Oct 23 – Will Corn Prices be Saved by U.S. Corn Exports?

Grain markets are lower this morning, led by soybean and corn prices, as the debate on Harvest 2019 and what sort of trade deal actually gets done, rages on.

“The world is not going to be saved by legislation.” – William Howard Taft (27th President of the United States)

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Will Corn Prices be Saved by U.S. Corn Exports?

Grain markets are lower this morning, led by soybean and corn prices, as the debate on Harvest 2019 and what sort of trade deal actually gets done, rages on.

In Monday’s crop progress report, the USDA said that only 30% of this year’s corn crop has been harvested, while 46% of soybean fields have been combined. [1] As mentioned in Monday’s FarmLead Breakfast Brief, the market was expecting to see the corn and soybean harvest at 33% and 38% respectively, so the actual numbers are a bit bullish for corn prices but bearish for soybeans. With intermittent rains falling, the Corn Belt has had some spotty progress in terms of getting fields cut, and almost all states across the Midwest are behind their normal pace of harvest. [2]

Complicating things is more rain forecasted for the Corn Belt this weekend (and snow again in the Northern Plains), which is obviously not supportive for harvest activity but thus, supportive for corn prices. However, there is drier weather on the horizon for next week, which is somewhat muting said bullish speculation for corn prices. [3] Further, this past week has seen some intense winds across the western Corn Belt with Minnesota, Nebraska, and Iowa seeing gusts as high as 60 MPH. For a few fields, there is significant damage as it completely laid down corn stalks, but for those that could stay standing, the wind has helped dry things down a lot. [4]

Ultimately, with much uncertainty still about the size of the U.S. corn harvest, corn prices are somewhat see-sawing, looking for direction. Historically, U.S. corn prices tend to rally between now and February. [5] Impacting that move will be the function of domestic and international demand. On the domestic side of things, it’ll come down to feed use and ethanol production, albeit corn going into the ethanol column in 2019/20 is only expected to increase by 24M bushels from last year to a total of 5.4 Billion bushels (or 137.2 MMT if converting bushels into metric tonnes). That said, through the most recent reporting week, ethanol production in the U.S. is tracking 7% behind last year’s volume processed.

And while the USDA is expecting U.S. corn exports to fall 8% year-over-year to 1.9 Billion bushels in 2019/20, through Week 6 of the 2019/20 crop year, U.S. corn exports are tracking nearly 2/3s behind last year’s pace with just 2.63 MMT shipped out. Not exactly stellar demand fundamentals to propel corn prices higher.

U.S. weekly corn exports through week 6 of the 2019/20 crop year are tracking 57% lower

On the other side of the 49th parallel though, Agriculture Canada says that there’s not enough corn to go around in the Great White North which is helping local corn prices. Further, Canadian corn exports are expected to drop by 20% from last year to just 1.425 MMT. To help make up for it, Canadian corn imports for 2018/19 were revised higher to 2.8 MMT, the highest since 2008/09. Unsurprisingly, corn prices in southwestern Ontario are nearly 20% higher than a year ago. Despite expected weaker volumes of corn exports, stronger domestic use means Canadian corn carryout for 2019/20 should fall about 10% from last year to 1.8 MMT, which should help corn prices stay elevated.

Agriculture Canada says despite weaker corn exports, Canadian corn prices should jump 20% in 2019/20

When Will Soybean, Canola Prices Get Going?

Yesterday, Reuters reported that China is offering major state and international soybean players up to 10 MMT of tariff-free soybean imports from the United States. [6] However, relative to South American soybean prices, no one seemed to bite as American values are still too high and that pushed soybean prices in Chicago down by more than a dime yesterday.

Worth noting that, while the U.S. soybean harvest is a grind, better rains are helping Brazilian farmers get their crop in, but they’re also forwarded contracting it at the fastest pace ever. [7] So, while China bought 16 cargoes from Brazil last week, perhaps Brazilian farmers are thinking that domestic soybean prices will weaken as a trade war between the U.S. and China softens?

Last week, I talked about some stronger Canadian canola exports to Europe, but lately, despite the harvest 2019 challenges, Canadian farmers are moving a lot of canola. Producer deliveries in week 10 of the 2019/20 crop year hit a new record of just over 719,000 MT. [8] Accordingly, available commercial supplies rose to 1.086 MMT, the first time they’ve been above 1 MMT so far this year.

We certainly know that there’s still a lot of canola out there since Agriculture Canada recently raised 2018/19 carryout by 220,000 MT to nearly 4.1 MMT, which, in turn, pushed up 2019/20 ending stocks to 4.7 MMT. The latter is 90%, or 2.2 MMT, more than the 5-year average. This should help you understand why canola prices are having a tough time finding legs for a longer rally. That said, I continue to look to some seasonal gains for canola prices and soybean prices as a result of weather premiums attributed to the South American growing season.

Agriculture Canada says canola prices will drop on higher carryout in 2019/20

Canada’s Election: Better, Worse, or the Same?

On Monday, the Liberals and Prime Minister Justin Trudeau were able to win a minority federal government, but the fractured nature of the Canadian vote is alarming. [9] Save for Vancouver and parts of Winnipeg and Edmonton, the obvious political discontent of the Western Canadian provinces is marked, with a lot more talk of separation and/or more provincial power, much like what the Bloc Quebecois campaign on. [10]  In fact, Saskatchewan Premier Scott Moe, as a self-proclaimed, “frustrated federalist”, put out a definitive statement, calling on Ottawa for immediate action. [11] His “New Deal” that he wants consists of (1) a repeal of the carbon tax, (2) new formula for equalization payments, and (3) pipelines.

There are some legs behind Premier Moe’s statements, especially considering that the Conservative party won the popular vote, but obviously not enough seats to earn their own minority government. [12] The Western Producer reports that, historically, minority governments tend to be more sensitive to supporting interests of the other parties that support said party in the minority position of power. This likely means that the Liberals will look to win over the NDP and Green Party for any legislative support.

In their platform, the Liberals said that they wanted to provide more funding for expanded business risk management programs, easier farm succession rules, and more canola going into biofuel. There was also some suggestion that the Liberals will shake up Farm Credit Canada, renaming it Farm and Food Development Canada and expanding its financial and advisory services. [13] As it relates to all Canadian agriculture, many in the industry, including yours truly, are not expecting the Liberals to change much policy. Ultimately, many are just looking for the federal government to “get back to work” and fix trade and give Canadian agriculture a fighting chance. [14] However, minority governments don’t have a track record of lasting the full 4 years and so it’s likely that we’ll go back to the polls within the next year or two. [15]

To growth,

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

At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3092 
CAD, $1 CAD = $0.7639 USD)

Dec Corn: -2.3¢ (-0.6%) to $3.858 USD or $5.05 CAD
Jan Soybeans: -2.5¢ (-0.25%) to $9.458 USD or $12.381 CAD
Dec Soybean Meal (per short ton): -$0.50 (-0.15%) to $306.40 USD or $401.13 CAD
Dec Soybean Oil (cents per lbs): -0.08¢ (-0.25%) to 30.77¢ USD or 40.28¢ CAD  
Dec Oats: -1.3¢ (-0.4%) to $2.955 USD or $3.869 CAD
Dec Wheat (Chicago): -2¢ (-0.4%) to $5.16 USD or $6.755 CAD
Dec Wheat (Kansas City): -2.5¢ (-0.6%) to $4.199 USD or $5.482 CAD 

Dec Wheat (Minneapolis): -4¢ (-0.75%) to $5.35 USD or $7.004 CAD
Jan Canola: -1.4¢ (-0.15%) to $10.467/bu / $461.50/MT CAD or $7.995/bu / $352.52/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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