November 30 – Locking in Barley Exports, Grain Prices

Good Morning!

Today’s Breakfast Brief looks at how China continues to own the world’s feed exports (especially barley), capturing the carry in cash grain prices, and how Brazil is updating its ethanol policy.

“From the neck up is where you win or lose the battle. It’s the art of war. You have to lock yourself in and strategize your mindset.” – Anthony Joshua (British professional boxer)

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Grain prices are mostly in the red today except for canola prices and soy oil, which are gaining off Malaysian palm oil prices showing some strength. A lower Canadian Loonie is also helping canola prices this morning.

Today we get to the end of November. The end of the month can bring some volatility as market participants close out positions and take profits or their losses. Since there’s a net short position in most crops, especially corn and soybeans, closing out of these positions would be positive for prices. This is what we call a short-covering rally.

On the flipside, a new month can see fresh money entering the market, which can be viewed as a bullish factor.

As Garrett noted in the Grain Markets Today yesterday, the complex didn’t find much new money though, as grain prices fell again.

Larger soybean acreage in 2018 was a real buzzkill for soybean prices yesterday, albeit it’s clear that the market is asking for beans! [1] Final numbers though might depend on where US crop insurance prices end up.[2]

Until some of those numbers are known, farmers are locking bin doors and trying to capture the carry.[3]

There are certainly some better prices available in the future for cash corn, winter wheats, and even feed grains like feed barley. Post a FOB/on-farm pickup deal in January/February on FarmLead now.

Brazil Wants More Ethanol

Helpful rains continue to fall in Argentina, aiding some dry soils in a few regions. Across Central Brazil, they’re expected to get some serious rainfall over the next two weeks – somewhere between 4 and 7 inches. The weather event will also cross over into some northern and southern states, but it’s the southern areas that need the most help in Brazil right now.

Nonetheless, it’s been suggested that with the relatively benign growing conditions, the current soybean production forecast in Brazil might be on the low side. Currently, the USDA is expecting 108 million tonnes while CONAB has suggested as high as 109.4 million tonnes. Last year, Brazil harvested a record 114.1 million-tonne crop.

Staying in Brazil, earlier this week, the lower house of the Congress there approved a new ethanol bill. [4]

The program is called RenovaBio, and the whole purpose is to cut carbon emissions by increasing the production and sales of ethanol and biodiesel. The main takeaway here is that domestic ethanol demand in Brazil could climb from the 26 billion liters last year to as much as 40 billion liters in 2030.

While we often think of corn-based ethanol production, Brazil produces a lot of the biofuel with sugar! It just really depends on the price of the input product – if corn is cheap, then it will be used more to make ethanol in Brazil. If sugar is cheaper, then the sweet stuff will be used instead. Part of the bill is that if they don’t produce, there are certificates that can be bought or sold to help meet emissions targets.

Basically, Brazil is moving to a RINs-like system that you see in the US today. The new biofuel law still must be approved by the Brazilian Senate and then signed by their President, Michel Temer.

China Can’t Get Enough Feed

There’s a bit more buzz that China is going to import more corn in 2017/18, thanks to rising domestic prices.[5] Prices are up simply because Chinese farmers planted less corn this year, thanks to lower government support prices.

Today, import prices are about USD 45 / tonnes lower than domestic, with corn landing at southern ports at a delivered price of $232 (or USD 5.90 and CAD 7.55 per bushel).

It’s been suggested that China could import 3.5 million tonnes of corn in 2017/18, 5 million in 2018/19 and 7.5 million in 2020.

Strong prices for other feedstuffs like feed barley and sorghum is making importing corn more competitive. For example, Australia is expected to export 537,000 tonnes of barley in November and December 2017. [6] 234,000 tonnes of it is slated to go to China.

Through October, total calendar year imports of barley by China is sitting at 7.64 million tonnes. That’s up 83% compared to the same time frame in 2016. In October alone, Chinese barley imports were up 114% year-over-year at 683,500 tonnes.

While the harvest of the 2017/18 Aussie barley crop is about halfway done, there doesn’t seem to be a lot of demand for Australian malt barley from exporters. There is some on the domestic side though. Most Australian malsters are supposedly still buying old crop from last year’s record haul to try and capture the germination before it starts to drop.

If anything, it’s been rumored that Aussie malt barley buyers might purchase higher-quality feed barley to fit their requirements. It wouldn’t be the first time a malt barley buyer rejected some product, took it as feed, but then mixed it into the malt bin after anyways.

Saudi Arabia is not to be overlooked though in the barley market. This week they bought 723,000 tonnes of feed barley for Jan-Feb movement at a delivered price of about 211 – 218 USD / metric tonne. Using and putting this into bushels, it equates to a delivered price of between $4.60 USD / $5.90 CAD and  $4.75 USD / $6.10 CAD.

It is speculated that some of the product came from Russia. Domestic prices there are up 20% year-over-year thanks to a lower Ruble. This had helped lead to 3 million tonnes in exports so far in the 2017/18 marketing year.

Canadian Barley Exports Also Impressing

Canadian barley exports are also impressive thus far though.

Through mid-November, nearly 542,000 metric tonnes shipped out of Canada thus far. That’s up nearly 130% from last year at this point!

While it’s unclear at this point who some of the major international buyers are, one has to look at the likes of Japan, China, and Saudi Arabia. In 2016/17, of Canada’s total 1.35 million tonnes of barley shipped out, China accounted for nearly 82% (or 1.1 million tonnes).

In 2015/16, China owned 73% (677,000 tonnes) of Canada’s total barley exports (932,000 tonnes).

In 2014/15, 1.44 million tonnes of barley left Canada. That year China bought 71% of those exports or 1.03 million tonnes.

Before 4 years ago, Japan was the big importer. It’s clear though that China is buying more barley. Might more Russian barley be making it into the People’s Republic this year?

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
@FarmLead (on Twitter)

At 7:50 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.288 CAD, $1 CAD = $0.7764 USD)

Mar Corn: -1.3¢ (-0.35%) to $3.523 USD or $4.537 CAD
Jan Soybeans: -5,3¢ (-0.55%) to $9.873 USD or $12.716 CAD
Jan Soybean Meal (per short ton): -$3.80 (-1.15%) to $323.50 USD or $416.67 CAD
Jan Soybean Oil (cents per lbs): +0.31¢ (+0.9%) to 34.38¢ USD or 44.28¢ CAD  
Mar Oats: -1.3¢ (-0.45%) to $2.625 USD or $3.381 CAD
Mar Wheat (Chicago): -3.8¢ (-0.85%) to $4.31 USD or $5.551 CAD
Mar Wheat (Kansas City): -2.3¢ (-0.5%) to $4.293 USD or $5.529 CAD
Mar Wheat (Minneapolis): -1.3¢ (-0.2%) to $6.22 USD or $8.011 CAD
Jan Canola: +5.7¢/bu / +$2.50/MT (+0.5%) to $11.632/bu / $512.90/MT CAD or $9.031/bu / $398.22/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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