Grain markets this morning are mostly green as the complex starts to weigh some weather challenges, especially on wheat prices.
“For one swallow does not make a summer, nor does one day; and so too one day, or a short time, does not make a man blessed and happy.” – Aristotle (Greek philosopher)
Will Grain Markets See a Summer Weather Rally?
Grain markets this morning are mostly green as the complex starts to weigh some weather challenges, especially on wheat prices. While wheat prices fell yesterday on the futures boards after a big jump on Wednesday to a 3-month high, which was the result of some weaker outlooks for the European and Black Sea wheat harvests. On the flipside, China continues to buy U.S. soybeans, but it doesn’t seem like it’s enough to catapult these markets higher, given the Harvest 2020 outlook right now.  It’s a pretty similar dynamic when it comes to China buying U.S. corn exports.  Nonetheless, traders are said to have bene large sellers of corn and soybean contracts this week, but buyers of wheat.
With some of the volatility in grain markets so far in July, it’s important to set deal expectations with you trading partners. Do you like getting those random phonecalls when you’re not interested in selling, don’t have anything to sell, or are sitting underneath a tractor? Conversely, as a grain buyer, do you like making phoncalls to farmers who are in these aforementioned situations? No one benefits. That’s why “combining” all your trading partners in the Combyne Marketplace helps you organizes and set deal expectations with every one. Check out who from your trading network is already on Combyne via the Connections tab!
Weather Trying to Become a Grain Markets Factor
For the most part this month, grain markets have been stuck in some ranges, despite all the trade issues, COVID-19 issues, and blatantly bizarre politics going on. That said, there’s more and more analysts who believe that weather might the only thing that could move grain markets out of said ranges.  While the U.S. Corn Belt is getting hot weather for the next few weeks, the rains that have fallen thus far are likely going to help crops there handle the temperature stress. Conversely, after getting its own heat, Northern Plains states are going to get some welcome rains over the next week or so.
Looking outside the U.S., some late rains are expected to boost yields for a few crops in Europe, namely rapeseed and corn. For the former, it looks like Europe will take off about 17 MMT of rapeseed, which would be the smallest harvest in almost 15 year!  Germany and Poland have been getting most of these rains and that’s likely why rapeseed harvest estimates there are for an improvement year-over-year: 2.8 MMT in Poland (+4% YoY) and 3.2 MMT in Germany (+14% YoY). However, the U.K. and France are looking at smaller crops compared to 2019, with the latter expected to combine 3.4 MMT, or a 4% fall from 2019 and a 30% reduction from the five-year average!
As this likely bodes well for more Canadian canola exports to the EU, canola speculators moved to their smallest net short position in 6 months and looks like that trend is continuing this week, given the slight improvement in canola prices.  Some extreme storms across Western Canada have certainly laid down a few fields, but should the photos of said fields on social media be an indicator of the entire crop?
The obvious answer is no, and that’s where we often see a divide in market sentiment: those who look at the front window (or social media’s window) and see conditions that should only move prices higher, and those who look at the bigger macro grain markets picture and recognize it’s not all bad. To be clear, I am the latter camp, which means that I don’t think the small uptick in grain markets will last much longer. However, as harvest pressure subside, we could see some much better opportunities in the late fall (read: November) or middle of winter (read: January 2021).
Wheat Prices the Anomaly in Grain Markets?
While US corn exports sales to China have garnered a lot of attention this week, wheat prices have found some strength on production downgrades in Europe, the Black Sea, and Argentina.  In Argentina, 87% of the wheat crop has been planted, but it has been into some pretty dry conditions and the lack of moisture doesn’t look like it’s going to let up any time soon. More specifically, a mild La Nina event is expected to hit Argentina between September and December, challenging a wheat crop as it nears the finish line.  As mentioned earlier this week, the Argentine wheat harvest was downgraded by the Rosario Grains Exchange by 3 MMT to an 18 – 19 MMT range, while the Buenos Aires Grain Exchange says they’re likely going to cut their acreage estimate.
Further, Strategie Grains downgraded their estimate of the European soft wheat harvest yet again, this time by 600,000 MT to 130.9 MMT. If realized, this would be a 11.5% drop in production year-over-year, more than 10% decline that the USDA shared in their July WASDE report. Moreover, Strategie Grains shared in a note this week that “the level of projected stocks on the world remains very precarious.”
This aligns well with timestamped call in a Breakfast Brief a month ago that any production downgrades to the 2020/21 wheat harvest in major exporting countries could help catalyze wheat prices higher. One of the countries that I specifically called out in that post was Ukraine, and right now, the USDA is expecting a 9% decline in their wheat harvest, whereas the local USDA office in Kyiv is expecting a 15% decline to 24.7 MMT. 
As discussed, it is important to look at the full picture and the reality is that it’s not all bullish in wheat markets as there’s been those aforementioned rains falling recently in Europe. While this has slowed harvest progress, it’s helping replenish soil moisture for the fall planting campaign for the 2021 crop. One of the EU’s top wheat producers, Poland, is expected to harvest 11.7 MMT of wheat (+6% YoY), according to the USDA attaché there.  Further, in Germany, the farm co-op there, DRV, raised their estimate of the country’s wheat crop by 300,00) MT to 22.5 MMT. While that’s still about 2.5% below last year’s wheat harvest, grain markets are acknowledging that’s it’s not all that bad.
With some of these production woes though, the game of wheat exports musical chairs that I discussed in a Breakfast Brief in the beginning of June is starting to show up. So far, we know that wheat exports out of Ukraine and Russia are tracking behind a year ago, as farmer selling has been weak with the smaller yields coming off there. Put another way, farmers thinking prices will increase, and as result, the usual onslaught of wheat being delivered off the field isn’t happening this year.
One other major factor to consider is protein availability. So far in the U.S. winter wheat harvest quality assessment, average protein levels are sitting at 11.2%, below last year’s “disappointing” 11.3% average, and the five-year average of 11.7%.  That said, it’s expected more U.S. Northern Plains and even Canadian wheat will be making its way to millers around the country, and even abroad. One last point to consider: the combination of smaller U.S. spring wheat acres and expectations for weaker protein in Montana and South Dakota
Have a good weekend!
At 8:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3585 CAD, $1 CAD = $0.7361 USD)
Sept Corn: +2.8¢ (+0.85%) at $3.33 USD or $4.524 CAD
Aug Soybeans: +2.3¢ (+0.25%) at $8.958 USD or $12.169 CAD
Aug Soybean Meal (per short ton): -$0.30 (-0.1%) to $286.70 USD or $389.49 CAD
Aug Soybean Oil (cents per lbs): +0.37¢ (+1.25%) to 29.64¢ USD or 40.27¢ CAD
Sept Oats: -0.5¢ (-0.2%) to $2.83 USD or $3.845 CAD
Sept Wheat (Chicago): +1.3¢ (+0.25%) to $5.365 USD or $7.288 CAD
Sept Wheat (Kansas City): +3.3¢ (+0.7%) at $4.52 USD or $6.14 CAD
Sept Wheat (Minneapolis): +1.3¢ (+0.25%) to $5.165 USD or $7.017 CAD
Nov Canola: +4.5¢ (+0.4%) at $10.918/bu / $481.40/MT CAD or $8.037/bu / $354.36/MT USD
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