Dec. 14 – Soybean Prices Remember Supply, Competition, Trade War

Grain markets this morning are mostly lower as the complex follows yesterday’s selling, led by soybean prices who failed to find support after the big splash by China.

When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.” – Henry Ford (U.S. entrepreneur)

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Grain markets this morning are mostly lower as the complex follows yesterday’s selling, led by soybean prices who failed to find support after the big splash by China.

Before we dig into what was behind yesterday’s drop of soybean prices, something that could spark a rebound is Monday’s NOPA crush report for Monday. Going into the report, the average pre-report guesstimate is for 168.44 million bushels of soybeans (or 4.584 MMT if converting bushels to metric tonnes at GrainUnitConverter.com; bookmark it!)

This week we also saw the U.S. Congress send a new farm bill to President Trump’s desk to sign. [1] It’s expected that the bill, which will last 5 years, will maintain a strong U.S. crop insurance program.

El Nino Hanging Around this Winter

Finally, the Climate Prediction Center says that an El Nino is almost certainly being seen this winter, continuing through January. [2] For North America, this usually means wetter conditions, and since this one is occurring over the winter, it’s likely to benefit winter wheat production the most. Worth keeping in mind though is that U.S. winter wheat acres are expected to drop to a 100-year low. [3] The CPC also is estimating that the chances of an El Nino lasting through the spring for 2019 is about 60%.

An El Nino event doesn’t just impact North American weather though.

For example, in India, an El Nino is typically associated with a drought or scant rains. We know that this doesn’t necessarily bode well then to produce pulses in the country’s winter rabi crop. Keep in mind that country is already suffering from below-average monsoon rains and that pulse acres seeded thus far are lower year-over-year. Ultimately, as I’ve said many times (as has the rest of the industry now), a smaller rabi winter harvest of pulses in India might support more exports for the likes of peas, lentils, and chickpeas, but the import tariffs are unlikely to be removed any time soon.

Coming back to El Nino, heavy rains are usually seen in Brazil while it tends to be drier in northeastern areas. However, right now, it’s the southern areas in Brazil that are a bit dry. Soybean prices are going to be watching the Brazilian weather closely over the next few weeks, as it might create some opportunities for more U.S. soybean exports. [4]

China Supports Soybean Prices (Briefly)

On that note, on Wednesday, it was announced that China would make its first major purchases of U.S. soybeans since the “trade war truce” made between the two countries at the end of the G20 Summit in Argentina. [5] The purchase of over 1.5 MMT of U.S. beans, valued at more than $500 million USD supported soybean prices on Wednesday, as it was the largest one-day sale of U.S. soybeans in more than 4 years and the ninth-largest in the past decade.

Through Week 14 of the U.S. soybean crop year, 14.31 MMT of soybeans (or 525.8 million bushels) have been shipped out of country, which is down nearly 41% year-over-year.

It’s been estimated that another 1 – 1.5  MMT could be bought by China very soon. However, there has been no signalling from both buyers and sellers on the international soybean market that this show will go on.

As mentioned in this Wednesday’s FarmLead Breakfast Brief, the 25% import tariff from China on U.S. soybeans still remains. Thus, I have to agree with Bloomberg journalist David Fickling who said yesterday that “small moves around the front lines won’t change the underlying casus belli.” [6]

Full disclosure: I had to go look up what casus belli means. Of course, it’s Latin, and it basically means the occurrence behind the starting of a war. In the U.S.-Chinese trade war scenario, it’s that Trump is still looking for fair trade between the two countries. Returning to the table to buy soybeans doesn’t necessarily equate to things being “all good” between Washington and Beijing.

Add in that the USDA said in Tuesday’s December WASDE report that there’ll be a 955 million bushel carryout to end 2018/19, and you start to question how much the needle is being moved. This is especially true when you consider boats in Brazil waiting to load Brazilian soybeans set to get harvested over the next months. All of this combined is why you saw soybean prices pull back yesterday.

Globally, it’s easy to see why grain markets are a bit bearish on soybean prices still.

Wheat Prices Being Ignored?

As discussed in Wednesday’s recap of the December WASDE, there wasn’t much of an update to the world of wheat.

While the positive trade relations between the U.S. and China is good for soybean prices, it might also be healthy for U.S. spring wheat: China has become the 4th largest buyer of U.S. spring wheat (mainly for blending purposes though). [7]

On that note, through Week 27 of the 2018/19 U.S. wheat crop year, American hard red spring wheat exports are tracking 4% above last year’s pace with 3.27 MMT (or 121.2 million bushels) shipped out.

A similar dynamic has been seen in Canadian non-durum wheat exports, as China has been a very large buyer, helping support domestic cash wheat prices (and as mentioned in late September). It’s been suggested that they continue to be strong buyers of Canadian non-durum wheat, which is likely why current exports through Week 19 of the Canadian crop year are tracking nearly 19% higher; Marketing-year-to-date, 6.9 MMT have been exported from Canadian ports.

Wrapping the week up for wheat prices is the Buenos Aires Grain Exchange lowering their estimate of Argentina’s 2018/19 wheat harvest by 200,000 MT to 19.0 MMT. The downgrade is mainly attributed to frost and hail, the former which will likely have an impact on quality as well. Combined with the smaller Australian wheat crop, the Southern Hemisphere harvest is seemingly providing a good window of opportunity for wheat prices (not if only canola prices could follow suit!)

To growth,

Brennan Turner

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

At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3384 
CAD, $1 CAD = $0.7472 USD)

Mar Corn: +0.2¢ (+0.4%) to $3.858 USD or $5.163 CAD
Jan Soybeans: -0.1¢ (-0.01%) to $9.058 USD or $12.123 CAD
Jan Soybean Meal (per short ton): +$0.30 (+0.1%) to $308.80 USD or $413.30 CAD
Jan Soybean Oil (cents per lbs): -0.17¢ (-0.6%) at 28.66¢ USD or 38.36¢ CAD  
Mar Oats: -4.5¢ (-1.55%) to $2.89 USD or $3.868 CAD
Mar Wheat (Chicago): -1.8¢ (-0.35%) to $5.343 USD or $7.151 CAD
Mar Wheat (Kansas City): -1¢ (-0.2%) to $5.19 USD or $6.946 CAD
Mar Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.875 USD or $7.863 CAD
Jan Canola: -0.9¢/bu (-0.1%) to $10.943/bu / $482.50/MT CAD or $8.176/bu / $360.50/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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