Grain markets this morning are quietly mixed after corn and soybean prices pulled back again yesterday on the beneficial rain that most of the Midwest is getting.
“You have brains in your head. You have feet in your shoes. You can steer yourself in any direction you choose. You’re on your own, and you know what you know. And you are the guy who’ll decide where to go.” – Dr. Suess (American children’s author)
June 26 – Canola, Soybean Prices and a Pending Pull-Back
Grain markets this morning are quietly mixed after corn and soybean prices pulled back again yesterday on the beneficial rain that most of the Midwest is getting. Yesterday, corn prices fell to their lowest in a month and a half, while soybean prices pulled back for the 4th consecutive day as healthy rains across major U.S. growing regions kept the bulls at bay.  On the flipside, wheat prices were able to gain on some short-covering in the market, but obviously, an accelerating harvest across the Northern Hemisphere is continuing to put pressure on the complex.
In outside markets, new COVID-19 cases continue to surge around the world, but especially in the U.S. and Brazil, threatening the expectations of a V-shaped recovery in the economy. Evidence is growing that local and state governments, business owners, and even consumers are being more cautious when it comes to returning to “normal”, and that’s obviously going to put a lot of pressure on economies rebounding. The IMF literally said this week that the global economy should contract by at least 5% this year, and could take more than 2 years to get back to where we were in 2019. 
Thank China for Soybean Prices Improving…For Now
Soybean prices are finding some love from the markets (and thus, the headlines) as continued buying by China has helped futures values appreciated nearly 7% since the lows seen in April. As reported by the Wall Street Journal, in the last month alone, we know that China has bought about 5 MMT of U.S. soybeans, making up about 56% of all soybean exports sales over that timeframe.  For perspective, up until this month, China’s purchases of U.S. soybeans had accounted for only 27% of all export sales, basically saying that in June, China’s doubled their pace of buying.
While some of this push is political, currency effects have been notable, with the Brazilian Real having gained about 5% in the past month against the U.S. Dollar, while the Greenback has lost about 3%. The result is that U.S. soybeans have been better priced, on a port-purchasing basis, than that from Brazil. Put plainly, it doesn’t take a financial wizard today to know what your cheapest sourcing option is between the U.S. and Brazil.
However, a political wizard may be needed to sort through all the games that are being played right now. The latest stunt from China is their demand that all boats of U.S., Brazilian, or Canadian soybeans be guaranteed to be free of COVID-19 and it’s potentially one of the angles to play to not have to meet their Phase One trade deal obligations (of which they have a long way to go, as showcased by the chart below provided by Bloomberg.  To be clear, Beijing is not demanding that the personnel on the boats ferrying the agricultural goods be COVID-19 free, but the soybeans themselves.
As a reminder though, China needs to ensure a stable food supply chain, as the well-documented history of famine within its borders has led to food security being a significant political priority.  Simply abandoning the trade deal with the U.S. doesn’t make a lot of sense, as the current White House would more than likely amp up its criticism and likely respond with some sort of belittling trade measures. Nonetheless, even if China buys more soybeans, that demand will be likely offset by a bigger crop, as expected in Tuesday’s acreage report from the USDA (more on this in a bit).
Where Canola & Soybean Prices Go from Here
Just as they did for corn prices last week, the great ag economists at the University of Illinois went through the statistical paces to look at where soybean prices might go in 2020.  At trendline yields of 49.8 bushels per acres, soybean prices are more than likely to pull back below the $8.50 handle that we’re seeing on the futures board (and is usually a breakeven point for many producers).
That said, these estimates of how soybean prices perform is also based on current known acreage data. On Tuesday next week, we’ll get the USDA’s June 30 Stocks and Acreage report, which, based on pre-report polling from Reuters, suggests soybean acreage could climb by about 1.2 million!  More specifically, the average pre-report guesstimate pegs soybean acres increasing by 1.244M to 84.75, while corn acreage is expected to decline by about 1.672M to 95.32M total acres. Wheat acres are expected to climb by 364,000 to new area total of all types of just over 45M. For the grain stocks report, average pre-report guesstimates for corn stocks as of June 1 are 4.85B bushels (=14% YoY), soybean inventories of 1.4B (-21% YoY), and wheat supplies of 984M bushels.
Before departing, I’d like to quickly touch on another oilseed, in that canola price are performing fairly well. A likely record volume of canola crush, combined with a stronger pace of exports has certainly helped canola prices. On the latter, everyone knows that the EU has started to buy more Canadian canola due to their politicized and environmental-related decrease in rapeseed production there. 
Further, canola prices – both new and old crop – have been buoyed by some drier weather, albeit recent rains in many areas of the Canadian Prairies likely means the top is close. Of course, if no rains fall for another 3-4 weeks in many areas, it could be pretty catastrophic for production, but the 10-day forecasts suggests this is unlikely to happen in most areas. It pains me to write that though, as my family in Frontier, SK (SW corner of the province) isn’t likely to see any significant moisture events. That said, if precipitation is limited in Western Canada or even the Midwest, but temperature remain high, the bulls could take a quick run and provide one of the best selling opportunities of the year.
A Bias to Patience vs Action
On that note, here is your reminder that the only certainty of the future is its uncertainty. Times likes these – livestock viruses, global pandemics, trade wars, etc. etc. – are extremely volatile and trying to bet that demand is going to be “usual” in a few months is no longer the sure-fire bet. Accordingly, I’m demanding that you take stock of unsold grain (including that in the field right now), and pencil out what exactly that break-even point is. It’s a tough slog, especially during the growing season, but if our heads aren’t in the right place, right now when it comes to grain marketing, then opportunities are likely to be missed. The last thing I’d want to see or hear from farmers is, “Shoot, I didn’t see that one coming” and end up selling on the lows at harvest time. We’re better than that. You’re better than that.
Finally, I’ll be taking the next 2 weeks off from writing the Breakfast Brief to recharge the batteries, catch up on some non-agriculture industry reading, and feed the soul a little bit (namely some time spent back on the family farm & maybe a little early morning golf instead of being in front of my laptop!). Thus, don’t be surprised if nothing is delivered in your inbox, or posted on the new, corporate FarmLead.com website (big props for our amazing product and development team – they worked tirelessly on this the last few weeks so check it out!).
That said, I hope you have a great weekend, and because I won’t share anything with you next week, Happy Canada Day to our Canadian readers and Independence Day / 4th of July to our American subscribers.
Due to some early morning travel, there is not futures data included in this morning’s Breakfast Brief, but you can review them here at your convenience.
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