With Harvest 2019 on the minds of many, grain markets are mostly in the green this Monday as the complex is rebounding from Friday’s sell-off due to heightened trade war tensions between the U.S. and China.
“My favourite words are possibilities, opportunities and curiosity. I think if you are curious, you create opportunities, and then if you open the doors, you create possibilities.” – Mario Testino (Peruvian photographer)
Harvest 2019 Possibilities Vs a Bigger Trade War
With Harvest 2019 on the minds of many, grain markets are mostly in the green this Monday as the complex is rebounding from Friday’s sell-off due to heightened trade war tensions between the U.S. and China. On Friday, China announced that they would institute another $75B in import tariffs on U.S. goods, including another 5% tariff on soybeans to take the total tariff to 30%.  They also instituted a 10% import tariff on American pork.
Almost immediately, President Trump tweeted out that “American companies are hereby ordered to immediately start looking for an alternative to China.”  Soon thereafter, the White House announced that they would be raising tariffs by another 5% to 30% on $250 Billion worth of Chinese products. 
Aside from soybean prices falling as much as 1.3% alone on Friday, broader equity and bond markets also saw large losses on the heightened trade tensions. From an international standpoint, the spread between U.S. and Brazilian soybean prices are now at nine-month high. Not surprisingly, speculators raised their net-short position in soybean futures by 14% to nearly 77,000 lots. Similarly, fund managers also raised their net-short in corn by 35% to just over 82,000 contracts.
Friday’s bearish trade war activity trumped the bullish yield estimates that ProFarmer came out with earlier in the day.  After a four-day crop year, ProFarmer said that average American corn and soybean yields for Harvest 2019 would be 163.3 and 46.1 bushels per acre (bpa), respectively. Compare this to the current estimates from the USDA (in the August WASDE) of 169.5 bpa for corn and 48.5 bpa for soybeans. Using ProFarmer’s yields, the total corn and soybean haul for Harvest 2019 would be 13.358 and 3.497 billion bushels, respectively. The USDA is currently estimating 13.901 and 3.68 billion bushels of total production of corn and soybeans for Harvest 2019.
China and U.S. Double-Down on Trade War
Worth noting is a recent poll by the Pew Research Center pegs 60% of Americans currently have an unfavourable view of China.  That’s up from 47% at the same time a year ago. Further, 24% of poll respondents named China as the group/country posing the greatest threat to the United States. Conversely though, U.S. agricultural groups are saying more consistently that “enough is enough” as agricultural export sales to China continue to be on the decline.  Put simply, the trade war with China is surely becoming the most divisive issue heading into the November 2020 U.S. presidential election.
This weekend, the G7 Summit took place in France and while the discussions were mostly positive, the Chinese-U.S. trade war cloud continued to hang over the event. The weekend get-together of the world’s major industrialized nations started a bit uneasy after Friday’s trade war tensions escalated, but President Trump gave some good news to his counterparts this morning, saying that China had called his team to get back to the negotiating table. 
Separately, the U.S. and Japan tentatively agreed to a trade deal over the weekend, with President Trump proudly sharing that Japan would be buying vast quantities of American agricultural products.  While the announcement was short on just how much supply of American farm goods that Japan is looking for, it is expected to include corn, wheat, ethanol, beef, pork, and dairy products. The new trade deal has three core parts to it – agriculture, industrial, and digital trade – and is expected to be signed next month in New York at the United Nations general assembly.
Prices for Pulses in a Staring Competition
As Harvest 2019 gets underway in many parts of Western Canada and the U.S. Northern Plains, when it comes to pulses, price direction is up in the air. As Chuck Penner of LeftField Commodity Research shared with RealAgriculture.com last week, farmers and buyers of pulses are basically waiting for the other blink.  Said another way, there’s enough production out there from Harvest 2019 to likely satisfy current demand, but it’s a matter of what price is going to unlock the grain bins/open up the grain bags.
Agriculture Canada didn’t change much last week in its estimates for peas, lentils, and chickpeas in terms of production for Harvest 2019, keeping their forecast at 4.3 MMT, 2.2 MMT, 260,000 MT respectively. From a 2019/20 carryout perspective, AgCanada at 500,000 MT for both peas and lentils, and 220,000 MT, mainly thanks to the 150,000 MT of chickpeas expected to be carried in from the 2018/19 crop year. With the pulses estimates not changing, the expectation for pea, lentil, and chickpea prices haven’t changed either.
Pressuring pea prices is U.S. acreage up 18% year-over-year to over 1M acres, with total production estimated a little over 800,000 MT. Conversely, U.S. lentil acreage fell by more than 30% this year to roughly 500,000 acres, meaning production is likely to come in somewhere below 300,000, a sharp reduction year-over-year. Chickpea acres in the U.S. also fell for Harvest 2019, down about 35% to 560,000 acres. With average yields, production should come in around 360,000, but that’s down about 40% from last year’s harvest.
Pretty much the only thing that might catalyze the price for pulses higher is production concerns in India. However, at the end of July, India was about 9% behind in their receipt of monsoon moisture, but over the past 4 weeks, more rain has fallen, pushing the country to a surplus of 3% as of last week. 
However, as we end August, it’s expected that precipitation will again be in short supply in India. Farmers there tend to make sure they have enough moisture before seeding and through this past Friday, seeding of pulses in India was only 3% behind last year’s pace and 5% ahead of the five-year average.  Thus, with August replenishing reservoirs and likely supporting the kharif summer crop, it might come down to September for what the rabi winter crop in India might look like (and the possibility of higher pulses pricepoints.
At 8:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3294 CAD, $1 CAD = $0.7522 USD)
Dec Corn: +3.3¢ (+0.9%) to $3.71 USD or $4.932 CAD
Nov Soybeans: +9.5¢ (+1.1%) to $8.66 USD or $11.513 CAD
Oct Soybean Meal (per short ton): +$1.80 (+0.6%) to $293.60 USD or $390.32 CAD
Oct Soybean Oil (cents per lbs): +20¢ (+0.8%) to 28.65¢ USD or 38.09¢ CAD
Dec Oats: +2.8¢ (+1.05%) to $2.698 USD or $3.586 CAD
Dec Wheat (Chicago): +2.8¢ (+0.6%) to $4.805 USD or $6.388 CAD
Dec Wheat (Kansas City): +2.3¢ (+0.55%) to $4.07 USD or $5.411 CAD
Dec Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.133 USD or $6.823 CAD
Nov Canola: +2.5¢ (+0.25%) to $10.229/bu / $451/MT CAD or $7.694/bu / $339.24/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.