Apr. 12 – Cool Spring Weather Only Warming Up Grain Prices?

Grain prices this morning are in the green as weather, follow-on buying, and optimism for trade war talks are all spurring the complex higher.

“Those who cannot understand how to put their thoughts on ice should not enter into the heat of debate.”  – Friedrich Nietzsche (German philosopher)

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Grain prices this morning are in the green as weather, follow-on buying, and optimism for trade war talks are all spurring the complex higher. Winter wheat prices look like they’ll end the week in the red as conditions in major growing regions in the U.S. states are looking pretty good and the rain falling this week and next are positive. Soybean and corn prices are trying to battle their way to a positive close to the week but without a bullish headline today from trade war discussions, it looks like they’ll also close the week with negative performance.

Accordingly, the bearish (but dull) April WASDE report from the USDA has been priced in now and the focus of the grain markets has come back to Mother Nature and what the U.S. and Chinese delegations are saying. For the latter, there continue to be some rumours that China is going to buy some very large volumes of U.S. grain, but hearsay is all it seems to be at this point. If you’ve read the FarmLead Breakfast Brief for a while though, you’d know that I’m a big fan of “sell the rumour, profit on the fact”.  This is where, we know that prices are heading higher based on some buzz, but not actual fact, and when the truth comes out, the market is usually disappointed, and grain prices pull back.

That being said, it’s easy just to focus on the near-term or even the first delivery period after harvest. Some of the best opportunities lie beyond that though. For example, Successful Marketing reminded us of the carry available in corn prices between the December 2019 and July 2020 contracts. [1] The spread between the two contracts pushed out to nearly 30¢ USD/bushel recently, albeit this morning it’s back down to 20¢. The point here is to not have your blinders on by just focusing on just the nearby price and/or the earliest new crop contract.

When Do the Weather Markets Start?

We saw a second “bomb cyclone” blizzard roll across the Northern Plains and part of the Midwest this week, providing further havoc to areas still pulling themselves out of the flooding. Between 1 to 2.5 feet of snow was expected to fall in Minnesota and North Dakota, while Illinois and Indiana were expected to receive severe thunderstorms. The storm has also brought some colder temperatures and it’s possible that freezing temperatures across many southern states and the Ohio Valley that could break some records this weekend. [2] The cold air though will delay melting of the snow and drying up of fields, which basically translates into spring fieldwork being practically nil next week.

Weather Premiums for Grain Prices Ahead of Plant 2019

And the storms don’t seem to be over yet! Before the end of April, another four (4) storm systems are expected to hit the U.S. [3] Next week, it’s expected that another system will roll over the Northern Plains, but could hit the eastern Cornbelt states. [4] This would put further flooding pressure on the Mississippi and Ohio river systems, and thus grain transportation. This might help export basis levels inch higher a bit.

The expectation though is for some drier weather across the major crop-growing regions of the U.S. as soon as we flip the calendar into May. On that note, as we’re getting back into the habit of reporting on USDA crop progress reports, released every Monday, it’s expected that next week’s publication will show U.S. corn planting close to the five-year average of 5% complete. This isn’t surprising when you consider that Plant 2019 campaigns started up more than a few weeks ago in the southern states, namely in the Northern Plains and Delta regions. Ultimately though, the question that I’m getting asked most is, “when will weather markets start to show up?”.

All things being equal, it’s a bit early in the Plant 2019 campaign for weather premiums to start popping into grain prices. Historically speaking, we know that, when there’s a window to plant, a lot of area gets covered very quickly. Simply put, we shouldn’t necessarily be looking for weather premiums to propel grain prices higher for at least a few more weeks, if not a month. [5] In the meantime, the market will be comparing field conditions to past years to understand if there is, in fact, a bullish Plant 2019 scenario for grain prices thanks to this late spring wintry weather.

Even Bigger Crops in Argentina?

In Tuesday’s WASDE report, we saw the USDA raise their output for grain production in Argentina; the corn harvest is now pegged at 47 MMT and the soybean harvest at 55 MMT. The Buenos Aires Grain Exchange matched the latter number yesterday, raising their estimate of Argentina’s soybean crop to meet that of the USDA. Comparably, the Rosario Grains Exchange says that the possibility of the soybean harvest reaching 56 MMT is very likely as mild weather over the last month has brought in above-average yields. Technically, the soybean harvest in Argentina is a bit behind its normal pace but the yield monitors are, on average, reading 62-64 bushels per acre so far. [6] On the corn side of things, the forecasters at Rosario also think that corn production in Argentina could bump up to 48 MMT. All this means is added competition in the game of global grain trade.

We know that China’s soybean imports in March jumped up to 4.92 MMT, which is a 10% bump from February, but still down 13% from March 2018’s volumes. [7] Further, for 1Q2019, total China soybean imports were 16.75 MMT, down more than 14% year-over-year. As mentioned in last Friday’s FarmLead Breakfast Brief, the African swine fever and the smaller size of China’s herd of hogs hasn’t helped soybean prices, given the smaller demand structure there in the People’s Republic. Moreover, while this week saw some good U.S. pork export sales, it’s been suggested that over 70% of the China’s pork imports are coming from the EU right now. [8]

Overall, between some weather issues and trade war talks looking a bit optimistic, grain markets are cautiously trying to move higher. The big crops in South America, as well as the large grain inventories held worldwide, could keep a lid on any short-covering rallies that you see in grain prices thanks weather issues. The point here though is that the influence of weather doesn’t appear to be relaxing for the next few weeks, which indeed could create some jitters in the complex. We know it’s a fact that the crop will get planted this year, but will you be prepared to profit on that fact? Put another way, should bullish rumours of Plant 2019 issues emerge, do you have a number in mind to sell at if weather premiums do show up?

Have a great weekend!

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

At 7:30 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3376 
CAD, $1 CAD = $0.7476 USD)

May Corn: +0.8¢ (+0.2%) to $3.608 USD or $4.825 CAD
May Soybeans: +1.3¢ (+0.15%) to $8.965 USD or $11.992 CAD
May Soybean Meal (per short ton): +$0.60 (+0.2%) to $307.80 USD or $411.72 CAD
May Soybean Oil (cents per lbs): +0.07¢ (+0.25%) to 29.05¢ USD or 38.86¢ CAD  
May Oats: +3.5¢ (+1.25%) to $2.835 USD or $3.792 CAD
May Wheat (Chicago): +2.5¢ (+0.55%) to $4.63 USD or $6.193 CAD
May Wheat (Kansas City): +2.5¢ (+0.6%) to $4.33 USD or $5.792 CAD 

May Wheat (Minneapolis): -1.5¢ (-0.3%) to $5.318 USD or $7.113 CAD
May Canola: +1.1¢ (+0.1%) to $10.358/bu / $456.70/MT CAD or $7.743/bu / $341.43/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.

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