Oct. 2 – Grain Stocks Gives Bullish Surprise to Grain Markets

Grain markets this morning are all in the red as, following a bullish grain stocks report from the USDA on Wednesday, profits are being taken.

“The only thing that should surprise us is that there are still some things that can surprise us.” – François de La Rochefoucauld (French author)

Grain Stocks Gives Bullish Surprise to Grain Markets

Grain markets this morning are all in the red as, following a bullish grain stocks report from the USDA on Wednesday, profits are being taken. Outside markets are also in the red this morning as the complex is seeing a lot of technical selling on the news that U.S. President Trump and the First Lady, Melania Trump, have tested positive for COVID-19. [1] The positive tests throws more uncertainty into the Presidential election equation, and investors don’t like the risk, so, intuitively, pull out of the market. That same sentiment is carrying over into the grain markets this morning.

Also weighing on grain markets this morning is the good window of weather that should continue to help the solid pace of Harvest 2020 that we’re currently seeing. Canola markets saw a big sell-off yesterday, mainly due to material weakness in the soy oil complex, as well as Malaysian palm oil markets. It’s estimated that only about 15% of the Canadian canola harvest will be left by the end of this weekend.

Also pressuring the oilseed complex is news that Argentina will cut its export taxes on exports of soybean and soy byproducts (i.e. soy oil or soymeal) by 3 points to 30%, as the government tries to incentivize more exports and thus, create more revenue for themselves. [2] Worth also noting is that the annual Mid-Autumn Festival started in China yesterday and will last until October 8th, which means that we should expect too much export sales reports to the People’s Republic over the next few days.

Grain Contracts Now on Combyne

Given the volatility in the markets, there’s more buzz about using GPOs/target pricing to capture premiums to the upside. That said, we’d love to hear from farmers about how you’re using (or not using) targets on your farm. The survey will take you about 3 minutes and we’ll through your name in the ring for a $100 gift card to a business that’s local to you. Here’s the survey and thanks in advance for participating as it helps better educate our team and it all funnels back into a better, more valuable Combyne platform for you!

Take the 3-minute Combyne survey on grain target pricing

Also, based on feedback that we’ve received in surveys like the one above from our users, this week’s update to our Combyne platform is that you can now create and edit grain contracts directly from your Listings. If you complete a deal, be it with a trading partner on Combyne, or even make a contract on that volume, but with a trading partner outside the Combyne trading network, you can mark the Listing as “Completed” and save the final contract deals to review later and/or share to other applications.

The Combyne trading network now helps you capture and manage grain contracts!

How to capture a grain contract on the Combyne trading network

P.S. if you’re using a farm management system (FMS) to help manage your grain contracts, we can share this contract deal data from Combyne directly back into your FMS tool. We’re working to finalize this API with a few different FMS tools right now, but why not send a note to your FMS provider and encourage them to integrate with Combyne? If not, I guess you’re okay with double and/or triple-entering all the contract data yourself? I’m not, that’s why we built our API to make it easy for any FMS or even buyer contract management tools to integrate with Combyne.

U.S. Grain Stocks Much Smaller Than Expected

On Wednesday, the USDA shared its inventories of American grain stocks as of September 1st, 2020, or the 1st day of the 2020/21 crop year for corn and soybeans. [3] The report gives us a good understanding of what grain and oilseeds demand was like for the final months of the previous crop year, as well as giving the market the baseline for how much grain will be carried into the next crop year. In this year’s September 1st grain stocks report though, the USDA made some historic changes that helped grain markets rally significantly on Wednesday.

First things first, corn prices hit a seven-month high on Wednesday, thanks to corn stocks being more than 10% behind last year’s volumes, and well below what the market was expecting to see. Soybean stocks saw an even larger reduction, down 42% year-over-year to 576M bushels. Basically, what this all means is that the changes to grain stocks by the USDA was historic and the bulls ran with it (or at least for a few days!)

U.S. Grain Stocks as of September 1, 2020

According to Karen Braun of Reuters, the push of corn stocks lower was largely attributed to the smallest number for the Sept. 1 grain stocks report in 4 years, as well as a nearly 205M bushel adjustment lower for the June 1 grain stocks report! [4] About 75% of that adjustment to the June 1 grain stocks number was attributed to less on-farm storage. Further, this volume of disappearance in the last quarter of the 2019/20 crop year suggests corn demand was the 2nd-largest ever and only 4% behind the record set in the 2018/19 crop year.

But how is that possible, considering that from June to August 2020, ethanol production was down 17% and corn exports were about 31% lower, compared to that record-setting year in 2018/19. The answer lies in the feed and residual use line items, which was a 14-year high, and about 8% higher than 2018/19. There are some doubts to this increase, however, given the animal inventory data out there. Ultimately, the grain stocks report was bullish for grain markets and

Large Rye Harvest in Both Canada and U.S.

The USDA also published its annual small grains production report, which included all wheat types, as well as data on the barley, oats, and rye harvest. [5] As you can tell from the table below, the production of small cereals was generally larger compared to last year.

The U.S. oats, durum, and rye harvest was bigger than expected

The oats and rye harvest numbers are noticeable, as Canadian oats and rye exports were finding more business down in the United States the last few years. More specifically, for the rye harvest of 11.5M bushels (or 293,000 MT if converting bushels into metric tonnes) is quite large (relative to demand). Combined with a near-record rye harvest of 431,000 MT in Canada, there’s plenty of supply in the market that could weigh on rye prices for the next year or so. That said, Agriculture Canada thinks strong exports and domestic use will push ending stocks back down to 60,000 MT, or half of what they were estimating just last month.

AAFC Sept 2020 estimate of Canada's rye harvest, exports, & domestic use

Rye prices in 2020/21 are set to decline, despite a tighter carryout

In case you missed it, check out my review of the canola and cereals numbers from AAFC in Monday’s Breakfast Brief. Further, I dug into the estimates for pulses in Wednesday’s Breakfast Brief.

Have a great weekend!

To growth,

Brennan Turner
CEO | FarmLead
TF: 1-855-332-7653

At 8:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3329CAD, $1 CAD = $0.7503 USD)

Dec Corn: -4.5¢ (-1.2%) to $3.783 USD or $5.042 CAD
Nov Soybeans: -9¢ (-0.9%) to $10.145 USD or $13.522 CAD
Dec Soybean Meal (per short ton): -$1.90 (+0.55%) to $346 USD or $461.18 CAD
Dec Soybean Oil (cents per lbs): -0.81¢ (-2.5%) to 31.61¢ USD or 42.13¢ CAD
Dec Oats: -3.3¢ (-1.15%) to $2.808 USD or $3.742 CAD
Dec Wheat (Chicago): -6.5¢ (-1.15%) to $5.635 USD or $7.514 CAD
Dec Wheat (Kansas City): -8¢ (-1.6%) to$4.995 USD or $6.644 CAD
Dec Wheat (Minneapolis): -3.3¢ (-0.25%) to $5.385 USD or $7.068 CAD
Nov Canola: -9.3¢ (-0.8%) at $11.732/bu / $513.20/MT CAD or $8.732/bu / $385.03/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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