Oct. 28 – Crop Progress Now a More Important Grain Markets Factor?

Grain markets are mixed as the market continues to ponder harvest 2019 crop progress and a trade war deal getting done.

“It is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”  – Isaac Asimov (American science fiction author)

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Crop Progress Now a More Important Grain Markets Factor?

Grain markets are mixed as the market continues to ponder harvest 2019 crop progress and a trade war deal getting done. Soybean prices are in the green this morning but saw a big sell-off on Friday as speculators sold off positions ahead of the weekend with no confirmed news of a deal between the world’s two largest economies, as well as grain buyers hedging their anticipated weekend deliveries of freshly-harvested beans. Corn prices also fell a bit on grain elevator pre-hedging but weekly losses were moreso attributed to weaker demand fundamentals.

Grain markets front-month futures performance through October 25, 2019

Data from the CFTC on Friday showed that money managers increased their net-long position in soybeans to nearly 69,000 contracts, which would be the largest bullish position in the oilseed since late May 2018. On the flipside, fund managers increased their net-short position in corn by more than 10,000 positions to a little more than 76,000 lots. For wheat, speculators increased their net-short in Kansas City HRW wheat but added to their net-long in Chicago SRW wheat to make it the largest position since early July of this year. This helps explain some of the dollar spread between Chicago and Kansas City winter wheat prices.

Crop Progress Starting to Stall?

Potentially helping HRW wheat prices will be Mother Nature this week as the American Southern Plains are expecting to receive some snow today, followed by freezing rain and ice pellets later this week. [1] Similarly, parts of Illinois, Iowa, and Missouri are expected to get as much as 2 inches of snow tonight, which will likely impede more crop progress.

On that note, the USDA’s weekly crop progress report out this afternoon at 3PM CST is expected to show some healthy activity from last week. The market is expecting to see the U.S. corn harvest at 47% finished (30% in last week’s crop progress report, 61% a year ago, and a 5-year average of 64%). For the soybean harvest, traders are expecting to see in this afternoon’s crop progress report a completion figure of 65% (46% a week ago, 69% a year ago, and the five-year average of 78%).

In Western Canada, crop progress reports from last week show that decent activity was made last week in Saskatchewan and Alberta. [2] Conversely, there wasn’t much crop progress made in Manitoba as farmers in the Keystone province continue to try to dig/wait out the effects of that huge Thanksgiving weekend blizzard. [3] In fact, in more than a few places between Manitoba and North Dakota, soybeans are probably going to be left out in the field over the winter as they’re just too tough to get to, even with tracks on the combine! [4]

Western Canada harvest / crop progress through October 22, 2019

As mentioned last week, Canadian canola crush margins have doubled compared to a year ago, but as it stands right now, there is still quite a bit of canola left to come off. We know that more than 18% of canola fields Manitoba have not yet been combined, 20% in Saskatchewan, and a significant 40% in Alberta. Over the weekend, a weather system with cooler temperatures and snow started making its way across the northern half of the Canadian Prairies (which is where a lot of that remaining canola crop is) and is expected to continue through today. That said, cash canola prices across Western Canada haven’t seen too much of a bump, given how much canola is left over from 2018/19, and the size of the crop that’s already been combined.

Cash canola prices for spot movement through October 25, 2019

On the other side of the equator, grain market participants continue to watch soybean planting activity in South America, namely if they’re getting the moisture they need. [5] For those remembering what happened in 2011 when soybean prices jumped on South American dryness, we’re a ways away from that happening again. However, as we get into November, and especially December, South American weather could play a big role in the grain markets so we’ll be watching crop progress reports out of Brazil and Argentina more closely, should moisture stay limited.

Macro Factors Grain Markets Are Watching

On the political front, Argentinians headed to the polls for a federal election and the incumbent, Conservative President Mauricio Macri has already conceded defeat. [6] Alberto Fernandez is the main challenger to the incumbent and the frontrunner candidate and while details have been short on his agricultural policies, he’s committed to no distortion of ag policies or bans on agriculture exports. That said, Mr. Fernandez says that it’s not worth scraping any taxes on ag exports (notably soybeans) at this time, given the poor economic situation in Argentina. On a related note, probably one of the best lines I’ve ever heard is that Argentina has economic challenges every decade and they tend to last about 10 years.

Argentina is one of those countries that China could rely on for more soybean exports, should they not strike a deal with the United States. As mentioned in Friday’s FarmLead Breakfast Brief, U.S. soybean exports are at an inflection point with China and if a trade deal does get done, it could help values a little bit, but I doubt we’ll see soybean prices jump by a $1/bushel or something along those lines. The main reason is that, like Canadian canola, there are still a lot of soybeans available from 2018/19, and despite some limited crop progress of late, there are still quite a bit of soybeans coming off this year.

Finally, later this week, it’s expected that the U.S. Federal Reserve will cut interest rates for the third time this year. [7] After two days of meetings, on Wednesday, the U.S. central bank will hopefully give some direction on if the economic data that they’re watching will point to a 4th rate cut in December or not. As the U.S. Federal Reserve uses monetary policy to try and stave off a recession, 3 rate cuts in one year last happened in 1998 and before that, 1995-1996. However, with inflation running below the Fed’s desired level of 2%, and economic growth starting to slow, the Fed might indeed be in a good position to help jumpstart things with a lower rate.

To growth,

At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3059 
CAD, $1 CAD = $0.7658 USD)

Dec Corn: -2¢ (-0.5%) to $3.848 USD or $5.024 CAD
Jan Soybeans: +3¢ (+0.3%) to $9.375 USD or $12.243 CAD
Dec Soybean Meal (per short ton): +$0.30 (+0.1%) to $303.60 USD or $396.68 CAD
Dec Soybean Oil (cents per lbs): +0.19¢ (+0.6%) to 31.15¢ USD or 40.68¢ CAD  
Dec Oats: -1.8¢ (-0.6%) to $3.008 USD or $3.928 CAD
Dec Wheat (Chicago): -4.5¢ (+0.85%) to $5.133 USD or $6.703 CAD
Dec Wheat (Kansas City): -3¢ (-0.7%) to $4.198 USD or $5.482 CAD 

Dec Wheat (Minneapolis): unchanged at $5.368 USD or $7.009 CAD
Jan Canola: +2.9¢ (+0.3%) to $10.539/bu / $464.70/MT CAD or $8.07/bu / $355.84/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.

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