Grain markets are mixed this morning as wet harvest conditions are weighing on feed barley prices, and the broader complex is looking for direction.
“God knows how many things a man misses by becoming smug and assuming that matters will take their own course.” – Loren Eiseley (American philosopher)
Smug Grain Markets = Looking at Barley Prices & Plant 2020
Grain markets are mixed this morning as wet harvest conditions are weighing on feed grain prices, and the broader complex is looking for direction. Farmer selling and and speculators setting positions ahead of the November WASDE report this Friday are keeping grain markets relatively rangebound.
As mentioned in Friday’s FarmLead Breakfast Brief, it’s going to be hard for soybean prices to find a tangible heading until a trade war deal between the U.S. and China is found. It’s been rumoured that Presidents Trump and Xi could sign something in Iowa this month, after Friday’s phonecall between both sides resulted in a “consensus on principles”.  That said, grain markets were a bit an uninspiring last week, not showing much to the bulls or the bears.  Could this week be different?
In this afternoon’s crop progress report from the USDA, it’s expected that we’ll see the results of some healthy progress last week in American fields. Grain markets are guesstimating that 58% of the U.S. corn harvest is complete, which would be a sold bump from last week’s 41%, but, if realized, it’s still about 20 points back from the five-year average. For the U.S. soybean harvest, grain markets are expecting to see the completion number at 77%, up from 62% last week, but, again, about 10 points back of the average.
While quite a lot of the U.S. corn and soybean crop remains unharvested, Western Canadian farmers are nearing the finish line but also behind their seasonal averages. Conversely, ongoing rains in Eastern Canada have create a stop-and-go pace for farmers, similar to what farmers in the Prairies have faced for the past few weeks. So why aren’t grain markets heading higher and, instead, being so complacent?
Well, looking at the hard facts, speculators continue to longer soybeans on anticipating of a trade deal. They also went shorter on corn because there’s still a lot of stocks out there and demand fundamentals aren’t helping corn prices whatsoever, as mentioned a few weeks ago. Concretely, fund managers increased their net-short position in corn by a little more than 9,000 to 85,3378 contracts, while their net-long in soybeans jumped up above 72,000 lots, up about 3,500 contracts from last week. For those looking for hard red spring wheat prices to improve, speculators continue to hold a net-short position of just over 9,360 contracts, an increase of 1,300 positions on the week.
Too Early to Think About Plant 2020?
While it might be a bit early for you to think about it, starting to pencil out what 2020 might look like isn’t such a bad idea. We’re already seeing some new-crop prices creep up a little bit as the market tries to buy acres for next spring. Winter wheat prices are seemingly averaging out the wetness seen in central Europe against the relatively dry conditions in the Black Sea and the American Southern Plains.  Here in North America, there are some obvious concerns about fall field work and how that might impact conditions for Plant 2020, let alone timing of getting the crop in.  Doing tasks now, like soil testing, is a healthy way to get ahead for next spring though. 
That said, on Friday, the USDA said in a 10-year baseline forecast that Plant 2020 acres of corn and soybeans should increase compared to this past year.  More specifically, the USDA is estimating that American farmers will plant 94.5M acres of corn (+5% from Plant 2019’s 89.9M) and 84M acres of soybeans (+10% from last year’s 76.5M). Using average yields for 178.5 bushels per acre (bpa) for corn and 50.5 bpa for soybeans, this equates to 2020 production numbers of 15.545 and 4.2 billion bushels, respectively.
Taking it a step further, the USDA’s first estimate of 2020/21 ending stocks is 2.75 billion bushels of corn and 518M bushels of soybeans. If realized, that would be a year-over-year increase of 43% for corn stocks and +13% for soybeans from what the USDA said in their October WASDE that 2019/20 will end with. Not exactly bullish.
Feed Wheat, Barley Prices Drop on Bigger Supply
We’ll have to wait until the December StatsCan report to get an updated number on how much wheat and barley got produced this year, but we’re likely to see Agriculture Canada say more of it is going into the feed column in their November supply and demand update. In their October estimates, AAFC was calling for a 5% bump year-over-year for wheat going into the feed market and a 10% bump for barley.
After falling below 900,000 MT in 2018/19, AAFC is calling for barley inventories by the end of 2019/20 to jump back up to 1.7 MMT. This was likely on the expectation that more malt would be produced though, so I would expect this stocks estimate to come down as more feed barley will go to market sooner (malt will get carried over from one crop year to the next, but feed, not so much).
Since there’s a lot more higher moisture crop coming off and so that’s weighing on feed barley prices and feed wheat prices in the Canadian Prairies.  Looking at the flagship market for feed grain prices, Alberta feed barley prices have dropped considerably over the past month, down nearly 13% on average across all counties compared to a year ago. Further, feed barley prices have dropped nearly 20% in Alberta in the past calendar quarter / 13 weeks. Feed wheat prices in the Wild Rose province are also down measurable, 11% for the year and 15% for the quarter. While I’m cognizant of China’s pork prices pushing up livestock values pretty much everywhere, I’m also aware that heavy supplies can keep a lid on any rallies for feed wheat and barley prices.
Finally, there are also more substitution effects on the table with the increased amount of supply that would qualify as feed (be it for damage, weak milling qualities, or otherwise). For example, the amount of feed-quality chickpeas out there is weighing on feed pea prices. On the flipside, however, this is helping chickpeas for higher grades climb about 4 cents CAD/lbs in Saskatchewan over the past month.  Also not helping feed barley prices though has been the pick up in barley exports, now only tracking about 6% behind last year through Week 12.
P.S. If you’re headed to Red Deer, AB this week for Agri-Trade, stop by the FarmLead booth on the Centrium Concourse and see the most recent innovation that we’ve been building for cash grain trade. I’m speaking at the Canada 2020 National Forum on Agri-Food in Ottawa this week, but I will be at Agri-Trade/in Red Deer for the last/final day of the show on Friday, Nov 8th.
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3158 CAD, $1 CAD = $0.76 USD)
Dec Corn: -3.8¢ (-0.95%) to $3.855 USD or $5.072 CAD
Jan Soybeans: +1.5¢ (+0.15%) to $9.383 USD or $12.345 CAD
Dec Soybean Meal (per short ton): -$0.10 (-0.05%) to $303.80 USD or $399.74 CAD
Dec Soybean Oil (cents per lbs): +0.39¢ (+1.25%) to 31.42¢ USD or 41.34¢ CAD
Dec Oats: -2¢ (-0.55%) to $3.04 USD or $4.00 CAD
Dec Wheat (Chicago): -4.3¢ (-0.8%) to $5.118 USD or $6.734 CAD
Dec Wheat (Kansas City): -2.8¢ (-0.65%) at $4.233 USD or $5.569 CAD
Dec Wheat (Minneapolis): -4.3¢ (-0.8%) to $5.27 USD or $6.934 CAD
Jan Canola: +5.7¢ (+0.8%) to $10.449/bu / $460.70/MT CAD or $7.941/bu / $350.13/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.