Feb. 15 – Grain Prices Finding Friday Bounce

Grain prices this morning are back in the green as the complex tries to rebound from yesterday’s down day on profit-taking and the lack of new headlines to trade off.

“Being brave isn’t the absence of fear. Being brave is having that fear but finding a way through it.” – Bear Grylls (British survivalist)

Feb. 15 – Grain Prices Finding Friday Bounce

Grain prices this morning are back in the green as the complex tries to rebound from yesterday’s down day on profit-taking and the lack of new headlines to trade off.

In yesterday’s FarmLead Breakfast Brief, we discussed how we were hoping that President Trump would give some love to the grain markets on Valentine’s Day by signing a new spending bill so the U.S. government wouldn’t shut down again. Indeed, President Trump signed the shutdown-averting spending bill but has threatened to declare a national emergency at the U.S.-Mexico border, which would open up a whole new can of worms from a constitutional standpoint. [1]

Are Soybean Prices Overvalued?

The other obvious factor affecting grain prices is the trade war between the U.S. and China, which is, like me, probably starting to sound like a broken record for you. The current negotiations in China this week is likely to continue to have some impact on soybean prices, but the big question being floated around right now is whether or not soybean prices are overpriced. [2]

With the information that we have today, we know that U.S. soybean acres are going to fall considerably this spring, with my number being somewhere closer to 83.5 million acres today. Of course, this size of area could change if a trade war resolution is realized, but the market seems to be pricing in something around that 84 million-acre number.

The other major factor here for soybean prices is South America. Last Friday, the USDA dropped their estimate of the Brazilian soybean harvest by 5MMT to 117 MMT and the Argentine crop by 500,000 MT to 55 MMT. This is an indicator of some of the weather issues that these two major soybean production countries are facing right now.

Comparably, CONAB cut Brazil’s soybean harvest to 115.3 MMT last week, down 3.5 MMT from their January estimate. It’s been suggested that more cuts could be on the way and we’re starting to hear rumours of 113 and 114 MMT being more realistic in Brazil. [3] Keep in mind, however, this would still be the second-largest soybean ever produced by Brazilian farmers.

Nevertheless, because of the smaller crop, soybean exports in the 2018/19 crop year for Brazil are expected to only come in at 71.5 MMT. This would be a drop of 12 MMT year-over-year but available inventories are significantly depleted and domestic soybean prices to keep beans in the country are likely to be more competitive with export markets. Of course though, Brazilian soybeans still don’t have a 25% import tax by China to deal with like American beans do.

Looking at New Crop Grain Prices

FocusEconomics recently updated its own estimates for where grain prices are headed.

As we’ve been talking about for multiple months, the real asterisk on soybean prices has been the U.S.-China trade war. FocusEconomics says that any bullish rumours will be capped by the size of the supplies available both in the U.S. and globally. That said, participants in FocusEconomics’ poll suggest an average for soybean prices of $9.27 USD / bushel in Chicago for 4Q2019 and $9.83 for 4Q2020. This morning, the November 2019 soybean contract is trading at $9.51 while the November 2020 contract is sitting at $9.70.

For corn prices, the firm is thinking that values will rise thanks to a strong demand structure, notably in strong exports to places like Egypt, the EU, and Mexico. On the domestic front, FocusEconomics is pointing to better demand from all major sectors: food, feed, and industrial use. That being said, the USDA did drop domestic use for corn by about 160 million bushels in the February WASDE report last Friday.

On the latter, there has been some concern that the January U.S. government shutdown could delay the passage on higher blends of ethanol into gasoline, which would, in turn, delay higher demand. [4] The USDA is hoping to complete the terms behind allowing year-round sales of E15 before the summer, when consumer demand for gasoline hits its annual peak.

This in mind, Focus Economics is forecasting 4Q2019 corn prices at $3.89 USD / bushel in Chicago and 4Q2019 values at $4.11. As of this morning, the December 2019 contract is trading at $4.005, while the December 2020 contract is sitting at $4.13.

New Crop Grain Prices Estimates - FocusEconomics

Finally, for the benchmark Chicago wheat market, the average guesstimate for wheat prices is sitting at $5.09 USD per bushel on the Chicago futures board for the 4Q2019 timeframe and $5.29 for 4Q2020. Currently, the December 2019 and 2020 contracts are trading at $5.35 and $5.66 respectively. The bullish outlook for new crop values can be mainly attributed to recent data from the USDA suggesting U.S. winter wheat acres will be the second-lowest on record.

Overall, my feeling is that today’s new crop grain prices – namely for corn prices and wheat prices – will not be available in a few months. This isn’t just a reflection of seasonal patterns (read: April/May lows) but bigger production around the world, especially for corn and wheat.

Today’s Grain Prices Available Tomorrow?

For the latter, this certainly applies to hard red spring wheat and our Canadian readers. We know there’s going to be more high protein varieties planted in Canada, the U.S., and Australia, among other locations.

For canola prices, the outlook remains relatively neutral, albeit it could be better if exports to China weren’t in question! [5] Cumulative shipments through Week 28 of the 2018 crop year are sitting at 5.44 MMT, down nearly 6% year-over-year.

Canadian weekly canola exports - Week 28

What surprised us for Week 28 of the crop year was Canadian lentil exports, with 53,300 MT shipped out. Through February 10th, total Canadian lentil exports have totaled 346,700 MT, which is now up 140% year-over-year!

Canadian cumulative lentil exports - Week 28

Overall, we’re looking for grain prices to close out in the green, which would be especially significant for corn prices as it would be its first positive close in several weeks. There certainly are some more headlines this morning supporting positive trade war conversations, but I remain cautious on an immediate deal and grain prices seem to be doing the same.

To growth,

Brennan Turner

TF: 1-855-332-7653
@FarmLead on Twitter

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 = $1.3281 
CAD, $1 CAD = $0.753 USD)

Mar Corn: +1¢ (+0.25%) to $3.758 USD or $4.99 CAD
Mar Soybeans: +5¢ (+0.55%) to $9.085 USD or $12.066 CAD
Mar Soybean Meal (per short ton): +$1.50 (+0.5%) to $307 USD or $407.73 CAD
Mar Soybean Oil (cents per lbs): -0.02¢ (-0.05%) to 29.87¢ USD or 39.67¢ CAD  
Mar Oats: -3¢ (-1.05%) to $2.79 USD or $3.705 CAD
Mar Wheat (Chicago): -0.8¢ (-0.15%) to $5.063 USD or $6.724 CAD
Mar Wheat (Kansas City): unchanged at $4.815 USD or $6.395 CAD
Mar Wheat (Minneapolis): +0.5¢ (+0.1%) to $5.743 USD or $7.627 CAD
Mar Canola: +1.1¢/bu (+0.1%) to $10.868/bu / $479.20/MT CAD or $8.183/bu / $360.81/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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