May 3 – Grain Prices Weigh Weather, Politics

Good Morning!

Grain prices this morning are mostly in the red as the market weighs weather risk and a slower planting pace against geopolitical tensions.

“Read not to contradict and confute, nor to believe and take for granted… but to weigh and consider.” – Francis Bacon (English philosopher)

graincents-trial

Grain Prices Weigh Weather, Politics

Grain prices this morning are mostly in the red as the market continues to weigh geopolitical versus weather risk (and thus, planting risk). The speed of Plant 2018 is certainly behind in many areas of the major North American growing regions.

There is some wet weather lingering in the Midwest through today, but then things are expected to get dry into the weekend. With the wetter conditions, we might see yet again, some disappointing planting numbers in the next crop progress report on Monday.

Where it’s also drying out is in major second-crop growing areas of Brazil. Vegetation maps are showing some deteriorating crop health.  It’s clear that the wet season in Brazil is over and with some warmer temperatures over the next two days, we might see bleaker soil moisture conditions in these areas of Brazilian corn.

Next door in Argentina, things are looking a bit wetter through to the middle of May. While this is a welcome sight for replenishing extremely depleted soils, this will halt the soybean and corn harvest there with about 1/3 of both crops still in the field waiting to be harvested. Thus, with the rain falling when the crop is ready to harvest, quality concerns immediately spike.

This week, we dug into what happened in April for grain prices for the 12 crops that we cover at GrainCents. We also looked into what we’re watching for grain prices in May. These are posted on the FarmLead Insights blog post page and available publicly.

Here are the recaps of grain prices in April 2018:

April 2018 corn prices recap

April 2018 soybean prices recap

April 2018 canola prices recap

April 2018 flax prices recap

April 2018 spring wheat prices recap

April 2018 durum wheat prices recap

April 2018 winter wheat prices recap

April 2018 oats prices recap

April 2018 barley prices recap

April 2018 lentils prices recap

April 2018 chickpeas prices recap

April 2018 peas prices recap

Stunted Winter Wheat Tour Results?

Going into the tour, the Kansas winter wheat’s crop development is about 2-3 weeks behind schedule. With just 2% of the Kansas winter wheat crop headed by the end of April, there are suspicions that’ll be difficult to measure actual possible yields. After Day 1 of the winter wheat tour, the calculated average yield was 38.2 bushels per acre, albeit Kansas Wheat said that the yield estimate might indeed be too high.

Karen Braun from Reuters points out that the immature crop isn’t usually a good indicator of final yield. [1] Braun and company did the research, looking at the past 20 years. They found that in years like this one, where less than 10% of the Kansas winter wheat crop was headed by the end of the April, yields were as much as 30% above AND Below the long-term trend average.

Conclusion? The weather over the next month will likely have the final say when it comes to winter wheat yields. So far in the current growing campaign, since the Kansas winter wheat crop emerged from winter dormancy, it’s been plagued by cooler temperatures and little-to-no rain. Winter and spring rains are only about half of their average levels.

Brazil vs. US Soybeans Farmers Better Off?

On Tuesday, I joined Chip Flory on the AgriTalk radio program to discuss the game of chicken that the US and China are playing over soybeans. Right now, due to currency factors, Brazilian soybeans are more expensive for international buyers (i.e., China) than those coming from American ports.

However, soybean prices at ports in Brazil fell for the sixth straight day yesterday. In the past four weeks, basis levels at the port have halved from $2 USD /bushel over the nearby July futures to about $1 today. The reason for the higher levels a month ago was more speculation that the Chinese government would tax US soybeans. 

Almost a month ago, we correctly called that the hype of China buying more Brazilian soybeans would die off as the trade war rhetoric cooled. The hype has indeed died off though (as is usually the case in speculative environments) but the tariffs are still on the table! However, farmers in Brazil are starting to slow their selling because they’re getting more bullish on the aforementioned weather and their currency continuing to weaken, which in turn would support higher prices.

As discussed on the AgriTalk radio show with Chip Flory, that is one of the main benefits, in my opinion, that the American soybean farmer has over the Brazilian soybean farmer: consistency. Between currency, high-interest rates, high inflation, port strikes, and in-country-to-port transportation woes, there are challenges to buying in a very volatile environment. Similarly, the Brazilian farmer has to deal with pricing their grain in the same volatile environment where currency moves could easily swing soybean prices 2-3% either way for days on end.

While it’s not all roses and the trading environment isn’t perfect because of the political jostling going on between Beijing and Washington, DC, I would argue that the American farmer has it better off, not having to deal with the larger amount of risk factors that a Brazilian farmer does. If China does implement a 25% soybean tariff on US soybeans, I’ve put my foot in my mouth, but I think the likelihood of that happening is about 20% today.

To growth,

Brennan Turner

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

At 7:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2844 
CAD, $1 CAD = $0.7786 USD)

Jul Corn: -0.5¢ (-0.12%) to $4.045 USD or $5.195 CAD
Jul Soybeans: unchanged to $10.430 USD or $13.397 CAD
Jul Soybean Meal (per short ton): -$2.70 (-0.67%) to $398.00 USD or $511.20 CAD
Jul Soybean Oil (cents per lbs): unchanged at 30.60¢ USD or 39.30¢ CAD  
Jul Oats: 0.8¢ (0.34%) to $2.368 USD or $3.041 CAD
Jul Wheat (Chicago): -5.5¢ (-1.04%) to $5.213 USD or $6.695 CAD
Jul Wheat (Kansas City): -5.8¢ (-1.04%) to $5.495 USD or $7.058 CAD
Jul Wheat (Minneapolis): -4.0¢ (-0.64%) to $6.205 USD or $7.970 CAD
Jul Canola: -$0.50 (-0.09%) to $11.977/bu / $528.10/MT CAD or $9.325/bu / $411.158/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.

Most Recent Posts
Dec. 17 – Wheat Prices Leading Monday’s Grain Markets Higher
December 17, 2018 Brennan Turner
Wheat prices are leading grain markets higher this morning as the complex eyes Russian wheat exports and the harvest in Argentina.
October 4: Corn Prices Edge Higher With October WASDE in Focus
October 04, 2018 Garrett Baldwin
Corn prices ticked higher Thursday as traders and analysts began to speculate on next week’s release of the October WASDE report.