July 11 – Grain Prices Trying to Catch a Falling Knife

Good Morning!

Grain prices this morning continue to drive lower as new trade war volleys make it even tougher to catch a falling knife.

“A mind all logic is like a knife all blade. It makes the hand bleed that uses it.” – Rabindranath Tagore (Bengali Poet)


Grain Prices Trying to Catch a Falling Knife

Grain prices continue to be under pressure this morning as a new volley of trade war victims was outlined by the U.S. last night. The White House listed $200 Billion of new goods that 10% tariffs will be placed on, including seafood and other fresh goods. The main conclusion here is that now about half of all Chinese goods imported by the U.S. will now be impacted by a duty/tax of some sort.

China has been canceling soybean purchases, and it’s had a significant impact on soybean prices. China is going to reimburse the buyers of US soybeans for state reserves though, meaning that 25% tariff on those cargoes is nullified. Canola prices are also in the camp, with the November contract flirting with closing below $500 CAD/metric tonne for the first time in about six months.

Republican Senator Chuck Grassley of Iowa is suggesting that Trump is handling the negotiations like a businessman and he is positing that longer negotiations lead to better deals. It’s still to be determined if that’s indeed the case. After all, we’ve seen grain prices fall pretty significantly over the past two months – just check out the negative performance values in our June 2018 grain markets recap.

To help keep things in perspective, July 6 has come and gone, and the world is still standing (albeit, perhaps barely, depending which news outlet you’re watching/listening/reading). After being off for a few days for some RnR in my hometown of Foam Lake, SK and then some meetings (and the Stampede) in Calgary, we’re back in full swing here at FarmLead.

Yesterday, Shaun Haney and I talked for a few minutes on SiriusXM Radio 147 (the RealAg Radio show), specifically addressing some of these acreage reports, the latest in the trade war buzz, and if spring wheat prices can ever pull out of the basement apartment they’re living in.

Also, this past weekend, in the weekly GrainCents Digest, we looked at the major factor influencing prices for the 12 crops that we provide coverage on (Corn, canola, soybeans, flax, spring wheat, winter wheat, durum, barley, oats, peas, lentils, and chickpeas). While there are over a 100 different factors that we’re monitoring, we also looked at the highs and lows of grain prices for each these crops over the past five years.

Tomorrow at 12 PM EDT, we’ll get the USDA’s July installment of the WASDE report. I’ll be walking through some of the expectations in tomorrow’s Breakfast Brief, but US spring wheat production is indeed one that I’m interested in. Also, it’s unlikely we’ll see too many changes to the US export numbers just yet.

Europe to Drive Wheat Prices?

Across the ocean, wheat prices have been ticking higher in Europe. Wheat prices are sitting at one-month highs as dry weather continues to weigh on the size and the quality of the bloc’s wheat crop. Expectations for the wheat harvest and exports have been declining. In Germany, DBV said that the country’s winter wheat harvest is expected to come in at 20.5 MMT. That would be a 15% drop from the previous year.

Meanwhile, weak harvest results in France continues to push wheat premiums higher. Strategie Grains said this week that French 2018/19 wheat production would come in at 33.2 MMT. That figure represents a 4.6 MMT decline from the previous year. In the UK, the hottest summer in more than 40 years will negatively impact wheat yields, and thus, wheat imports should hit five-year highs. This is a bit ironic, considering that most of the wheat being imported will likely come from other European nations, but just as the UK is trying to do its whole Brexit dance.

Ultimately, across Europe, soft wheat output expectations continue to slide. Reuters said in a survey that the average analyst is projecting total soft wheat production to drop to 136 MMT, which would represent a 4% drop year-over-year. On that note, wheat exports from Europe are sitting at a six-year low, and down 16% year-over-year to 20.3 MMT. The EU could see soft wheat exports rise in 2018/19 to 23.3 MMT. However, several factors could keep that figure in check.

As we’ve long argued, Russia’s wheat production and exports are driving global prices. The Russian agriculture ministry said that Russian exporters shipped 40.2 MMT of wheat overseas during the 2017/18 marketing year. That figure represented an almost 50% jump year-over-year. This jump was achieved due to a massive harvest, combined with stronger logistics and a weaker ruble. The nation was able to make a big splash in nations like Egypt and Indonesia and captured market share from countries like Australia that had relied on these markets in the past.

But export volumes for the new marketing year are expected to fall sharply. Hot, dry weather has extended across the Black Sea region and is driving down expectations for the crop size. We’re looking at a pretty wide range of estimates for this year’s Russian harvest. Whether it’s 65 MMT or the larger 74 MMT estimates, the figure will still come in well below the record-breaking 85 MMT crop taken off last year.

Overall, there is certainly more risk in the market today than there was six months ago, what with trade wars being all the rage. If cooler heads don’t prevail, then indeed, we might see some structural shifts in trade flows of major agricultural commodities that will influence grain prices around the world.

To growth,

Brennan Turner

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

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3155 
CAD, $1 CAD = $0.7602 USD)

Sept Corn: -3.5¢ (-1.01%) to $3.440 USD or $4.525 CAD
Aug Soybeans: -14.3¢ (-1.67%) to $8.415 USD or $11.070 CAD
Aug Soybean Meal (per short ton): -$1.60 (-0.48%) to $330.60 USD or $434.90 CAD
Aug Soybean Oil (cents per lbs): -0.45¢ (-0.16%) at 28.48¢ USD or 37.47¢ CAD  
Sept Oats: 2.0¢ (0.84%)  to $2.360 USD or $3.105 CAD
Sept Wheat (Chicago): -3.3¢ (-0.66%) to $4.855 USD or $6.387 CADS
Sept Wheat (Kansas City): -0.5¢ (-0.10%) to $4.873 USD or $6.410 CAD
Sept Wheat (Minneapolis): -2.0¢ (-0.36%) to $5.530 USD or $7.012 CAD
Nov Canola: -$2.60 (-0.52%) to $11.338/bu / $499.90/MT CAD or $8.62/bu / $380.01/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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