Grain markets were closed overnight on a technical issue, forcing traders to step back and review macro factors, namely weather and trade data.
“It is only in sorrow bad weather masters us; in joy we face the storm and defy it.” – Amelia Barr (English author)
Feb. 27 – Will Weather Save Grain Markets from the Lows?
Grain markets were closed overnight on a technical issue, forcing traders to step back and review macro factors, namely weather and trade data. However, with the system working again this morning, grain markets are mostly trading in the green, namely led by wheat prices, as the markets try to make up for no overnight trade and return back to values seen earlier in the week.
Soybean prices haven’t been able to follow-up their performance earlier in the week as the relatively bearish data released by the USDA has now been fully factored in. More specifically, the market is saying to us that there are still a lot of soybeans out there, even despite the dryness in Brazil likely impacting yields. More concretely, the USDA’s attaché there recently lowered their estimate of the soybean harvest to 115.5 MMT.  Comparably, the official USDA estimate of Brazil’s soybean harvest in the February WASDE was for 117 MMT. Private forecasts are mostly sitting between 114 and 115 MMT.
On the home front though, U.S. soybean crush continues to be very strong. Through the first 4 months of the 2018/19 crop year, 714 million bushels were used, up 6.5% than the same period in 2017/18.  The increase is mainly attributed to the smaller 2017/18 soybean harvest in Argentina, the largest crusher and thus soymeal exporter in the world. However, there is some concern that, with Argentina’s soybean harvest this year rebounding back to normalized levels above 50 MMT, there will be more crush competition, meaning domestic U.S. crush volumes (and subsequently, soymeal prices) could fall.
Finally, as part of the trade war negotiations, the U.S. has asked China to remove their tariffs on ethanol.  When the tit-for-tat trade war started last summer, the Chinese put import taxes on U.S. ethanol of up to 70%, basically making it financially impossible to ship product from the United States to the People’s Republic. It’s been rumoured that U.S. negotiators are looking to get that percentage down below 15%.
Flip-Flop Weather (We’re Not Talking Footwear)
As we flip the calendar into March on Friday, there’s been more talk about weather and the start of Plant 2019, namely it being delayed in many areas. This year’s snowfall across major growing areas throughout North America is creating some concern that we’ll see significant run-off, namely in the Red River Valley. Intuitively, this sort of wet weather would negatively impact things through Southern Manitoba and North Dakota. 
Flipping gears though, the Weather Network is expecting that start of spring (and that melting of snow) will start a bit earlier than usual this year, especially in Western Canada, with warmer temperatures coming around by the middle of March. 
Before you break out your favourite cut-off jean shorts and t-shirt though, the NOAA is forecasting that the next two weeks are going to stay pretty chilly, particularly in the western half of the continent. Put simply, more cold weather is on the horizon for Western Canada, the Northern Plains, and the Western Cornbelt.  (This is where you start to seriously consider taking the kids out of school and head to Mexico for the next few days)
Switching continents, Radian Solutions is expecting India’s monsoon season this fall to be normal, which would support my theory recently quoted in the Alberta Farmer that India won’t relax their import tariffs any time soon.  I am still a bit skeptical though if this long-term weather forecast will matter, given how short this year’s monsoon and subsequent winter precipitation has been in India. To be explicit, the USDA’s attaché in India has noted that India’s rainfall through early January was 44% below the 50-year average 
Wheat Prices Finding Hope on Weather?
To the southeast of India, in Australia, Radiant Solutions also says that the dry weather in eastern areas of the country continent will likely persist into the 2019/20 crop year. This means that yields for crops like wheat and barley will continue to suffer.
Currently, Australia is in its summer months and it continues to be very hot. We’ll get more data from them later this week but the country’s Bureau of Meteorology is currently saying that December and January were the hottest months ever for Australia.  Further, February will be in the top 5 warmest ever and rainfall throughout the summer across the Land Down Undaa will total 30% below average. This would make it the driest season in over 35 years!
Mark my words: should the dryness carry over into Australia’s growing season, this is easily the single-most important bullish factor to watch for wheat prices. Probably for Barley prices too.
On the latter though, the only thing that’s potentially more bullish for world barley prices is that (as suggested by AgriCensus) China is about to impose a weird sort of “deposit” on Australian barley of at least 50% within the next week. Technically, this isn’t an import tariff but it sure as heck acts like one, as I doubt many Australian barley exporters don’t want to pony up an additional 50% of a shipment to put in escrow with the China.
Keep in mind that many of these exporters – the likes of Glencore, Cargill and GrainCorp, can easily start exporting more barley from their other countries, such as Canada. Of course, this somewhat contradicts some of my comments in a Breakfast Brief last week about the bearish nature of feed barley prices because of increased acres and corn, but this is what risk management is: weighing the bearish and bullish variables to gauge price direction.
Coming back to the wheat prices though, this morning, we’re seeing the complex starting rebound after about a 10% rout to the downside.
Potentially supporting some of the rebound in wheat prices is tougher winter weather (or lack thereof) in Russia is also getting bullish press. A mild winter has been seen by a few wheat production areas across the Black Sea country, and that’s creating concern that winter wheat crop seeded last fall could be losing some of its winter hardiness.  A sudden cold snap could have a significant impact on their crop as it starts to think it’s time to come out of winter dormancy.
Ultimately, you can expect more weather headlines to appear in the coming weeks as Plant 2019 nears.
At 8:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3125 CAD, $1 CAD = $0.7619 USD)
May Corn: +2¢ (+0.55%) to $3.788 USD or $4.971 CAD
May Soybeans: +1.8¢ (+0.2%) to $9.188 USD or $12.059 CAD
May Soybean Meal (per short ton): +$1 (+0.35%) to $308.30 USD or $404.65 CAD
May Soybean Oil (cents per lbs): -0.12¢ (-0.4%) to 30.28¢ USD or 39.74¢ CAD
May Oats: -2.3¢ (-0.85%) to $2.658 USD or $3.488 CAD
May Wheat (Chicago): +7¢ (+1.5%) to $4.753 USD or $6.238 CAD
May Wheat (Kansas City): +6.8¢ (+1.5%) to $4.51 USD or $5.919 CAD
May Wheat (Minneapolis): +6.8¢ (+1.2%) to $5.618 USD or $7.373 CAD
May Canola: -0.5¢/bu (-0.05%) to $10.764/
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