July 20 – Grain Prices (Finally) Finding Weather Premiums

Good morning,

Grain prices this morning are all in the green, led by wheat prices, as hot weather is (finally) adding some premium to the complex.

“The greater part of humanity is too much harassed and fatigued by the struggle with want, to rally itself for a new and sterner struggle with error.”
– Friedrich Schiller (German philosopher)

combine-Wheat-grain-prices

Grain prices this morning are all in the green, led by wheat prices, as hot weather is (finally) adding some premium to the complex.

Usually, weather premiums are added to the market in late May through to June. However, this year, that seasonal pattern was idled thanks to an excellent start to the 2018 growing season in North America and trade war talk, grain prices are starting to finally catch a weather break.

On Wednesday, our Garrett Baldwin looked more closely at the weather variable, suggesting that this might be the only bullish factor left to propel the likes of corn prices higher.

Through to next week, it’s unlikely that the central Midwest will get much rainfall. Comparably, next weekend (not this one but the last one of July), central Iowa and Illinois could see some rain and temperatures looking cooler across most major growing regions in the US. [1] However, thereafter, much of the Corn Belt is expected to stay pretty dry for the next 10 -15 days.

Coming back to grain prices this morning, canola prices are following soyoil and soybean prices higher this morning, with the January 2019 now back above $500 CAD / metric tonne.

Wheat Prices Rebounding for Good?

Yesterday, Garrett gave his regular recap of daily action in grain prices, in the Grain Markets Today column. Winter wheat prices in both Chicago and Kansas City rallied nearly a dime as export sales and actual shipments seemed to impress the market.

It’s frustrating to read but a wildfire in Oregon has scorched nearly 80 square miles of wheat and pasture since igniting on Tuesday. [2] This is especially frustrating since the crop was about 2 weeks away from getting combined. The region is home to mainly soft white wheat, which usually heads to Japan or South Korea and other Asian markets.

Maybe not too ironically, overnight, Japan lifted its ban of importing Canadian wheat. [3] With the announcement they said they’re looking for 63,000 MT of 13.5% protein spring wheat. We had previously suggested that it could take up to 3 months before Japan ended its break-up with Canadian spring wheat.

These dry conditions in the Pacific Northwest states are similar to those creeping into Montana and southern areas of Western Canada, especially Saskatchewan. This week’s GrainCents Durum Digest (sent out every Sunday morning) will be digging into these crop conditions, as well as the correlation between durum prices and a production versus quality scare.

High Brazilian Grain Prices vs Strong US Exports?

As Chinese soybean buyers start to try and switch over to Brazilian soybeans, the demand isn’t going unnoticed. Cash soybean prices in Brazil are the best they’ve been in years but government intervention is creating a situation where farmers aren’t to reap the financial gains. [4]

Here’s a snippet of this coming week’s GrainCents Soybean Digest explaining why:

“Farmers from all across the country are rushing to get their beans to the ports to capture that high price. There’s just one problem: Brazil’s infrastructure problems continue to plague farmers in the center and southeastern portions of the country. At a time that every farmer should be jumping for joy, too many have not been able to capture those steep premiums. That’s because the Brazilian government-imposed rule changes in late May that jacked up freight costs by up to 150%. Imagine having one of the best-selling opportunities of your lifetime… and then having the government halt them due to erroneous policy…”

As per the GrainCents standard, we go into more detail on the subject, as well as the implications of this policy for soybean prices here in North America.

GrainCents_grain-prices

All this in mind, soybean shipments from Brazil slowed last week, with only 2 million metric tonnes (MMT) shipped out, down from the 2.7 MMT the week prior. AgResource is reporting that soybean export sales from Brazil have now accounted for nearly 83% of the USDA’s current 73.2 MMT estimate for the Brazilian 2017/18 crop year. Compare this to the 5-year average of 87% by this time of year. Through the middle of July though, Brazil’s July soybean exports will come in at 10.5 MMT.

That being said, American soybean exports continue to track very strong relative to years past for this time of year when things usually slow down.

Soybean Weekly Exports

As mentioned in yesterday’s Breakfast Brief, Mexico, Pakistan, and Egypt have all gotten a bit more active in grain markets, buying more soybeans. Unlike China, not everyone is taxing US soybeans at 25%, so compared to Brazilian options, American beans are really cheap!

It’s a similar dynamic for US corn exports, as, at this time of year, things start to slow down. But not this year.

Corn Exports Weekly

Overall, it’s starting to look like a new normal for grain prices– the one that includes a trade war between China and the US – has been priced in/found.

To growth,

Brennan Turner

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

Due to travel, grain prices on the future the North American futures markets could not be added but you can find them here yourself.

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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