Grain markets this morning are all green as the complex factors in AAFC updated demand estimates, harvest 2019 weather forecasts, and trade war talks.
“I don’t believe in pessimism. If something doesn’t come up the way you want, forge ahead. If you think it’s going to rain, it will.” – Clint Eastwood (American actor and filmmaker)
AAFC Pessimism & Harvest 2019 Battles
Grain markets this morning are in the green as the complex factors in updated estimates from AAFC, harvest 2019 weather forecasts, and trade war talks. Expectations for this afternoon’s USDA crop progress report is that we’ll see a small drop in good-to-excellent ratings for both corn and soybeans, but a slow down in the pace of the U.S. spring wheat harvest.
Grain markets ended the third week September rather mixed as trade and export disappointments dragged down corn and soybean prices while wheat found gains on quality concerns. For corn, U.S. 2019/20 exports are tracking about 37% behind last pace through this week, and speculators pushed their net-short position up by more than 33,000 lots to the most bearish position since the week of May 14th.
Meanwhile, soybean prices fell as China canceled its planned U.S. farm visits, intuitively fading in optimism for a trade war resolution sometime soon.  However, soybean prices in Chicago are finding some gains this morning on renewed optimism for trade war talks between the world’s two largest economies as the U.S. lifted tariffs on over 400 Chinese products.  For wheat prices, wet weather throughout the Northern Plains and parts of Western Canada is bringing about some concerns over the quality coming off in Harvest 2019.
Battling Bullish Harvest 2019 Weather
Staying in spring wheat, sprouting and bleaching issues are resulting in some buyers of HRS and durum wheat to already have some pretty steep discount schedules. What’s potentially compounding the quality issue is further wet weather through the weekend in North Dakota, Montana, Manitoba and some parts of Saskatchewan.  Add in the fact that we’re getting pretty close to normal frost dates, I’m expecting to see protein and quality premiums and discounts to spread even wider. More specifically, parts of central and southern Alberta are expected to see some snow later this week.  As you can tell from the current state of Harvest 2019 progress in Western Canada, there’s certainly a lot of crop left to get combined.
Meanwhile, above-average rainfall for the first two weeks of September in the Missouri River Basin is creating issues downstream in Nebraska and South Dakota, with many roads, fields, and farms under the threat of flooding for the third or fourth time this year.  As Harvest 2019 is becoming a battle, Brazilian farmers are just getting ready to plant their 2019 soybean crop, but they’re missing one thing that North American farmers have a lot of: rain.  Accordingly, the start of Plant 2019 in Brazil has been quite slow.
AAFC Pessimistic on Grain Exports
Late on Friday, Agriculture Canada released its updated supply and demand tables for Canadian crops. While AAFC is using Statistics Canada’s data-modeled production estimates for Harvest 2019 from a few weeks ago, they admitted that these datapoints are not accounting for “cool, wet weather in September in Western Canada which has delayed harvest and reduced the quality of the crop.” I’ll repeat what I said from last week: if there’s a year to make sure you’re taking proper samples and getting your grain tested, this is it. We’ve built a simple cheat sheet to take proper grain samples. Even if you’re going to have to sell into the feed market, knowing disease levels will be a top priority for any buyer.
That said, AAFC says that they’re expecting weaker barley exports in 2019/20 as more countries are competing for the Chinese market. Further, feed use of barley in Canada in 2018/19 dropped by nearly 500,000 MT from the previous year to a new record low thanks to competition with other feedstuffs like corn and feed wheat. With this recent harvest weather, I would expect this trend to continue, but Canadian barley inventories left over at the end of the 2018/19 crop year were at a record low, so that should support barley prices a bit.
You might find more Canadian oats going into the feed column this because they’re not making milling grade. This comes as oats stocks in the Great White North at of the end of the 2018/19 crop year were nearly at a record low, thanks to strong oats exports to countries who are not named the United States (including Mexico, South Africa, Japan, Peru, and the UAE). With AAFC expecting oats exports to remain strong in 2019, inventories should stay relatively tight. Combined with some quality issues starting to show up because of the recent wet harvest 2019 weather, oats prices could find some further gains over the fall and winter months as buyers sort through samples.
Canadian processors in 2018/19 set a record volume of canola crushed at 9.3 MMT, which produced records of 4 MMT of canola oil and 5.2 MMT of canola meal. This crush volume is expected to be identical in 2019/20, but canola exports are expected to fall to 9.2 MMT. A decline in canola exports to China is the main reason for the decline, but the USDA is forecasting EU canola/rapeseed imports are expected to jump 800,000 MT this year to 5.1 MMT.  This is mainly because the EU rapeseed harvest is expected to be the lowest since 2007/08 at 17.8 MMT (also a 12% drop year-over-year). 
Accordingly, AAFC (and many others) believe that Canadian canola exports to the EU should help fill their needs due to the third straight year of drought conditions in the EU’s normal supplier, Australia, negatively impacting yields in the Land Down Undaa. Nonetheless, a bigger 2019 Canadian canola harvest than once thought has Agriculture Canada pushing 2019/19 canola ending stocks to a record high of 4.5 MMT.
Ultimately, it’s not really the fault of AAFC to be more pessimistic about grain trade in 2019/20. When there’s more production but similar demand, price points intuitively drop a bit. As I’ve said many times in the last few weeks, the focus right now should be on getting Harvest 2019 into the books.
Good luck out there in the fields this week!
At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3278 CAD, $1 CAD = $0.7531 USD)
Dec Corn: +2.5¢ (+0.65%) to $3.733 USD or $4.956 CAD
Nov Soybeans: +12.8¢ (+1.45%) to $8.955 USD or $11.891 CAD
Dec Soybean Meal (per short ton): +$3.40 (+1.15%) to $298.40 USD or $396.23 CAD
Dec Soybean Oil (cents per lbs): +0.10¢ (+0.35%) to 29.50¢ USD or 39.17¢ CAD
Dec Oats: +0.8¢ (+0.25%) to $2.765 USD or $3.671 CAD
Dec Wheat (Chicago): +3¢ (+0.6%) to $4.873 USD or $6.47 CAD
Dec Wheat (Kansas City): +5.5¢ (+1.35%) to $4.13 USD or $5.484 CAD
Dec Wheat (Minneapolis): +8.8¢ (+1.65%) to $5.33 USD or $7.077 CAD
Nov Canola: +5.2¢ (+0.5%) to $10.199/bu / $449.70/MT CAD or $7.681/bu / $338.67/MT USD
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.