Grain prices are all in the green, led by spring wheat prices, as the market bounces back to reality after a volatile Wednesday on proposed Chinese tariffs.
“This world is clearly emerging before our eyes. The shifts ahead, the opportunities ahead are massive.”– Carly Fiorina (American Businesswoman)
Grain Prices Recover from Breakneck Wednesday
Grain prices this morning are all in the green, led by spring wheat prices, as the market bounces back to reality after a volatile mid-week session on proposed tariffs from China.
Canola prices were able to end yesterday in the green after starting the day about $4.50 CAD/metric tonne lower. The combination of some technical trading and a wetter spring helped canola prices yesterday but also this morning. .
However, pressure from a stronger Canadian Loonie and some technical resistance are keeping canola prices from going a bit further. Finally, domestic and international demand at these prices is getting a bit slower, something we dug into detail in this past Sunday’s GrainCents weekly email digest.
As mentioned in yesterday’s Breakfast Brief, they were following soybean prices lower on China’s proposed 25% tariff, but soybeans were also able to recover. As Garrett mentioned in his daily Grain Markets Today, soybean tariffs pushed soybean prices lower by as much as 50 cents USD/bushel on the Chicago Board of Trade, but they ended the day only about 23 cents lower.
Ultimately, the knee-jerk reaction we saw to grain prices yesterday was alleviated by some more level-headed traders throughout the day. They must understand that there’s a lower likelihood of China implementing 25% import taxes on American soybeans, corn, wheat, sorghum, and other major American agricultural goods than first thought by many.
Acreage Shifts Because of China?
As we mentioned in Tuesday’s Breakfast Brief, grain markets were mainly concerned about US acreage and stocks, as reported on Thursday, March 29. While the idea of 88 million acres of corn and 89 million acres of soybeans was certainly bullish, maybe it’s not the case now that China has tipped its hand.
Karen Braun from Reuters has theoretically pointed out that US corn stocks could hit a five-year low at these acres, using some average yields.  This could certainly support higher corn prices, with one analyst grabbing some headlines by saying $4.50 USD/bushel corn prices might be possible.  However, yesterday’s action by China has sparked likely 99% of farmers to think about planting as many soybeans as they were once thinking. 
The rationale here is that international US soybean demand is almost entirely made up by China. There are some notable exports to other Asia countries and the European Union, but China is where the honeypot is. Without China though, where do all those bushels grown on the potential 89 million acres go?
Conversely, corn exports have a more diversified trading partner base. And the American ethanol industry doesn’t appear to be slowing down any time soon. Thus, corn is maybe the safer bet.
Finishing Soybean Harvest in Brazil
The soybean harvest in Brazil is complete in the major growing regions. Overall, the Brazilian soybean harvest is sitting at 77% complete, versus 85% a year ago and the five-year average of 81%.
One final note is that Brazilian soybeans are now trading at a 70 cents USD / bushel premium over American soybeans at port positions. This is mainly attributed to currency factors than anything at this point. However, with Brazilian soybeans this expensive, it certainly creates ideas of more demand for American soybeans in the short-term by China. Again, no 25% import tariff has been implemented yet.
What’s harder to argue is US soybean exports holding still if said 25% import tax was implemented.  Our analysis, suggests that it’ll be tough for China to go source feedstuffs to replace the protein content of soybeans (and soymeal for that matter). One could maybe look at more direct soymeal or even rapeseed meal imports, but that activity has been historically slow, relative to the size of raw soybean imports.