Dec 13 – Corn Prices, Politics, & What 2020 Might Bring

Grain markets are green this morning with soybean and corn prices leading the charge of trade war deal headlines and tighter supplies in Brazil.

“The future rewards those who press on. I don’t have time to feel sorry for myself. I don’t have time to complain. I’m going to press on.” – Barack Obama (44th U.S. President)

Corn Prices, Politics, & What 2020 Might Bring

Grain markets are green this morning with soybean and corn prices leading the charge of trade war deal headlines and tighter supplies in Brazil.

Before getting into some of the headlines that I’m watching, politics were front and centre yesterday in almost all markets. First, Andrew Scheer, the leader of the Conservative Party of Canada stepped down amidst allegations that he used party funds to pay for his kids’ schooling. [1] While a new leadership race will certainly take place, it leaves a gaping hole in the leadership of the party that actually won the popular vote in the Canadian federal election back in October. Second, Boris Johnson won a majority government by a landslide, paving the way for the United Kingdom to “Brexit” and leave the European Union. [2]

Once the results were clear, U.S. President Trump tweeted out his congratulations, with “Britain and the United States will now be free to strike a massive new Trade Deal after BREXIT. This deal has the potential to be far bigger and more lucrative than any deal that could be made with the E.U.” [3] Speaking of trade deals, Phase One of a U.S.-China agreement has been reached in principle, but the terms are a bit weak, and no one really knows there’s even going to be the usual signing ceremony. [4]

Further, it’s been suggested that the Chinese are willing to verbally commit to $50 Billion USD worth of American agricultural purchases, but they don’t want to put it on paper. The U.S. has also supposedly offered to cut existing tariffs on Chinese goods worth $375 Billion USD by as much as 50%. Chinese trade representatives also wouldn’t confirm any trade war deal is near being made. [5] As a reminder, fresh tariffs on $160 Billion USD worth of Chinese goods are supposed to go into effect this Sunday, December 15th.

EU Rapeseed Harvest Looking Smaller Again in 2020

In Europe, FranceAgriMer updated a few key datapoints for this year’s French crop as well some projections about next year. The firm increased their estimate of soft wheat exports to 12.2 MMT, up 200,000 from their previous estimate and a new 4-year high. The increase is in part to the strong showing of French soft wheat exports in October, mainly thanks to some big volumes heading to China and Morocco. [6]

On the flipside, the 2019 rapeseed harvest was pegged at 3.44 MMT, about 1.5 MMT or 31% below last year’s haul. Overall, the 2019 EU rapeseed harvest will be a 13-year low, which is why we’ve seen February 2020 rapeseed futures in Paris hit a new contract high this week. Looking forward, FranceAgriMer is estimating this fall’s seeded rapeseed acres at 2.6M, down 5% year-over-year. The reason for the decline is mainly attributed to the wet autumn months and even now, rain and colder December has kept producers from finishing up the fall wheat seeding campaign, with only 83% of fields planted as of last week.

As a reminder, last week, Statistics Canada shared that 2019/20 Canadian canola production would come in at a 4-year low of 18.65 MMT. With production lowered by 709,000 MT, and canola crush tracking still 30% ahead of last year, this should push ending stocks closer to 3.5 MMT, well below the 4.7 MMT estimated last month by AAFC (we’ll get the fresh numbers from Agriculture Canada their December 2019 update, out next week). That said, canola prices continue to trade rangebound, despite the fact that an estimated one to two million acres of canola production still have not been combined and left out in the field. [7]

Corn prices and canola production

Brazil’s Corn Prices vs a U.S. Election Year

In Brazil, attractive domestic corn prices are basically telling farmers there to sell both any remaining old crop, as well as new crop supplies. [8] Since September, Brazilian corn prices have climbed more than 30% since September are now sitting at the highest levels since August 2016. The reason behind the increase in Brazilian corn prices is a function of tight supplies, strong domestic demand (namely from the livestock and ethanol sectors), and a weak Brazilian Real (as compared to the U.S. Dollar). Currently, in the livestock areas of Brazil, corn prices are sitting around an equivalent USD price of $5.50 per bushel.

That said, JBS, the Brazilian meat company is expecting to import nearly 200,000 MT of corn as they try to diversify away from the more expensive domestic options. [9] Currently, it’s estimate that, despite a record corn harvest of roughly 100 MMT, record export volumes will still put the country in a bit of a tight spot. More explicitly, it’s estimated that Brazilian corn exports will hit a new record of 41 MMT for the 2019/20 crop year.

Also, Al Kluis of Kluis thinks that corn prices will rally in 2020, and not necessarily because of fundamental reasons. [10] The analyst points to the upcoming U.S. presidential election year as one of the main reason for his expectation of higher corn prices. More specifically, he notes the last 4 presidential election years have seen an average rally in corn prices of $2.38 USD/bushel that lasts over seven to nine months. (2004: $1.12, 2008: $2.57; 2012: $4.90, and 2016: $0.95). Accordingly, Mr. Kluis thinks that something above $4.40 will be seen for corn prices in 2020. That said, we are seeing some indicators that demand for U.S. corn is improving, which should help corn prices track towards the levels mentioned above. [11] As a reminder though, these rallies don’t happen overnight, but rather over multiple months.

Have a great weekend!

To growth,

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

Due to travel this morning, no futures grain prices are in today’s FarmLead Breakfast Brief but you can review them here!

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.

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