Grain markets were able to squeeze out a positive gain last week on concerns of the impact of frosty weather.
“It’s your outlook on life that counts. If you take yourself lightly and don’t take yourself too seriously, pretty soon you can find the humor in our everyday lives. And sometimes it can be a lifesaver.” – Betty White (American actress)
Oats, Barley Prices COVID-19 Scenarios & a WASDE Report
Grain markets were able to squeeze out a positive gain last week on concerns of the impact of frosty weather from the CornBelt all the way north into Canada on newly-planted crops and winter wheat that’s emerged from dormancy for a few weeks. Supporting grain markets this morning is more buzz that China will buy more American in order to fulfill its Phase One trade deal commitments. 
In the meantime, President Trump announced over the weekend that the U.S. government will buy $3B USD worth of dairy, meat, and produce from farmers directly, starting this week.  Intuitively, this begs the question, asked by Jerry Gulke this weekend, if a government-induced control of agricultural supplies is in our future!  My guess is that for some commodities, like potatoes, it’s very likely.
Hedge fund investors moved to their most bearish position in corn since literally one year ago, increasing their net short by nearly 30,000 contracts to over 190,150! Conversely, soybeans saw their net long more than double to just over 8,900 lots. Managed money now holds a record short position of nearly 24,000 lots in Minneapolis HRS wheat, while Chicago SRW wheat also go more bearish, losing over 12,000 long positions last week. Conversely, Kansas City HRW wheat’s long position was increased by 3,360 contracts to nearly just over 7,800.
Going into today’s crop progress report from the USDA (out at 3PM CST), the market is expecting to see the following:
- Corn planted: 72% (51% last week, 28% a year ago, 56% average)
- Soybeans planted: 40% (23% last week, 8% a year ago, 23% average)
- HRS wheat planted: 55% complete (29% last week, 22% last year, 70% average)
Also, tomorrow at 11AM CST, the USDA will release their May WASDE report, which will include the first estimates of the year for the new crop 2020/21 crop year. Here’s a look at the U.S. ending stocks pre-report guesstimates for tomorrow’s May WASDE report.
Over the past few weeks, I’ve been digging into the best and worst-case scenarios for various crops in this new COVID-19 pandemic world. Last Monday I dug into corn prices, which I continue to be bearish on, noting that I think that estimates for both 2019/20 and 2020/21 ending stocks are on the low side. I also looked at canola and soybean prices last Wednesday, which, frankly could go either way, but it’s very high risk situation. And also, two Friday’s ago, I looked at the peas and lentil prices, and frankly, there continues to be strong potential there.
Barley Prices: Best & Worst COVID-19 Scenarios
In this past Friday’s Breakfast Brief, I looked at wheat and durum prices, and in it, noted that Germany is heading into its 3rd straight summer of drought conditions. Since Germany is a major producer of barley, this would be a positive for barley prices as well, but there’s still a lot of barley out there. More specifically, the USDA is estimating that global barley inventories by the end of 2019/20 will come up to nearly 21.2 MMT.  This is an 18% jump year-over-year and reflects the strong production year worldwide for barley that was 2019/20.
On the bullish side of things, there are doubts about the potential size of barley crop in Kazakhstan, which is currently estimated by the USDA’s attaché there at 3.9 MMT.  Since Kazakh barley exports are not subject to any export quotas like wheat, it gets shipped out fairly easily (albeit Iran and neighbouring Uzbekistan are the largest customers). That said, it is also worth noting that about 18 months ago, China started to buy more barley exports from Kazakhstan. 
This is relevant, because there is growing geopolitical risk between China and Australia over COVID-19 blame, and the former is now ready to put tariffs on Australian barley exports.  Granted, China first started a “dumping investigation” into Australian barley prices about a year and a half ago (read: same timing as the Kazakh agreement), despite the main home for Aussie barley exports being the People’s Republic. As a quick reminder, in their March 2020 report, ABARES said barley production in the Land Down Undaa would improve marginally by 3% year-over-year to 9.1 MMT. 
Nonetheless, the Australian Prime Minister, Scott Morrison, and his senior staff remain unmoved from their call for an independent inquiry into COVID-19 and the handling by the WHO and China.  Further fanning the flames is Germany’s foreign intelligence service, the BND, has come out and said that Chinese officials asked the WHO to delay the announcement of the human-to-human transmission nature of the COVID-19 virus.  Unsurprisingly, the growing COVID-19-related backlash towards China comes at time when, apart from the U.S. and Australia, they were already in a number of economic disputes, including a couple European countries as well as many players throughout Asia. 
The bottom line is that China’s Ministry of Commerce has tabled an 80% tariff on Australian barley exports which would likely open the door for more barley exports from other players like the Black Sea or even Canada.  Further, U.S. malt barley is making a push to earn more market share in the world’s largest beer-consuming country.  Ultimately, a tariff this substantial on Aussie barley exports would likely help Canadian barley prices a bit, especially considering Canadian barley exports, through Week 39, 2019/20 crop year shipments are tracking nearly 20% behind a year ago.
CGC exports data through March 2020 suggest that China has bought 12% less barley than the same period a year ago with just 1.04 MMT purchased. Thus, it’s not really surprising that Agriculture Canada would lower its estimate for Canadian barley exports by 150,000 MT for both old crop (2019/20) and new crop (2020/21).
I ultimately think that this number could drop further as the USDA attaché in Beijing has lowered their estimate of barley demand for feed use to 3 MMT, down 17% or 600,000 MT year-over-year.  The drop is mainly blamed though on reduced feed demand (their pork industry is still trying to rebound from African Swine Fever) and cheaper alternatives like corn and sorghum. Since beer consumption is expected to stay flat, total barley demand in China is estimated at 6.8 MMT, again a 600,000 MT drop year-over-year, thanks to the reduced feed demand.
On that note, feed barley prices in Western Canada continue to pull back as the combination of heavy supplies and a broken meat processing value chain means weaker demand. Further, it’s expected that the backlog at the packers could last for multiple months.  With Canadian barley acreage set to drop about 2% year-over-year to 7.25M, there’s still potential for more supply coming online in September, which is why we’ve seen both feed barley prices AND malt barley prices drop over the past few weeks.
For the later, malt barley prices, I’ve even seen some new crop bids below $4 CAD/bushel. Comparably, in Montana, malt barley prices are sitting around $3.50 USD/bushel. Comparably, bids for feed barley prices in central Alberta on the Combyne Marketplace are sitting around $210 CAD/MT, dropping down to $180 – $190 in Saskatchewan and then back up to $210 bids around Winnipeg.
While we’re entering a period of seasonal downturn, StatsCanada said last week that available barley supplies as of March 2020 in the Great White North totalled 3.53 MMT. While only 1% below the five-year average, it is a jump of more than third from barley inventories the same time a year ago. Overall, there’s more than enough barley to go around – both domestically and abroad – and so barley prices going forward will come down to demand. Further, while beer consumption is expected to drop a big because of COVID-19 (think of all the commercial demand lost because of closed restaurants)
Oats Prices: Best & Worst COVID-19 Scenarios
On the flipside, Canadian oats acreage is expected to grow by 6% year-over-year to 3.83M acres. While this would also be an 18% jump year-over-year, I think that this is still on the low side of things and that we’ll likely see more than 4M acres of oats planted this spring across Canada. The good news is that there continues to be strong demand for oats, and that’s being reflected in oats prices. More specifically, Canadian oats exports in 2019/20 are tracking 10% higher-year-over-year with 1.34 MMT sailed after 9 months.
That said, Agriculture Canada is expecting this strong pace of oats exports to continue into the 2020/21 crop year at 2.6 MMT (of all oats products). However, thanks to the influx of new acres, Agriculture Canada is also expecting ending stocks in the Great White North to climb to 900,000 MT, a jump of nearly 2/3s, year-over-year. Keep in mind that AAFC’s estimates are based of a planted acreage of 3.93M acres, or about 100,000 more than StatsCan’s estimate from last week.
Overall, I posited back in January in my oats prices outlook that the demand function will continue to be very important for oats prices, but that many farmers will be chasing these prices (and hence the increase in acreage). We continue to see some healthy old and new crops bids on Combyne, including this one in east-central Saskatchewan, this one for south central Manitoba, this one for Winnipeg, this one in northeastern Alberta, and this one for southern Alberta. As reminder, hit the Connect button to be notified of all future deals from these various credit-verified buyers.
Due to some timing constraints, the futures grain markets data isn’t in today’s Breakfast Brief but you can view them here at your convenience.
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