June 15 – Trade, Grain Exports Entering Twilight Zone

Good Morning!

Grain markets continue to have one of its worst weeks as concerns of a trade war and declining grain exports are weighing heavy on the complex.

“All action takes place, so to speak, in a kind of twilight, which like a fog or moonlight, often tends to make things seem grotesque and larger than they really are.” – Carl von Clausewitz (Prussian General and Military Theorist)

graincents-trial

Trade, Grain Exports Entering Twilight Zone

Grain markets continue to have one of its worst weeks as concerns of a trade war and declining grain exports are weighing heavy on the complex.

Karen Braun of Reuters reports that July soybean prices have never seen a drop-off in the first half of June like they have had this year. [1] As of this morning, the July soybean prices are down 10.5% so far in June. Comparably, corn prices are down nearly 9%, oats futures half lost more than 6.5%, while Chicago soft red winter wheat prices are down almost 5.5%.

Canola prices have lost nearly 3.5% so far in the first two weeks of June. Canola prices did gain a bit yesterday thanks to the Canadian Dollar losing more than half a cent. However, decent crop conditions and weakness in the vegetable oils complex has weighed on the oilseed this month. So far, in the first two weeks of June, canola prices have lost nearly 3.5%, while soy oil is down more than 4%.

US Grain Exports Slowing?

In the US grain exports report yesterday, corn and soybean numbers were relatively neutral while wheat’s numbers were described as “uninspiring” by the USDA’s own daily grain markets recap!

Last week’s sales and shipments of US corn totaled 36.9 million (937,300 MT) and 55.3 million bushels (~1.4 million bushels0 respectively. For shipments, this puts sailings about 8% behind last year’s pace.

US-Corn-Grain-Exports-Sales-Cumulative

For soybeans, 19.1 million bushels (~520,000 MT) of export sales and 22 million bushels (~600,000 MT) of beans were exported last week. This puts total shipments of American soybeans 9% behind where they were at this time a year ago.

Soybean-Grain-Exports-Cumulative

Finally, export sales of new crop US wheat were just 11.1 million bushels (~302,000 MT). Further, actual shipments were just 11.4 million bushels (~310,000 MT), or about 57% lower than where we were when we started the 2017/18 crop year!

Later today, NOPA will release their soybean crush numbers for May. Going into the report, the market has a bullish average guesstimate of 165.1 million bushels of soybeans (or nearly 4.5 million tonnes if you’re converting from bushels at GrainUnitConverter.com. This would be almost 11% higher year-over-year and a new record for May.

Trade Risk is the Only Fundamental

Forget about crop conditions, rainfall, and heat units – whether or not the borders are open for business has become the only fundamental that really seems to matter these days.

Today, it’s widely expected that the US will implement $50 Billion USD of tariffs on about 800 Chinese goods. [2]

China has suggested that they have their own $50 Billion USD list of good that they’ll start taxing, notably aircraft and soybeans. [3]

The US has said that, if China does that, they have another $100 Billion of tariffs also in mind.

The commodity market is dependent on international trade flows. If those flows are interrupted or halted altogether, this is certainly bearish, and that’s what we see this week.

Another example would be that Italy is refusing to ratify the EU-Canada free trade agreement. [4] The Italian Minister of Agriculture was quoted in an Italian newspaper saying they won’t stand behind the deal since “it protects only a small part of our” specialty foods.

Brazilian Grain Exports Set to Prosper?

In this week’s June WASDE, Brazilian soybean exports were pegged by the USDA for the 2017/18 crop year at 74.65 million tonnes and nearly 73 million tonnes in 2018/19.

However, if a trade war between China and the US gets started, and grain exports are involved, Brazil is in an ideal position. AgResources suggests that Brazilian soybean exports could reach 85 MMTs by 2019! But Rabobank thinks that China will have to pay more for Brazilian soybeans if the tariffs on US soybeans do get implemented. [5]

Brazil has seen its grain exports slow to a drip in June thanks to the trucking strike from the other week. Loading rates of soybeans and grain exports/ports position is down 30% when compared to May’s record number. It’s been estimated by the National Association of Cereal Exporters in Brazil that about 10 million tonnes of soybeans that need to get to port positions are still stuck in the country. Further, there are more than 50 ships waiting outside Brazilian east coast ports waiting to get filled.

Ultimately, the grain markets are usually fixated this time of year on weather and crop conditions. But that means nothing when whatever production you harvest has limited options. And with, what it seems is a declining amount of options for grain exports (read: demand), grain prices, unfortunately, must go down.

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3135 
CAD, $1 CAD = $0.7613 USD)

Jul Corn: -4.0¢ (-1.1%) to $3.590 USD or $4.716 CAD
Jul Soybeans: -16.0¢ (-1.73%) to $9.113 USD or $11.970 CAD
Jul Soybean Meal (per short ton): -$4.40 (-1.28%) to $338.80 USD or $445.03 CAD
Jul Soybean Oil (cents per lbs): -0.27¢ (-0.09%) at 29.87¢ USD or 39.24¢ CAD  
Jul Oats: -1.5¢ (-0.65%) to $2.285 USD or $3.001 CAD
Jul Wheat (Chicago): -6.5¢ (-1.30%) to $4.950 USD or $6.502 CAD
Jul Wheat (Kansas City): -8.0¢ (-1.53%) to $5.143 USD or $6.755 CAD
Jul Wheat (Minneapolis): -2.5¢ (-0.43%) to $5.750 USD or $7.553 CAD
Jul Canola: -$2.10 (-0.41%) to $11.685/bu / $515.20/MT CAD or $8.895/bu / $392.22/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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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