June 5 – How Will China Play the Plant 2019 Debacle?

Grain markets are mostly in the red this morning as the complex see-saws on latest spats between China and America, the latest weather forecasts, and declining Plant 2019 possibilities.

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June 5 – How Will China Play the Plant 2019 Debacle?

Grain markets are all in the red this morning as the complex see-saws on latest spats between China and America, the latest weather forecasts, and declining Plant 2019 possibilities.

Profits are being taken off the table as rain is in the forecast for Western Canada and the opposite is expected for the Eastern Cornbelt, who has had enough rain in the last two months to support two, maybe three growing seasons!

As mentioned a lot yesterday, the Corn Belt is wet! [1] Accordingly, it’s hard to not to agree with the analysts who are looking at a new range for corn prices and are throwing the idea that grain markets will see $3.25 USD/bushel corn prices this fall out the window. [2] However, after talking about the slow pace of Plant 2019 in the U.S. and weather a lot yesterday, today we’re going to look how the rest of the world is reacting.

China Has a Handle on Global Corn, Soybean Exports

While world corn prices have rallied with the U.S. futures board in Chicago, Ukraine seems to have not been getting the news. AgriCensus is reporting that Ukrainian corn prices for 2019/20, new crop trade are now the cheapest in the world for 4Q2019 movement. This, as USDA is expecting a harvest of 33 MMT this year, following up last year’s record haul of 35.8 MMT. The USDA is also expecting at least 27 MMT of this production to be exported in 2019/20 (they are supposed to export 29.5 MMT this year).

Brazil and Argentina have lately been the cheapest options in terms of the global corn trade, given the size of their decent harvests coming off. However, when trading into the Middle East and parts of Africa, Ukraine has the freight advantage, giving them the title of cheapest corn option. Conversely, as you can tell in the chart below, US corn exports have slowed down a bit in recent weeks, likely thanks to some of the South American competition and the rise in U.S. corn prices.

Brazil, Argentina, & Ukraine competing hard with U.S. corn exports through May 2019

As for soybean exports, Bloomberg is reporting that China will store the 6.9 MMT of American beans that it bought earlier this year, instead of crushing the oilseed. [3] To be clear, however, China hasn’t actually even received said 6.9 MMT of soybean exports form the U.S. The slowdown in U.S. soybean exports is certainly noticeable, and with Beijing and Washington still far apart on any trade war deal, it seems that this trend will continue for a little bit longer.

China controlling U.S. soybean exports through Week 37 of 2018/19 crop year

Soybean broker Overseas China Investment says that the People’s Republic purchasing for the month of June is practically 80% complete, while July is just past the halfway point. Total soybean imports by China in May are expected to total 7.2 MMT according to CNGOIC, with a lot of it coming from Brazil. Put simply, China probably isn’t worried too much about the significant delays with Plant 2019 since there’s a lot of other places to pull grain from this year.

Sidenote: the thing the Chinese government is probably worried the most about is their hog situation. Beijing is now offering financial support to hog farmers in the country who have been negatively impacted by the African Swine Fever epidemic. [4] It will guarantee the loans made by banks to operations who produce more than 5,000 hogs per year. This should help in getting China’s pig population back up, but only if the ASF disease is eradicated, something authorities haven’t proven they can do. [5] In fact, the World Organization for Animal Health thinks that it will take years before Beijing has things under control. China’s Ag Ministry acknowledged that, compared to a year ago, the country’s breeding herd in April dropped by 22%!

Canola Prices at a Tipping Point

Canola prices lost some ground yesterday after traders started to acknowledge some rain in the forecast. Also hurting canola prices is the recent strength of the Canadian Loonie. The lack of rain across Western Canada has certainly brought about some weather premium as limited moisture isn’t getting the canola crop out of the ground and growing. Accordingly, canola prices have rebounded over the last few weeks, alongside the rest of the complex. Technically though, with the trade issues with China still in the way, they are still significantly below their highs a year ago.

Canola prices ffound weather rally in May 2019

What’s not hot is Canadian canola exports. Through Week 43 of the 2018/19 crop year, shipments are tracking more than 11% behind last year’s pace. It’s hard not to tell in the chart of cumulative canola exports below when the Chinese took away some import licenses away from Canadians shippers.

2018/19 Week 43 cumulative Canadian canola exports

Coming back to the 2019/20 canola crop, the majority of the Canadian Prairies have “received less than 60% of normal precipitation over the past six months” according to Agriculture Canada’s drought monitor. [6] Accordingly at least 37% of Western Canada is now considered to be in a state of moderate to extreme drought (through Friday, May 31st). As mentioned in yesterday’s FarmLead Breakfast Brief that discussed the drought in Western Canada and elsewhere, about half of the Canadian Prairies are expected to get some rain relief this weekend. Currently, grain markets are pricing the moisture in. However, if we don’t see those rains materialize, canola prices might continue their May rally for another week or so. China reinstating some import licenses could easily sparking something too.

Extreme drought conditions showing up in Western Canada through May 31, 2019

P.S. Today is Camp Day at Tim Hortons. Go buy a coffee and help send an underprivileged child to summer camp.

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3374 
CAD, $1 CAD = $0.7477 USD)

July Corn: -7¢ (-1.65%) to $4.183 USD or $5.594 CAD
July Soybeans: -7.3¢ (-0.8%) to $8.745 USD or $11.696 CAD
July Soybean Meal (per short ton): -$3.10 (-0.95%) to $317.90 USD or $425.17 CAD
July Soybean Oil (cents per lbs): +0.01¢ (+0.05%) to 27.50¢ USD or 36.78¢ CAD  
July Oats: -3.8¢ (-1.25%) to $3.003 USD or $4.016 CAD
July Wheat (Chicago): -12.5¢ (-2.45%) to $4.948 USD or $6.617 CAD
July Wheat (Kansas City): -14.5¢ (-3.1%) to $4.54 USD or $6.072 CAD 

July Wheat (Minneapolis): -8¢ (-1.45%) to $5.525 USD or $7.389 CAD
July Canola: +0.7¢ (+0.05%) to $10.283/bu / $453.40/MT CAD or $7.689/bu / $339.01/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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