issue, although that particular issue will be dealt with in the cash market more than futures.

Rain wasn’t only a problem in the U.S., as Europe remains stymied in their harvest efforts. Rains fell there too, and its compounding quality issues that had already popped up.  Now the quality issues don’t eliminate the grain; the bushels are still there however they will weigh more on feed grain markets at this point.  In fact, midweek reports surfaced that France had started importing milling quality wheat from Northeastern Europe (Lithuania in particular) to start blending up their lowest quality supplies.  The Ukrainian Millers association also wrote a letter to their president requesting a cap be placed on their milling quality wheat exports due to their concerns about domestic supplies.  That request was turned down late in the week, but the move underscored discussion that had already taken place in the market.  Now, we cannot stress enough that quality issues generally evolve into cash market issues, not futures issues.  However, in this case, the lack of competition from the EU and then their budding need for higher quality supplies just to sell their own will provide support to KC and Mnpls markets in particular (Chi may not see quite the appreciation as it’s closer to a feed grade wheat).

RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Please contact your account representative for more information on these risks. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance

Miller Risk Management is a subsidiary of Clayton Pope Commodities in Champaign, Il.  If you have any questions, please call Katie at 701-730-3352

 

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WTO Rumored To Have Ruled Against U.S. COOL Rule

Reports are surfacing that the World Trade Organization has sided with Canada and Mexico in regards to U.S. Country of Origin Labeling rules. Canada and Mexico have asked for the World Trade Organization’s help against new U.S. COOL rules, which they say are more restrictive and harmful to beef cattle and pigs imported into the U.S. than an earlier version of the legislation that was found to violate WTO rules. In July, the WTO decision was provided to the governments, but will not be made public until it’s translated which could be weeks or months. WTO rules give the United States 60 days to appeal from the date the report is published.

Supporters of COOL say U.S consumers have a right to know where their food originates from. Opponents say the rule would be costly and burdensome. Last month, a U.S. Appeals court in D.C. upheld COOL rules. The nine judges who ruled in favor of USDA’s rules stated the government has a “substantial” interest in requiring meat processors to label where livestock was born, raised and slaughtered, including food safety concerns.

 

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