Dec. 19 – Trade War Easing or Just Basic Grain Demand Needs?

Grain markets are mostly lower this morning, some increased optimism about a trade war between the U.S. & China finally ending & strong bean buying yesterday.

“What is a ruin but time easing itself of endurance?” – Djuna Barnes (American author)

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Grain markets are mostly lower this morning, some increased optimism about a trade war between the U.S. & China finally ending & strong bean buying yesterday. U.S. Treasury Secretary Steven Mnuchin says that the two countries are going to sit down together in January for the first time the trade war truce was announced a few weeks ago. [1] Only phone call conversations have been happening since then.

Bulls and bears have been jawing on the direction of oil prices, but the bears are mostly winning. Yesterday, WTI prices plummeted more than 7% for the day to below $47 USD / barrel for the first time in 15 months. [2] While the Saudi Oil Minister says that current oil prices are not linked to fundamentals, more analysts agree that global economic growth is slowing and that the current production cuts planned by OPEC won’t be enough and instead, supply will continue to saturate demand. Translation: oil prices could fall further. [3]

Oil prices tend to correlate closely with grain prices, especially oilseeds. While it most closely relates to soybean and canola prices, next week, we’ll be publishing our grain markets recaps for all crops and one of the surprises this year has been flax. Kazakhstan has now become the world’s largest producer and this year, they’ll also be the world’s largest exporter of flax. Be sure to check out the FarmLead Insights page for the full recap of all grain markets next week.

Soybean Prices Dealing with Lots of Info

As mentioned in last Friday’s FarmLead Breakfast Brief, soybean prices were looking towards this past Monday’s NOPA soybean crush report for the month of November. The number that came out was 167 million bushels or 4.545 million metric tonnes (MMT) if converting bushels into metric tonnes. While this was 2.1% better than November 2017’s crush, it was 3.5% below October 2018’s crush and below the trade’s pre-report average guesstimate of 168.44 million bushels.

Soybean prices are also being cognizant of what’s happening in Brazil! In parts of the second-largest producing state in the country, Parana, there has been no rain for over 20 days. The expected yield losses from the dry areas could total more than 5 MMT. [4] Conversely, the soybean harvest is starting in Mato Grosso, the largest soybean-producing state in the country.

With harvest starting up though, it’s expected the forward contracting will slow down (it’s estimated that 31% of the Brazilian 2018/19 soybean crop has been pre-sold, higher than the 27% at the same point a year ago).

Those soybeans coming off in Brazil are going to be closely watched by Chinese buyers who are starting to look for more supply. In fact, yesterday, China came back to the U.S. for their second round of buying of U.S. soybeans since the trade war truce. [5] It’s been estimated that China bought 900,000 MT yesterday for 1Q2019 movement; last week they bought 1.5 MMT.

Given the current trade war environment, this would cause a celebration amongst the bulls, but I think grain markets are starting to recognize that there are still a lot of beans in both the U.S. and the world. This is partially why, in my opinion, soybean prices didn’t see a huge jump with yesterday’s purchasing of U.S. soybeans by China. As I’ve said a few times lately, with the trade war and its 25% import tariff on soybeans still in place, it’ll be tough to see the U.S. carryout drop too significantly from the current 955 million bushels they’re sitting at, as forecasted by the USDA in the December WASDE report.

As it relates to canola prices, they’ve been playing follow the leader with soybeans and without a clear stronger trend of demand – be it domestic crush or exports – there isn’t many other fundamentals for canola to follow other than soybean prices. That being said, we’re cognizant of a more soured China-Canadian relationship since Huawei CFO Meng Wanzhou was detained in Vancouver. [6]

Trump Trying to Ease Trade War Burden

In addition to the good news of China buying more beans, yesterday, President Trump announced he’s given the go-ahead on the second round of the trade war aid package earmarked for farmers. [7] The trade war package includes roughly $7.26 Billion USD for American soybean farmers.

As a reminder from the first round of trade war payments (which came out when NAFTA was still being re-negotiated in August!), eligible participants “must have an ownership interest in the commodity, be actively engaged in farming, and have an average adjusted gross income (AGI) for tax years 2014, 2015, and 2016 of less than $900,000.”

Ultimately, as we get closer to flipping the calendar into 2019, these sort of farmer subsidies might be more commonplace, or least they’re more likely as long as a trade war between the U.S. and China continues. [8]

To growth,

Brennan Turner

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

At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3475 
CAD, $1 CAD = $0.7421 USD)

Mar Corn: -1¢ (-0.25%) to $3.845 USD or $5.181 CAD
Jan Soybeans: -1.3¢ (-0.15%) to $9.065 USD or $12.215 CAD
Jan Soybean Meal (per short ton): -$0.80 (-0.25%) to $309.60 USD or $417.19 CAD
Jan Soybean Oil (cents per lbs): +0.19¢ (+0.65%) at 28.60¢ USD or 38.54¢ CAD  
Mar Oats: +0.5¢ (+0.05%) to $2.875 USD or $3.874 CAD
Mar Wheat (Chicago): -6¢ (-1.15%) to $5.268 USD or $7.098 CAD
Mar Wheat (Kansas City): -5.3¢ (-1%) to $5.12 USD or $6.899 CAD
Mar Wheat (Minneapolis): -3¢ (-0.5%) to $5.738 USD or $7.731 CAD
Jan Canola: -1.4¢/bu (-0.1%) to $10.879/bu / $479.70/MT CAD or $8.074/bu / $355.99/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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