Grain prices are mostly in the red as the sell-off from Friday’s trading continues in the first full week of 2020.
“Nothing external to you has any power over you.” – Ralph Waldo Emerson
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Grain Prices Start 2020 Well Despite External Risks
Grain prices are mostly in the red as the sell-off from Friday’s trading continues in the first full week of 2020. Going into the new year, grain prices were finding higher highs, whereas the broader markets were in the midst of a correction to the downside. Geopolitical risk is back on the front burner thanks to the heightened tensions in the Middle East after the U.S. eliminated a former Iranian military commander. Of note, oil prices have climbed over 6% since Qassem Soleimani was taken out on Friday. 
Staying in that vein, we’re seeing a heightened alert level from countries around the world (and their militaries) as the tension in the Middle East becomes more pronounced. This includes the Canadian-led NATO training mission taking place in Iraq as we speak, which was suspended over the weekend.  Further, Iraq’s parliament passed a resolution, calling for an end to the presence of all foreign troops, including American operations.  On the flipside, Iran says that it is suspending its commitments to the 2015 nuclear deal it made with world powers and says it will only meet the obligations once sanctions on the country are lifted. 
Grain Prices Looking to Friday
Despite a bit of a sell-off on Friday, January 3rd, grain markets are starting the 2020 new year strong as trade deals buzz and strong export activity are fueling higher prices in a shortened trading week. Also weighing on the markets is the boatload of data that the USDA is going to release next Friday, including the normal WASDE report, quarterly grain stocks, and finally, winter wheat seeded acres.
While prices performed generally positive for the month of December, the highs seen at the end of September nullified some of the gains from a quarterly performance perspective. This is especially pronounced in the wheat complex, which saw a bit of a rally right before and during the holidays. Digging in, winter wheat acres found more of a gain than Minneapolis HRS wheat did, but that’s mainly because of concerns of what the 2020 U.S. crop is looking like.
Corn prices are seemingly following wheat right now as it looks for fresh headlines on either the export and ethanol side of things. That said, while I talked about a challenging U.S. ethanol policy before the December holidays, as a sign of the tough margin times in the ethanol market, Bunge announced this week that it was selling off a bit of a stake in its ethanol business line.  On the export front, U.S. corn shipments are more than half of what they were at this point a year ago, with less than 7.93 MMT shipped through Week 16 of its crop year!
Brazil Softening Global Grain Prices?
Looking south of the equator, there is certainly an increased bearish sentiment coming from South America – notably Brazil – as the crop is looking healthy. While there are some dryness concerns in northeastern and the deep south in Brazil, there’s no real weather concerns that the market is pricing in.  That said, in Rio Grande de Sul, the safrinha second corn crop is likely to be smaller than first anticipated due to dryness. Accordingly, thanks to strong exports in 2019 and competing demand from livestock and ethanol industries in Brazil, the corn balance sheet is likely to stay fairly tight.
Conversely, the first soybeans are starting to come off in Mato Grosso, Brazil and I’ve said before, any further trade talks between China and the U.S. could be impacted by how the Brazilian harvest is looking. That said, soybean prices haven’t had a weekly loss since November, underpinned by the expectations of stronger demand from China due to the trade war deal struck a few weeks ago. The deal is expected to be signed on January 15th by Presidents Trump and XI at the White House. 
That said, U.S. soybean exports continue to perform well, with 19.8 MMT sailed through Week 16. That’s up nearly 25% compared to a year ago, albeit it is still about 25% behind the 5-year average of time of year. With that in mind, this week, China did ease some customs regulations on soybeans coming in through their northern border crossings.  This is certainly something to keep an eye on, as it somewhat suggests that there could be more business coming in from the Black Sea, namely Russia, Kazakhstan, and bit from Ukraine. Granted, it’s a long distance for those beans to go, there is now a railroad connecting Russia to China, making it a bit easier for the grain to travel.
Optimism for Grain Prices in 2020
All things being equal, a new calendar year brings fresh optimism with the literal turning of the page. With it comes thinking about grain prices can perform after a tumultuous 2019, namely that of said trade war between the U.S. and China upending most global trade. More protectionism was seen in 2019 and that theme is likely to continue in 2020, barring some softening of this stance by a variety of politicians. Leaning in, one-off trade deals are becoming more of the focus by the U.S. government, like that done with Japan and the negotiations happening with the United Kingdom and the EU right now.
Specific to the crystal ball for grain prices, there’s always a healthy amount of factors to consider. Supply and demand drive the general equilibrium for grain prices, but currencies, tariffs from said trade wars, and outside commodity costs (i.e. oil prices) will always sway momentum. Throughout this week, I’ll be sharing some of my thoughts on grain prices and where I think specific crops are headed.
- Jan 7 – Spring Wheat, Durum, and Winter Wheat
- Jan 8 – Soybeans, Canola, and Flax
- Jan 9 – Corn, Oats, and Barley
- Jan 10 – Lentils, Peas, and Chickpeas
Ultimately, with the major trade war between the U.S. and China out of the way, this reduce some of the uncertainty in the market and help grain prices find fresh highs. You could easily say that this started for grain prices back in December when the Phase One trade war deal was announced, but what I’m thinking more about is the the laggard effect of how grain trade actually performs around the world once the deal is signed.
Happy New Year!
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 = $1.2982 CAD, $1 CAD = $0.7703 USD)
Mar Corn: -0.8¢ (-0.2%) to $3.858 USD or $5.008 CAD
Mar Soybeans: -1.3¢ (-0.15%) to $9.403 USD or $12.206 CAD
Mar Soybean Meal (per short ton): +$0.50 (+0.15%) to $301.70 USD or $391.67 CAD
Mar Soybean Oil (cents per lbs): -0.44¢ (-1.25%) to 34.64¢ USD or 44.97¢ CAD
Mar Oats: -1.8¢ (-0.6%) to $2.89 USD or $3.752 CAD
Mar Wheat (Chicago): -1.5¢ (-0.25%) to $5.53 USD or $7.179 CAD
Mar Wheat (Kansas City): -1.3¢ (-0.25%) at $4.738 USD or $6.15 CAD
Mar Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.468 USD or $7.098 CAD
Mar Canola: -4.5¢ (-0.4%) to $10.802/bu / $476.30/MT CAD or $8.321/bu / $366.39/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.