Grain markets are mixed but the oilseeds complex continues to push higher, helping everything from flax prices to soy oil and soybeans.
“I hold that while man exists, it is his duty to improve not only his own condition, but to assist in ameliorating mankind.” – Abraham Lincoln (16th President of the United States)
Flax Prices Hold Strong as Oilseeds Rally
Grain markets are mixed but the oilseeds complex continues to push higher, helping everything from flax prices to soy oil and soybeans. Yesterday’s push higher by the oilseeds complex help corn and wheat prices as well, albeit the latter is largely focused on some production issues in Argentina right now.
While I will dig into the contributing factors for the oilseeds rally in a second, traders are also watching for some stormy weather over the next few days across North America. More specifically, storm warnings for parts of the Midwest should help bring much-needed rainfall, especially to Iowa – About ¼ of Iowa is currently in a state of severe drought, with another 6.5% in an extreme state of drought- the but the conditions could turn severe with hail and strong winds possible.  Beyond today (and as the NOAA shows below), things are looking fairly wet over the next week, as Hurricane Laura peters out.
New U.S. Monetary Policy & Canada’s Government Debt Problem
In outside market news, the U.S. Federal Reserve unanimously approved a new strategy yesterday that will change the Fed’s dual mandate of reducing unemployment and keeping inflation in check.  This is largely a function of the lessons learned over the last few recessions, namely how “a robust Job market can be sustained without causing an outbreak of inflation,” said Fed Chairman, Jerome Powell.
In simpler terms, this means that the U.S. Federal Reserve won’t raise interest just because indicators are suggesting inflation will rise, but rather waiting for the actual data/evidence that inflation was meeting targets. In even simpler terms, because interest rates are already so low, there’s not many tools left to counteract recessions, and thus, the wait-and-see approach is likely going to be the norm. However, the likely result of such action is a devaluing of the U.S. Dollar.  This will likely make U.S. goods (l.e. agricultural exports) more affordable to international buyers.
However, the asterisk to consider is that, because interest rates almost everywhere else are so low, we’re likely going to see even more central banks around the world employ this sort of tactic to let inflation creep up (instead of going into negative interest rate territory). As per reporting from Bloomberg, included in this list is the Bank of Canada, who recently admitted that they’re going to have to get create to deal with “rising financial vulnerabilities at a time when it needs to support growth.” 
However, even credit agencies have noticed the spending spree that Prime Minister Justin Trudeau has gone on, and noted yesterday that further “negative rating action” is likely unless the government debt-to-GDP ratio (currently sitting above 120%) starts to trend the opposite direction.  This means, unless the open chequebook is closed (or least begins to be limited), Canada will be the only G7 country in the world w/ a A+ credit rating (Reminder: they’re also the only the G7 country that has a AA+ rating, all others are AAA).
Soybean Exports, Prices Also Find Rare Rally
Much like I’ve talked about canola prices in the Breakfast Brief this week and a rare rally near harvest time, help canola prices has been the soybean complex, which is seeing a bit of a rally of its own.  Yesterday, we saw soybean prices rally nearly 20 cents/bushel in Chicago while soy oil prices climbed more than a full penny, helping bring canola prices on the futures board within spitting distance of the psychologically-significant $500 CAD/MT handle.
Helping the soy complex yesterday was some bullish soybean exports data, as the weekly USDA report showed new crop soybean exports sales above 1 MMT for the 6th consecutive week! Corn exports sale were also positive as the 1.18 MMT contracted last week is the third-largest new crop corn sale so far this year. As we flip the calendar into the 2020/21 crop year for U.S. corn and soybeans next week though, it’s very likely that the USDA has to drop its estimate for 2019/20 corn and soybean exports.
The higher expectations that the USDA once had for U.S. corn and soybean exports was largely influenced by larger purchasing from China. While such activity has garnered some headlines in the past few weeks, the reality is that the buying spree is far from being at the Phase One pace.  Given the time of the year with harvest producing lower prices, it’s likely we should see more buying of U.S. soybean exports and other commodities by China. However, with some deteriorating crop conditions in the Midwest, soybean prices have a bit of a bullish story over the short-term (read: next few weeks). 
Flax Prices to Stay High in 2020/21?
Flax prices have been one of the darling commodities for many Western Canadian farmers the past year, as values reached up to levels not seen since the 2014/15 crop year. Agriculture Canada said in their updated supply and demand estimates this week that the trend for flax prices could continue, based on stronger flax exports in 2020/21.
While StatsCan will give us a production update on Monday, August 31st, Agriculture Canada thinks that 450,000 MT of Canadian flax will be shipped out in the new crop year. Something to keep in mind here, however, is that is down from the 500,000 MT they were estimating just a few months ago. For perspective, AAFC was also estimating 500,000 MT of flax exports for 2019/20 back in their November 2019 estimates, but as the crop year continued, they started to recognize tougher competition from the Black Sea. Accordingly, the AAFC started to downgrade their forecast before settling at 350,000 MT in May 2019, a number from which they haven’t moved since.
While the CGC only shares export data from their licensed exporters, looking at least year’s full season chart of flax exports, it’s clear that the stronger shipping periods tend to be over the winter months. But it was also over these winter months that we saw the aforementioned downgrades by the AAFC for their flax exports target as they realized said competition from the likes of Kazakhstan.  Nonetheless, over the same period, we saw flax prices maintain their strength. Thus, I’m optimistic that with some continued strong global demand for the oilseed, flax prices should continue to stay elevated, relative to the past few years.
That said, we’re consistently seeing new crop flax prices trade at or above the $14 CAD/bushel handle on the Combyne Marketplace. With over 50 different credit-verified flax buyers on the Marketplace as of this morning, locking in the right deal for you has likely never been easier. With a couple of clicks, post that flax today on Combyne and let the market come to you to find the best flax prices for this year’s harvest.
P.S. if you have additional questions about what’s going in grain markets, our top 10 most active Combyne users in August will get a chance to ask me in a few weeks, in a private, virtual conversation. The way that you can ensure your seat in the virtual room is by doing 4 things consistently on the Combyne Marketplace:
- Post Listings on the Combyne Marketplace
- Start chats with other Listings
- Connect with existing Combyne users
- Invite your trading partners not yet on Combyne to join you and see your deals there.
Have a great weekend!
At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3066 CAD, $1 CAD = $0.7654 USD)
Dec Corn: -1¢ (-0.3%) to $3.575 USD or $4.671 CAD
Nov Soybeans: +5.5¢ (+0.6%) to $9.475 USD or $12.38 CAD
Oct Soybean Meal (per short ton): +$2.30 (+0.75%) to $300 USD or $381.98 CAD
Oct Soybean Oil (cents per lbs): -0.04¢ (-0.1%) to 33.27¢ USD or 43.47¢ CAD
Dec Oats: +1.3¢ (+0.45%) to $2.718 USD or $3.551 CAD
Dec Wheat (Chicago): -2.5¢ (-0.45%) to $5.483 USD or $7.163 CAD
Dec Wheat (Kansas City): -1.3¢ (-0.25%) to $4.71 USD or $6.154 CAD
Dec Wheat (Minneapolis): unchanged at $5.405 USD or $7.062 CAD
Nov Canola: -2.9¢ (-0.25%) at $11.247/bu / $495.90/MT CAD or $8.608/bu / $379.54/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.