As we push past the middle of the month, all grain markets – even feed barley prices – are trying to rebound from the pullback in the complex lately.
“In tough times, we all hope for knights in shining armor, or the cavalry, to show up and effect change.” – Dean Devlin (American screenwriter)
As we push past the middle of the month, all grain markets – even feed barley prices – are trying to rebound from the pullback in the complex lately, mainly thanks to the “dull” April WASDE report that we received last Tuesday.
Also, today we’ll get the NOPA crush report for March 2019. Expectations are that soybean processors used up 168 million bushels of soybeans last month, which would be a 2.2% decline from the 171.86 million bushels used in March 2018. Before the end of their respective marketing years, American soybean and wheat exports need to both set new records for what’s required to be shipped out to be meet the USDA’s current forecast of 1.875 billion and 945 million bushels (or 51.03 MMT and 25.72 MMT respectively, if converting bushels into metric tonnes).
Last week, CFTC data showed us that hedge fund managers increased their record net-short position even further to nearly 300,000 contracts, indicating a very bearish sentiment from the speculators. Also, speculators in Minneapolis hard red spring wheat got the most bearish they’ve been in nearly 3 months. There certainly seems to be some seasonality in this bearish push, but it potentially also lays the foundation for a short-covering rally as we get deeper into Plant 2019.
The focus on grain markets will certainly come back to mostly weather this week, especially since there’s a frost warning for parts of the U.S. Cornbelt, all while flooding along the Mississippi River from Iowa all the way down to the Gulf of Mexico continues. Most market participants agree that this will have some sort of impact on Plant 19 but no immediately. As such, in today’s USDA crop progress report, grain markets are expecting to see 6% of the U.S. corn crop planted (3% last year and 6% is the five-year average) and 7% of the US hard red spring wheat crop seeded (2% last year, 16% is the five-year average).
Canola, Feed Barley Prices Forcing Review of Acres
Feed barley prices have certainly been one of the bright spots for Western Canada agriculture in the past 18 months.  Part of the reason for the bullish support has been the buying of Canadian feed barley by China. In the first seven months of the 2018/19, China bought nearly 950,000 MT of Canadian barley, well above the five-year average. This is mainly because China’s main supplier, Australia, was dealt with a drought and their exportable supplies were limited, in addition to China probing into “dumping” practices, which basically means China thinks Australian exporters were selling barley at artificially lower prices. One must wonder though if this is because China doesn’t need as much feedstuffs; the African Swine Fever there has already made a significant dent in soybean markets. 
Ultimately, feed barley demand has been strong but, feed barley prices are starting to soften a bit as the focus of the market shifts from old to new crop.  It is worth noting that feed barley prices do see a small lift in May but buyers are certainly expecting to see more supplies become available as Harvest 2019 starts up in a few months, and so they’re not as worried as Agriculture Canada who says that, at 900,000 MT of carryout, this would be the tightest stocks have ever been.  Feed barley prices are currently sitting about 50-75¢ CAD/bushel below malt barley prices, depending on the region in Western Canada. Since the historical spread between the two is usually $1.50 – $2 CAD/bushel, this is an indication from the market that current malt barley demand is easily being satisfied by available supplies.
While Western Canadian animal numbers and corresponding feed consumption has been strong, feed barley can’t do it all, which is why we’ve seen Canadian corn imports from the U.S. basically double this year. Some of this has to do with Ontario bringing in non-vomitoxin corn from Michigan, but a lot of it is coming from the Northern Plains and going into Manitoba or feedlot alley in southern Alberta. Since feed barley demand has been strong, there’s a lot of buzz going around that instead of canola, we might see more Western Canadian farmers seed more barley in Plant 2019.
With average canola prices in Western Canada back below $10 CAD/bushel and now sitting more than 15% below the same price a year ago, there’s a lot more reluctance to maintain canola acres. As such, it’s been estimated by many that the area could drop by about 10%, or the equivalent of more than 2 million acres! Currently, AAFC is expecting canola acres for Plant 2019 at 22.239 million, which would be a 2.5% reduction from last year. If you saw 10% of those acres go into barley, you would certainly expect barley prices to tank, but that’s not likely the case, as there are other crops farmers are thinking about. Here are the 6 crops that I think these potential “lost” canola acres could go into, and what area Agriculture Canada is currently forecasting for each, along with what that number represents compared to 2018/19 and their five-year average.
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 = $1.3376 CAD, $1 CAD = $0.7476 USD)
May Corn: +2.5¢ (+2.5%) to $3.635 USD or $4.847 CAD
May Soybeans: +4.5¢ (+0.5%) to $8.998 USD or $11.997 CAD
May Soybean Meal (per short ton): +$2.30 (+0.75%) to $310.20 USD or $413.60 CAD
May Soybean Oil (cents per lbs): -0.05¢ (-0.15%) to 28.90¢ USD or 38.53¢ CAD
May Oats: -0.8¢ (-0.25%) to $2.865 USD or $3.82 CAD
May Wheat (Chicago): -1.5¢ (-0.3%) to $4.63 USD or $6.173 CAD
May Wheat (Kansas City): -2.3¢ (-0.5%) to $4.32 USD or $5.76 CAD
May Wheat (Minneapolis): +3.5¢ (+0.65%) to $5.348 USD or $7.13 CAD
May Canola: +1.1¢ (+0.1%) to $10.36/bu / $456.80/MT CAD or $7.77/bu / $342.60/MT USD
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