Apr. 26 – Weather and Pork Problems Feeding Grain Prices

Grain prices are mixed again this morning as the complex tries to acknowledge that weather is having an impact on the start of Plant 2019.

“There’s no such thing as bad weather, just soft people.” – Bill Bowerman (American track & field coach and founder of Nike)

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Grain prices are mixed again this morning as the complex tries to acknowledge that weather is having an impact on the start of Plant 2019. A weak Canadian Dollar has supported canola prices a bit but there continues to be concern over trade relations with China as there’s basically been no update in the month since Beijing started revoking canola exports licenses. Canadian canola exports are now tracking 10% behind last year with 6.82 MMT shipped out through Week 38 of its 2018/19 crop year.

Canadian Canola Exports (Cumulative Through Week 38 of 2018/19 crop year)

With all the recent wet weather and flooding, the USDA acknowledged that they’ll account for the flood-damaged grain in the June 1st stocks report, released on Friday, June 28th. [1] Put another way, the stocks report will only include grain inventories that are actually still legitimate grain. The other challenge with the damp weather is that it’s basically stalled fertilizer movement through the American Midwest river systems. [2]

The Impact of Pork Problems in China

We got some fresh detailed trade data from China’s customs agency, showing that the People’s Republic imported 2.79 MMT of soybeans from Brazil in March, an increase of 20% year-over-year. [3] Also of note is that Canada exported 205,780 MT of their soybeans to China, which would be nearly triple the 71,000 MT of Canadian soybeans that China bought in March 2018.

Comparably, China imported 1.51 MMT of U.S. soybeans in March 2019, which would be a 66% jump from February’s imports of 907,754 MT. However, it is still literally half of what China imported from the U.S. in March 2018. Through Week 33 of the U.S. soybean crop year, total U.S. soybean exports are sitting at 31.8 MMT (or about 1.17 billion bushels when converting metric tonnes into bushels), down 26% year-over-year.

U.S. Soybean exports (Weekly Through Week 33 of the 2018/19 crop year)

We know that China can’t seem to weather this “storm” of sorts in containing the African Swine virus, and accordingly, Beijing has suggested that pork prices in the People’s Republic could rise by more than 70% in the second half of 2019. [4] Rabobank has provided what most consider to the grimmest forecast, suggesting that the disease could lead to the culling of up to 200 million pigs in China, or about 35% reduction in pork output. [5]

From a political standpoint, this could give the U.S. the edge in trade negotiations, as the higher pork prices will put pressure on the Chinese consumer. However, the price increases will likely also be felt here in North America as China starts to import more pork from the U.S. and Canada. With Chinese demand competing with domestic demand, this basically means that bacon might get a little pricier in your local grocery store. [6] That said, North American livestock producers aren’t complaining too much as the complex is benefiting from a myriad of factors that are supporting their bottom lines! [7]

Weather Finally A Factor for Grain Prices?

For the most part, there haven’t been too many grumblings about what StatsCan reported on Wednesday in terms of Plant 2019 acreage estimates for the Great White North. Instead, the complaints have been more directed towards Mother Nature (which, alongside the Statistics Canada acres forecast, I also talked about in Wednesday’s FarmLead Breakfast Brief). Again, we know that much of Saskatchewan and Alberta are looking dry and we can add parts of northern Montana and North Dakota to that camp. According to the latest drought monitor, in the last two months, these two regions have received only 25-50% of their normal precipitation. That said, nearly 86% of the U.S. is currently drought-free with 0% of the country categorized as in extreme or exceptional drought. [8]

This is a strong contrast to the Midwest, where more rain is expected to fall over the next two weeks. [9] Of course, this will benefit soil moisture but, even parts of Minnesota, Iowa, Wisconsin, and Illinois might get some snow this weekend! This is not to say that it’s raining every day but the routine of “1 day of rain, 1 day of sunshine” isn’t helpful in terms of getting out into the field and getting a crop planted. While I said in Monday’s FarmLead Breakfast Brief that the rain isn’t helping wheat prices (rain makes grain!), we also know that Plant 2019 will happen no matter what. But indeed, the optimal planting window is getting a little slimmer.

In Germany, soil conditions are relatively dry, even being categorized as severe. [10]. As indicated in the map below by the red and dark red areas, last year’s summer dryness is carrying over into this year’s crop conditions. As such, given how Germany is a major wheat, barley, and rapeseed producer in the E.U., this is causing some concern within the complex, and accordingly, European grain prices are creeping up at the same time as North American grain prices. Conversely, good weather in the Black Sea is setting things up for potentially a bumper harvest. [11]

Dry Weather Shows Impact on German Soil Moisture (April 2019

Dan Hueber of the Hueber Report made a healthy point earlier this week about when and where a major reversal in the market happens. [12] To quote him, “Bottoms do not occur because we find some bullish revelation, they happen when we have pressed prices below their point of value, and I would argue, that is the case we are staring at now.” We’ve seen weather be ignored the last few weeks, but with every passing day of precipitation, the bearishness of grain prices is losing its shine.

Have a great weekend! (Hopefully, you get some nice weather!)

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@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 = $1.3474 
CAD, $1 CAD = $0.7422 USD)

July Corn: +1.5¢ (+0.4%) to $3.588 USD or $4.834 CAD
July Soybeans: -2.8¢ (-0.3%) to $8.70 USD or $11.723 CAD
July Soybean Meal (per short ton): -$1.20 (-0.4%) to $308.40 USD or $415.55 CAD
July Soybean Oil (cents per lbs): -0.23¢ (-0.8%) to 27.71¢ USD or 37.34¢ CAD  
July Oats: -0.3¢ (-0.1%) to $2.883 USD or $3.884 CAD
July Wheat (Chicago): +2¢ (+0.45%) to $4.435 USD or $5.976 CAD
July Wheat (Kansas City): +2.5¢ (+0.6%) to $4.14 USD or $5.578 CAD 

July Wheat (Minneapolis): +2.5¢ (+0.5%) to $5.163 USD or $6.956 CAD
July Canola: -2.7¢ (-0.25%) to $10.208/bu / $450.10/MT CAD or $7.576/bu / $334.04/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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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