June 3 – Risk in Lentil, Flax Prices & Deconstructing Soybean Exports

Grain markets this morning are mostly in the green as downside risk weighs on the likes of lentil & flax prices, whereas it’s risk on for futures-related crops on weather concerns.

“It’s only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.” – Alan Greenspan (former Chair of the U.S. Federal Reserve)

Risk in Lentil, Flax Prices & Deconstructing Soybean Exports

Grain markets this morning are mostly in the green as downside risk weighs on the likes of lentil & flax prices, whereas it’s risk on for futures-related crops on weather concerns. While there is some drier weather in the mix in the Corn Belt, some areas of the Midwest will also get a little bit of moisture over the next few weeks. Therein, expect to see a few more headlines over the next few days about certain areas needing more rain “or else”.
Obviously weighing on corn and soybean prices is the good start to the 2020 growing campaign. In Monday’s crop progress report, the USDA said that 74% of the U.S. corn crop is in good-to-excellent (G/E) condition, up 4 points week-over-week  [1] Similarly, 70% of the U.S. soybean crop is in G/E shape. While headlines tend to focus on national data, it’s the Northern Plains that could weigh on the national averages. More specifically, a wet spring means up to 1 – 1.5M acres of corn will not be planted in the Northern Plains (Dakotas and Minnesota). [2]

Competing Soybean Exports for China

While rumours have swirled this week about China suspending any purchases of American soybean exports, they actually bought a few boatloads, somewhat demystifying the market. [3] That’s part of the reason why soybean prices have held up throughout the last few days, but also because we know that China has decent supplies right now in the pipeline, meaning they can afford to make threats. [4] Further, they also know that, on a U.S. Dollar basis, Brazil soybean exports are cheaper than that from U.S. ports.
On that note, Brazilian soybean exports are forecasted to be a record for May, pushing year-to-date shipments to a record of 50 MMT. Currently, the USDA is forecasting total Brazilian soybean exports to top 84 MMT. Ultimately though, a bumper harvest, combined with a weaker Real there have pushed up domestic soybean prices to hover around record levels. Accordingly, it’s tough for Brazilian farmers not to sell both the crop that just came off, as well as their 2020/21 crop, which won’t get planted until September. Therein, because fertilizer, priced in U.S. Dollars, is so cheap in Brazil, that fertilizer company Yara is forecasting record soybean acres there for the 2020/21 crop year. [5]
Digging in, as David Flickling from Bloomberg reports though, the U.S. technically sent the smallest amount of soybean exports to China since 2015. [6] And if you’ve been living under a rock, as a result of the trade war between the two countries, Brazil’s dependency on China as a buyer of their soybean exports has increased significantly. In fact, Brazilian government data suggests that Brazil’s May soybean exports totaled 15.5 MMT, a jump of 55% year-over-year! [7] Further, 74% of Brazil’s March and April soybean exports headed to China. [8]
On that note, since 2015, Brazil’s soybean exports to China are up 42% whereas U.S. shipments to the People’s Republic has dropped 17%. More significantly though, as Brazil’s soybean exports have started to narrow in on one main customer (China), the U.S. field of countries it ships beans to has diversified. That’s probably a good thing as we enter more trade turmoil leading up to the November U.S. Presidential election.
American soybean exports have diversified away from China during the trade war
Brazilian soybean exports are increasingly relying on China
Quickly, on Monday, we got the USDA’s soybean crush report for April, which showed 183.4M bushels processed (or This beat pre-report expectations of 182.5M bushels, and is a 7% bump year-over-year, but is a significant from the 192.1M bushels of soybeans processed in March. That said, one bright light in soybean’s demand fundamentals has been the aquaculture industry, but it’s starting to lose is shininess. [9] Considering that there’s been a 70% reduction in seafood sales globally since COVID-91 started, there’s way less fish that need to be produced, and thus, less demand for soymeal, which is the main protein ingredient for aquaculture’s feed rations.

Flax Prices See More Downside Risk

With the Plant 2020 campaign nearly wrapped up, we’re seeing the recent strength of new crop bids for specialty crops like lentils, canaryseed, and flax prices starting to fade on the free Combyne Marketplace. After a few years of depressed values, flax prices and that of other specialty and pulse crops have improved, thanks to slightly better demand fundamentals.
Specifically for flax prices, while StatsCanada said in their asterisked estimates in early May that Canadian flax acres would be very similar to last year at nearly 942,000, conversations that I’ve had with farmers and buyers alike suggest this number is likely going to eclipse 1M acres. I’m specifically hearing of a few canola fields being switched out for the likes of flax or even canaryseed. This definitively contrasts what some other analysts have said, with one saying that farmers are chasing lentil prices instead of flax prices [10]
Average flax prices in Saskatchewan on the Combyne Marketplace through May 2020
However, while acreage is increasing, available inventories are down. StatsCan said that, as of March 2020, available flax supplies in Canada were estimated at just 263,000 MT. This is a 13% drop year-over-year and 35% below the average flax supplies available at that time over the last 5 years. Inherently, there’s less flax in Canada that’s being carried over into the 2020/21 crop year, and that’s supporting flax prices. As mentioned though, with sales activity picking up over these last few months, we’ve seen bids pull back slightly (old crop flax prices above $15 CAD/bushel are still being bid on Combyne though!).
In the U.S., it’s a similar dynamic for flax prices as values are up nearly 20% year-over-year. More specifically, we/re seeing flax prices for delivery into Fargo, ND and Red Wing, MN sitting just under $11 USD/bushel. There’s been no official update from the USDA yet in terms of remaining American flax inventories and/or 2020 U.S. flax acreage, but some private estimates I’ve seen suggest something similar to last year at around 300,000 acres and total production above 150,000 MT.
Much like Canadian farmers, U.S. farmers are chasing flax prices as well! That said, we’re still seeing lots of AOG new crop deals being locked up so List your new crop offer this morning (NOTE: we have over 25 credit-verified flax buyers on Combyne as of this morning so lock in some good flax prices with any of these buyers without payment concerns).

Lentil Prices Looking Top-Heavy

For lentil prices, the biggest bearish factor I’m watching is the monsoon rains in India, which are now expected to be above-average and support the potential for a big summer, kharif crop. [11] Rains have started to already fall in southern regions of India, and historically-speaking, precipitation this early in the monsoon season is usually a good thing for yields. Further, the Indian government has raised their minimum support prices for pulses yet again, this year by 3% – 5%, depending on the crop type. [12] I’ve noted in the past how India’s model of minimum support prices is flawed for not only Indian farmers, but they also negatively impacts the rest of global market.
That said, despite some fading strength, lentil prices for both old and new crop are the best they’ve been in nearly 4 years. With more bearish downside risk than upside potential at this point (read: more bearish factors than bullish factors) I expect lentil prices to continue to pull back over the next few weeks so much like flax prices, today’s lentil prices are unlikely to stick around for much longer. Therein, with nearly 40 different credit-verified lentil buyers on Combyne, it’s worth you Listing your old or new crop deal now.
Average large green lentil prices in Saskatchewan on the Combyne Marketplace through May 2020
Average small red lentils prices on Combyne Marketplace in Saskatchewan
To growth,
Brennan Turner
TF: 1-855-332-7653
@Combyne or @FarmLead on Twitter
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 = $1.3726 CAD, $1 CAD = $0.7286 USD)
July Corn: -1.5¢ (-0.45%) at $3.228 USD or $4.369 CAD
July Soybeans: +4.3¢ (+0.5%) at $8.548 USD or $11.57 CAD
July Soybean Meal (per short ton): +70¢ (+0.25%) to $284.40 USD or $384.98 CAD
July Soybean Oil (cents per lbs): +0.12¢ (+0.45%) to 28.06¢ USD or 37.98¢ CAD
July Oats: +2.8¢ (+0.85%) at $3.31 USD or $4.481 CAD
July Wheat (Chicago): +3¢ (+0.6%) to $5.11 USD or $6.917 CAD
July Wheat (Kansas City): +4.8¢ (+1.05%) at $4.555 USD or $6.166 CAD
July Wheat (Minneapolis): +2.8¢ (+0.55%) to $5.193 USD or $7.029 CAD
July Canola: +5¢ (+0.5%) to $10.478/bu / $462/MT CAD or $7.741/bu / $341.30/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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