April 3 – Grain Markets Remain Volatile on Acres, Trade Risk

Good Morning!

Grain markets this morning are mostly in the green as geopolitical trade risk and USDA reports jostling for the position of what’s most important to grain prices: supply or demand.

“Betting that markets will be ‘volatile’ is like betting the weather will be partly cloudy. It’s a smart-sounding strategy that doesn’t mean much. – Kelly Evans (American journalist)

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Grain Markets Remain Volatile on Acres, Trade Risk

Grain markets this morning are mostly in the green as geopolitical trade risk and USDA reports jostle for the position of what’s most important to grain prices: supply or demand.

As Garrett mentioned in Grain Markets Today, soybean prices led grain markets lower yesterday on concerns over. This morning, however, soybean prices are rebounding again with ideas that Argentina’s soybean crop is so small that they may become a net importer of the oilseed for the first time to meet their meal and oil demands. Canola prices are following soybean prices higher but are touching their technical lines of resistance.

Worth noting for corn prices was that, over the weekend, China let the market know that they’re going to put a 15% tariff on US ethanol imports. Thus, those who have been waiting for the Chinese ethanol mandate to increase US corn or ethanol exports to the People’s Republic may be in for a rude awakening.

Yesterday afternoon we also got the USDA’s first full crop conditions report, which showed us that US winter wheat crop isn’t in great health. Kansas showed a good-to-excellent (G/E) rating of 10% and a poor-to-very poor (P/VP) rating of 47%. Just 9% of the Oklahoma crop is rated G/E, with 46% rated P/VP. And then in Texas, 15% is rated G/E versus the 59% rated P/VP.

Aggregately, the average US winter wheat rating is for 32% G/E and 30% P/VP. Last year, those numbers were 51% and 14% respectively, so the crop is certainly in a poorer state today. Put another way, the US winter wheat crop is in its worst state since 2002!

USDA Report Still Moving Grain Markets

On Thursday we got the USDA’s Prospective Plantings and Quarterly Stocks report, which reset the goalposts for the next few weeks. The USDA gave us their assessment of what US farmers are going to plant for the 2018/19 crop.

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We did a deep dive into the numbers for each of the major 12 crops that we cover in GrainCents. Click on each category for a full recap of the USDA’s numbers, including charts and changes in major production states of each crop. In doing so, get a free 21-day trial of GrainCents in the process (you can add other crops as well once you’ve selected your first crop).

Corn acres came in at just above 88 million, a 2.14 million acre decline from last year. This was a major story that we covered at GrainCents because of the historical element. The biggest surprise came in soybean acres, which were pegged at nearly 89 million. That number is a 1.16 million acre decline from last year and about 2 million below the pre-report average guesstimate. Sure, the number was low, but the historical significance was key, and this is why it also moved soybean prices nearly 30 cents on Thursday (in addition to supporting grain markets in general).

US canola acres were pegged at 2.076 million, which is just a 1,000-acre increase from last year, but that would also make it a new record. American flax acres came in at 225,000, which is a drop of 26% year-over-year (although this means it’s down just 78,000 acres from 2017).

Winter wheat acres were estimated by the USDA at 32.7 million, which is about 12,000 acres higher than last year. The bigger surprise was in spring wheat acres as they were projected at 12.63 million acres. This is 1.62 million acres higher than 2017. It’s clear that Northern Plains farmers will plant more spring wheat than durum, as American durum acreage was forecasted at 2 million acres for the 2018/19 crop year. That number was 303,000 acres lower than last year and below trade expectations.

In other cereals, US oats acreage was estimated at 2.72 million acres, up 128,000 acres year-over-year. Conversely, US barley acres were forecasted at 2.28 million, down 8% year-over-year and 27% from the five-year average as malt barley prices remain depressed.

For pulses,  US peas acres are seeing a similar decline as in Canada, down 222,000, or 20%, year-over-year to 908,000. Similarly, American lentils acreage was pegged at 791,000, down 28% year-over-year, as like peas, prices are down significantly year-over-year. American chickpeas acreage are the anomaly of the pulses, as 665,000 acres will get seeded. This is up 7% year-over-year, but it’s also more than double what the five-year average is!

What Else is Moving Grain Markets?

Currency factors are helping to push up corn prices and soybean prices in Brazil and Argentina. It’s not so much the strength of the US Dollar, but the volatility of the political scene in these two countries that are supporting domestic grain markets. For example, while soybean prices in Chicago closed lower yesterday, cash soybean prices in Brazil jumped 2% thanks to the depreciation of the Brazilian Real.

In Argentina, rainfall could total 0.5 to 1.5 inches over the next ten days. For the October-March “rainy season,” Argentina received just 49% of the average precipitation it normally does. That’s a new record. Thus, the rains through next weekend would be helpful as cereal planting is set to start soon in late April/early May. However, the coming months are what’s considered Argentina’s “dry season,” and with the lack of soil moisture already, production of the likes of wheat and barley could fall.

As we near Plant 2018 hitting full tilt, there are certainly some concerns over the slow thaw that we see in Western Canada and the US Northern Plains. This could slow the pace of planting, and in turn, add some weather premium. We walked through this scenario over the weekend for the majority of crops in our Sunday morning GrainCents Digest email.

To growth,

Brennan Turner

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

 

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2916
 CAD, $1 CAD = $0.7743 USD)

May Corn: +0.3¢ (+0.06%) to $3.87 USD or $4.998 CAD
May Soybeans: +0.8¢ (+0.77%) to $10.435 USD or $13.478 CAD
May Soybean Meal (per short ton): +$2.70 (+0.72%) to $380.00 USD or $490.798 CAD
May Soybean Oil (cents per lbs): -0.6¢ (-0.02%) at 31.98¢ USD or 41.30¢ CAD  
May Oats: +0.18¢ (+0.76%) to $2.335 USD or $3.016 CAD
May Wheat (Chicago): +4.3¢ (+0.95%) to $4.505 USD or $5.819 CAD
May Wheat (Kansas City): +7.0¢ (+1.50%) to $4.745 USD or $6.129 CAD
May Wheat (Minneapolis): +1.5¢ (+0.26%) to $5.750 USD or $7.427 CAD
May Canola: +$0.40 (+0.08%) to $11.911/bu / $525.20/MT CAD or $9.222/bu / $406.636/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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