Grain markets are mixed this morning as the complex tries to end a shortened-trading week in the green, one in which only corn, soybean, and canola prices have found gains.
“Just remember, you can’t climb the ladder of success with your hands in your pockets.” – Arnold Schwarzenegger (American actor)
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Feb. 22 – Soybean, Canola Prices to Climb off the Lows?
Grain markets are mixed this morning as the complex tries to end a shortened-trading week in the green, one in which only corn, soybean, and canola prices have found gains. Soybean prices have been playing teeter-totter, but canola prices have been following from a distance with limited gains, namely because of continued farmer selling and strength in the Canadian Loonie.
Ahead of the 2019/20 production estimates from the USDA to be published this morning, the International Grains Council recently updated some of its global estimates for grain, oilseed, and pulse crop production.  While we dig into some of those IGC estimates this morning, the question plaguing many grain market participants is what is really driving grain prices right now?  Depending on the time of the year, weather can certainly be in the driver’s seat but right now, it seems like it’s all about trade talks.
Are Soybean Prices Confused?
With the trade war between China and the U.S. effectively halting the trade of soybeans between the two countries, it’s been estimated that the significantly-large supply of American soybeans could take three years to work through!  Ironically, recent analysis by University of Illinois’ ag economist Gary Schnitkey suggests that, even at current soybean prices, it might not be that more profitably to switch more acres to corn in 2019!  However, yesterday’s first at the USDA’s annual AgForum, the USDA suggested that American farmers will plant 85 million acres of soybeans for the 2019/20 crop year (-4.7% year-over-year) and 92 million acres of corn (+3.2%).
However, if we move past the noise getting created by the politicians and start looking back to these sort fundamentals, there are some bullish weather factors in the forecast. Notably, BAMWx says that all the snow that the Midwest is seeing right now is going to likely add up to a very wet spring.  Taking it a step further, the NOAA’s long-term forecast for 2Q2019 suggests above-normal rainfall, but also some above-average temperatures.
Just like we wait out the winter storms, perhaps it’s time to have some patience and wait out the current lows in grain markets being seen (especially canola prices!).
Canola Prices: Bullish Heading into 2019/20?
In it, the IGC has suggested some bullish dynamics for canola prices, namely EU rapeseed acres falling to their lowest since the 2006/07 crop year. At the IGC’s estimate of about 14.4 million acres, this would be a 13% decline year-over-year.
However, as the above chart from the IGC shows, an increase in Ukrainian acres is making up a lot of the reduction. We also know that Ukraine is exporting nearly 90% of their total rapeseed harvest to the EU.  Comparably, Strategie Grains sees 2019/20 EU rapeseed acres at about 15 million acres with the top 4 producers – France, Germany, Poland, and the UK – all seeing smaller area planted with the oilseed this past fall. 
Globally, the IGC is thinking that worldwide rapeseed / canola acres will be mostly unchanged at nearly 88.5 million. This is mainly attributed to increases in Canada, Australia, and, as mentioned, Black Sea countries. With the smaller acres in Europe though, it’s expected that the EU is going to have to import more canola both in 2018/19 and 2019/20. For the current crop year, Viterra is estimating that EU canola imports from Canada will jump by a third from their five-year average to 800,000 MT. 
From the standpoint of canola prices, European rapeseed values on the Paris futures board have recently hit their lowest levels in the 2018/19 crop year. The decline in the EU market is attributed to strong vegetable oil competition (namely palm oil) and smaller biofuel demand.
Back here in North America, one could argue that canola prices are factoring in 2019/20 acres a little earlier than usual and, as such, also finding some marketing-year lows. That being said, just looking at the chart below of average spot canola prices of last year and the 3-year average in Western Canada, it’s seems much more logical to wait for some seasonal rallies come May/June.
IGC Expects Tighter Oats, Barley Trade
The IGC see U.S. winter wheat acres for the 2019/20 crop year coming in at 31.4 million acres, down 4% year-over-year.  Like most other private estimates, this would be the second-lowest American winter wheat acreage ever and is the sixth straight year that winter wheat acres have fallen in the U.S. By class, the IGC sees HRS wheat acres dropping 3% year-over-year in 2019/20 to 22.2M acres, SRW wheat falling 7% to 5.7M, and white wheat at 3.46M, down 3%.
In Wednesday’s FarmLead Breakfast Brief, we took a deep look at feed barley prices, namely their retraction from recent highs. In it, I discussed the reduction in demand from major importers like China and Saudi Arabia but the IGC sees a strong rise in demand from North Africa, up nearly 40% in 2018/19 from the previous year to 6.2 MMT of demand.  Thanks to smaller global production and some quality issues in malt barley production specification, the IGC seems global barley trade slightly lower in 2018/19 at 28.7 MMT. This puts the worldwide stocks-to-use ratio for barley in 2018/19 at 15%, the second straight year of decline.
A similar dynamic of market structure is expected by the IGC to be seen in the oats market. More specifically, the agency is forecasting that global oats stocks could fall down to just 2MMT, with a stocks-to-use ratio of less than 10% for the 2018/19 crop year.  The decline is mainly attributed to a 7% year-over-year drop in global production to 22.1 MMT, the lowest since the 2012/13 crop year.
Overall, it’s the time of year that grain markets are getting a lot of data – the USDA, the IGC, and others are all speculating more and more on the 2019/20 crop year. While the likes of feed barley prices are coming off their highs, again, perhaps some patience is required to see the likes of soybean and canola prices to come off the lows.
Have a great weekend!
At 6:20 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3212 CAD, $1 CAD = $0.7569 USD)
May Corn: +1¢ (+0.25%) to $3.853 USD or $5.09 CAD
May Soybeans: +0.8¢ (+0.1%) to $9.25 USD or $12.221 CAD
May Soybean Meal (per short ton): +$0.70 (+0.25%) to $310.50 USD or $410.23 CAD
May Soybean Oil (cents per lbs): -0.10¢ (-0.3%) to 30.72¢ USD or 40.59¢ CAD
May Oats: -1.3¢ (-0.45%) to $2.743 USD or $3.623 CAD
May Wheat (Chicago): +0.8¢ (+0.15%) to $4.903 USD or $6.477 CAD
May Wheat (Kansas City): unchanged at $4.633 USD or $6.12 CAD
May Wheat (Minneapolis): +3.3¢ (+0.6%) to $5.61 USD or $7.412 CAD
May Canola: -0.2¢/bu (-0.02%) to $10.95/bu / $482.80/MT CAD or $8.288/bu / $365.43/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.