April 6 – Grain Markets Uneasy Again With More Trump Tariffs

Good Morning!

Grain markets are all in the red this morning as we’re seeing a bit of a Friday sell-off to cap off a volatile week.

“I feel slightly uneasy at the way historians are consulted as if history is going to repeat itself. It never does.” – Antony Beevor (English Historian)

graincents-trial

Grain Markets Uneasy Again with More Trump Tariffs

Grain markets are all in the red this morning as we’re seeing a bit of a Friday sell-off to cap off a volatile week. The reason behind this morning’s start in the red in grain markets is because US President Donald Trump has proposed another $100 billion in tariffs against Chinese products. [1]

As I mentioned in Wednesday’s Breakfast Brief, the US and China are playing a game of chicken regarding trade. Again, the problem is that they both think the other is the bigger chicken. There’s hope from many farmers that this is just a war of words. [2] With each volley of war of words though, the likelihood words become a reality seems to be more likely.

Soybean prices are leading grain markets lower, but canola prices aren’t following suit as much as there are thoughts about fewer acres getting seeded in Canada this year.

With the heavy snow and colder temperatures that Western Canada sees right now, there are more thoughts that less wheat and canola will get planted, and instead, more barley, soybeans, and oats will get seeded in the Canadian Prairies. We’ll be publishing an assessment of the likelihood of lower canola acres later today in for our canola GrainCents readers, so watch our GrainCents twitter feed to catch it before the weekend.

Wheat prices are also lower this morning on those above increased geopolitical risk. Conditions of the winter wheat crop in the Canadian Prairies is certainly uncertain right now. [3] Technically, the conditions in the US are a bit bullish as potentially record cold temperatures are in the forecast for this weekend. [4] This as the crop is starting to emerge out of dormancy in a few places.

Barley and Durum Expectations in 2018

The UK barley crop is starting to get seeded after a bit of a dismal 2017 harvest. UK barley prices are being supported though as spring barley planting delays are being seen in not only the UK but also France and Germany (AKA usual spring weather premium). Right now, barley prices are paying better than wheat in the EU and Russia. Thus, if you had an option to plant or the other this spring, what’s the most logical cereal to seed?

Malt barley prices in North America haven’t been that great this year as supply has been pretty readily available. Demand is still pretty decent, especially in the US and Mexico. Something to consider though is that Mexico’s import taxes before NAFTA was signed in 1993 were about 175%. If NAFTA gets renegotiated and free trade for malt barley isn’t maintained, what will happen to malt barley prices? We answered that questioned yesterday for our barley GrainCents readers.

Canada durum exports to Italy (or the lack thereof) continue to be a drag on durum prices. Without that market, durum exports are sitting a little bit behind where they were a year ago at this time.

Algeria remains an important destination for Canadian durum wheat, but Algeria is looking to start more irrigation. Their goal is to be more self-sufficient when it comes to durum production within the next two years. Seems like an impossible feat for the North African country, but what if they make some progress?

Does China What Soybeans or Canola?

The Brazilian Real nearly touched a one-year low against the US Dollar yesterday, which continues to strengthen domestic soybean prices in Brazil. This is certainly supporting prospects of another large crop in the Brazilian 2018/19 crop year (they’re just finishing the harvest of their 2017/18 crop now) with ideas of 120 million tonnes floating around already.

Cumulative soybean crush in China is reported to sit at 44 million tonnes, according to AgResource. This would about 9% higher than what has crushed at this time a year ago. The USDA is currently forecasting that China will crush 95 million tonnes of soybeans this year, and they are definitely on pace to do that.

There’s obviously some concerns though about who’s going to supply China with all the soybeans they need, especially if a 25% import tax is placed on US soybeans. This would mean that American soybeans would be more expensive than Brazilian soybeans, which means China buys more from Brazil. But if China buys more from Brazil, then the EU buys fewer soybeans from Brazil and instead buys from the US. See the musical chairs game playing out?

We’ve been asked a lot about China importing more canola to crush into meal. We’ve seen canola basis levels in Vancouver pop up closer $60 CAD /metric tonne from $40 this week so there is likely some buying going on there. But as mentioned in yesterday’s Breakfast Brief, a similar dynamic is happening in Brazilian soybean prices, as port values are increasing as there as well.

More than anything, there seem to be some short-term, knee-jerk reactions as people are feeling a bit uneasy about where this whole China versus Trump trade spat is going. As a result of this uneasiness, it’s sensible to hedge your bets and get some coverage, hence the likely increased buying.

Have a great weekend!

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2784
 CAD, $1 CAD = $0.7822 USD)

May Corn: -4.5¢ (-1.16%) to $3.850 USD or $4.922 CAD
May Soybeans: -17.8¢ (-1.72%) to $10.135 USD or $12.957 CAD
May Soybean Meal (per short ton): -$3.20 (-0.83%) to $380.40 USD or $486.308 CAD
May Soybean Oil (cents per lbs): -0.2¢ (-0.05%) at 31.61¢ USD or 40.41¢ CAD  
May Oats: -0.5¢ (-0.21%) to $2.323 USD or $2.969 CAD
May Wheat (Chicago): -3.8¢ (-0.81%) to $4.610 USD or $5.893 CAD
May Wheat (Kansas City): -5.5¢ (-1.10%) to $4.930 USD or $6.303 CAD
May Wheat (Minneapolis): -1.0¢ (-0.17%) to $5.888 USD or $7.527 CAD
May Canola: -$0.90 (-0.17%) to $11.977/bu / $528.10/MT CAD or $9.369/bu / $413.090 /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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