Grain markets this mixed with soybean and canola prices leading the oilseeds higher while corn and wheat start the week lower.
“We will not find the inner strength to evolve to a higher level if we do not inwardly develop this profound feeling that there is something higher than ourselves.” – Rudolf Steiner (Austrian philosopher)
Why Are Soybean, Canola Prices Feeling a Little Bullish?
Grain markets this mixed with soybean and canola prices leading the oilseeds higher while corn and wheat start the week lower. Soybean prices are looking to make it 5 straight trading days in a row of ending in the green as, last week, soybean and canola prices were able to earn a positive result for the week. SRW wheat prices in Chicago also finished last week in the green, albeit they dropped significantly from the 3-month high made last Wednesday.
While the Northern Plains and Nebraska are expected to get some rain to start this week, triple digits are expected on the temperature gauge for most southern areas of the Corn Belt, heat which should last all week and would obviously put some stress on any fields that have missed moisture events. That said, ahead of this afternoon’s USDA crop progress report, the market is expecting to see a 1-2% decline in U.S. corn ratings and a 1-point decline in both soybeans and HRS wheat crop conditions.
Soybean Prices Focus on Demand, Weather
Looking at the current crop, Steve Johnson, an Iowa State University farm management specialist says that that he’s seeing in Iowa right now is one of the healthiest he’s scouted in 17 years as a volunteer reporter for the USDA.  While Mr. Johnson admits that he’s not a grain markets analyst, he is feeling a bit more bullish on soybeans because of the hot, humid, and potentially stormy weather forecasted for the Midwest in August. Also worth considering is the tighter ending stocks for soybeans, as in the July WASDE report, 2020/21 U.S. soybean stocks-to-use ratio was pegged at just under 10%.
However, last week, the CFTC said that money managers/hedge funds lowered their net-long positions by nearly 35,000 lots to now sit at just under 66,000 contracts still betting on a rise in soybean prices. Perhaps investors are looking at the 2020/21 Brazilian soybean production estimate from Safras & Mercado of 131.7 MMT. If realized, this would be a 5.4% jump year-over-year, and (surprise, surprise) a new production record for the country.
The biggest impact on this production number could be La Nina showing up this winter, which is exactly when the Brazilian soybean crop is grown.  Further, there might be some tougher trading requirements with Europe as a new study shows 20% of EU soybean imports from Brazil are likely coming from areas of the Amazon rainforest that were illegally cleared. 
On the flipside, soybean prices were supported last week by the lower-than expected soy oil inventories in the U.S. as reported by NOPA last week. In their monthly report, NOPA said that supply is about 110M pounds smaller in June than the market was expecting.  From a pure crush standpoint, NOPA said its members processed 167.3M bushels of soybeans in June (or 4.553 MMT if converting bushels into metric tonnes). This is easily topped pre-market expectations of 162.17M bushels, was nearly 12.5% or 18.4M bushels higher year-over-year, and the seasonal slowdown from May to June wasn’t as bad as expected.
Also supporting vegetable oil prices is palm oil, which saw its biggest one-week gain on the Malaysian futures board last week due to heavy rains in Indonesia, Malaysia, and China. What’s more, China has also indicated that it’s planning to end its quota management system for a few main vegetable oils (soybean, rapeseed/canola, and palm).  Putting this all together, some strong purchasing by China, as well as weather-related disruptions to production of vegetable oils seems to be keeping a floor under soybean prices for the time being.
All things being equal, it’s unlikely that we see China buy American soybeans like it has US corn exports, and as mentioned last week, grain markets need to see more consistent buying, not just these one-off-, headline-grabbing buys. Of course, this headline-printing buying makes it appear that China is making good on its commitments to meeting its Phase One deal targets, but as I and others have said many times, the data shows that they’re way behind. 
Canola Prices Following the Leader (Soybeans)
As I mentioned in the last Breakfast Brief that I wrote in June, canola and soybean prices tend to quickly pull back in the summer months if weather is even a tiny bit helpful for crop growth. However, some hot weather and sporadic rains have supported canola prices to the upside, finally getting the oilseed to break out of its range. Obviously supporting it has been the aforementioned strength in palm oil, and to a lesser extent soybean prices.
With StatsCan providing an updated planted acreage estimate a few weeks ago, Agriculture Canada (AAFC) updated its own supply and demand tables late last week. For starters, canola prices have been supported by StatsCan’s new acreage number of 20.8M acres is less than what the market was expecting and is about 4%, or 900,000 acres below the five-year average. However, AAFC has indicated, that farmers, historically, have planted about 650,000 acres more than what the June survey indicates. Thus, perhaps we should expect the Canadian canola production number to increase.
The bullish news for canola prices though is that domestic crush volumes of the oilseed continue to be rocking along at a record pace. Combined with an accelerated pace of canola exports, the two main demand functions for canola prices are doing their best to support current values, if not higher. For canola exports specifically, with 3 weeks left to report of the 2019/20 crop year, shipments are tracking 8% above last year with 9.5 MMT sailed so far. This likely means that the AAFC will have to raise its canola exports forecast from the 9.6 MMT is just put out last Friday!
In terms of 2020/21 demand, AAFC makes a pretty serious assumption that “European rapeseed production returns to normal following last year’s drought”. This doesn’t appear likely whatsoever though as recent estimates have pegged the EU rapeseed crop at 17 MMT, similar to last year’s production but the smallest crop in 15 years.  Thus, I’m expecting that AAFC will have to raise their forecast for 2020/21 canola exports as well.
Thus, for canola prices, this boost of international demand should be supportive. While global vegetable oil supplies are generally adequate and could put some pressure on canola prices via reduced crush volumes, AAFC does believe a range of $480 – $520 CAD/MT will trade on Vancouver’s west coast, which has timed well with canola prices on the futures board pushing above $480 last week . From a country level standpoint, canola prices should appreciate in line with whatever happens at the port, mainly because of the open railroads. Put another way, with CN expecting record grain volumes moved this year, freight costs should not change much unless there’s more rail competition. 
Of course though, Mother Nature holds the trump card when it comes to where canola prices go the next 8 weeks, but from where I’m sitting today, I’m believe the seasonal pullback that we see around this time of the growing season is inevitable as crop potential becomes more widely agreed on. Final food for thought: while there may be a little more room to run, keep in mind that front-month canola prices on the futures board haven’t been this high since early February 2019!
At 8:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3568 CAD, $1 CAD = $0.7371 USD)
Sept Corn: +2.8¢ (+0.85%) at $3.303 USD or $4.481 CAD
Sept Soybeans: +3.5¢ (+0.4%) at $8.958 USD or $12.153 CAD
Sept Soybean Meal (per short ton): -$0.60 (-0.2%) to $288.40 USD or $381.29 CAD
Sept Soybean Oil (cents per lbs): +0.51¢ (+1.7%) to 30.59¢ USD or 41.50¢ CAD
Sept Oats: +2.5¢ (+0.9%) to $2.825 USD or $3.833 CAD
Sept Wheat (Chicago): -6.5¢ (-1.2%) to $5.283 USD or $7.167 CAD
Sept Wheat (Kansas City): -5¢ (-1.1%) at $4.438 USD or $6.021 CAD
Sept Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.12 USD or $6.947 CAD
Nov Canola: +5.4¢ (+0.5%) at $11.02/bu / $485.90/MT CAD or $8.122/bu / $358.13/MT USD
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