Jan 7 – FarmLead’s 2019 Grain Markets Outlook

Grain markets are mixed as we start the first full week of the 2019 calendar year of trading with a U.S. government shutdown and trade war discussions ongoing.

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FarmLead’s Outlook for 2019 Grain Markets, Prices

Grain markets are mixed as we start the first full week of the 2019 calendar year of trading with a U.S. government shutdown and trade war discussions ongoing.

In a shortened trading week, last week, grain markets were able to rebound after a poor showing over the Christmas-holiday week to end the 2018 calendar year. If you haven’t yet read our 2018 recap of grain prices, check it out!

Wheat prices are facing some headwinds as the Argentine harvest wraps up, with 91% of the crop now harvested. It’s estimated that about 14 MMT of the forecasting 18.7 MMT Argentine wheat harvest will be exported, with the Rosario Board of Trade suggesting that already 6 MMT of these exports have been contracted. There were some rains over the holidays that likely had a negative impact on quality so I’m a bit cautious of the competition for higher protein, something I maintain a bullish stance on for wheat prices in 2019.

Grain Markets Amidst a Trade War

As discussed in that recap of 2018 grain prices, no single factor had a bigger impact on grain markets this past year than the trade war between the U.S. and China. Looking forward, there are less than 60 days left in the truce between Beijing and D.C. for implementing more import tariffs.

U.S. President Trump continues to tweet out optimism for a deal being found but the deal likely has to include concessions from China on things like trade imbalances and intellectual property abuse. Will they do it though?

As long as there is the distance on the table between the two sides, it’s likely that grain markets will assume that a deal to end the trade war won’t get done. And if that’s the case, then projections for U.S. soybean exports likely have to fall from current levels.

Through mid-December (or Week 15 of the 2018/19 crop year), U.S. soybean exports (not sales, but actual shipments) are tracking 40% behind last year’s pace. However, as you can tell from the table below, the decline is completely attributed to China not being a buyer this year.

Grain Markets Look at 2018-2019 U.S. Soybean Exports Through Week 15 by Destination

Since China doesn’t buy a lot of soybeans from America in the first half of the calendar year (instead buying from South America), even if the trade war ends, it’s unlikely that the pace of U.S. soybean exports will accelerate to significantly to meet the full-year target from the USDA. In fact, there has been some buzz that China has been buying boats of soybeans from Brazil for May-June delivery as a hedge against trade talks falling apart in Beijing this week.

Staying in China, African swine fever continues to spread and there are concerns that Beijing is not in front of the situation (or, at least not sharing information) after a dead pig washed up on a beach in Taiwain. [1] In the past 5 months, about 100 cases of the disease across 23 Chinese provinces have been confirmed.

While there is concern of the disease spreading across the country’s most popular meat, the industry is about 700 million animals strong and it has a long ways to go before likely putting too much of a dent in demand.

Grain Markets Waiting for Data

As a part of the U.S. government shutdown, the USDA has decided that they won’t release their monthly reports that were slated for publication on Friday, January 11th, 2019. This includes the ultra-important January WASDE, quarterly grain stocks, and winter wheat seeding reports. Once the government is again funded, the USDA will give an update timeline as to when grain markets can expect fresh data.

Much like soybeans, I’m expecting the USDA to update their forecast for corn exports, albeit to the upside (versus to the downside for soybean exports). Through Week 15 of the 2018/19 U.S. corn crop year, exports are tracking 76% higher year-over-year

2018-2019 U.S. Corn Exports Through Week 15 by Destination

! Considering that American corn is the cheapest in the world, this is a positive, slightly-bullish table. But the market is also thinking about more corn acres planted in 2019. Currently, we’re expecting the area planted with U.S. corn in 2019 will jump up above 93.5 million acres.

On that note, Informa is estimating 2019 U.S. winter wheat seeded area at 31.513 million acres. This would be a 3.1% decline from 2018’s 32.535 million acres. Also coming from Informa was estimates for soybean production in South America. For Brazil, the firm is estimating 122 MMT (matching the USDA’s estimate), while calling for 56.5 MMT of production in Argentina (1 MMT more than the USDA).

Of note for Brazil is some dryness carrying over from December into January, especially southern Brazil. [2] Those beans that were planted super early (and, thus, expected to be harvested early) likely will see below-average yields in the combine. Thus, the question is where or not Brazil can top 120 MMT in production. My gut today says they won’t, but the market is pricing this possibility in as well.

Watching Cycles of Grain Markets

One of the things we should definitely be aware of for 2019 grain markets are the usually cyclical patterns. For example, in 5 of the last 6 years, the highs in corn prices have been found between mid-May and mid-July. [3] The exact moment that high occurs is certainly a condition of Mother Nature’s provision of good or bad growing conditions.

If we take the calendar year a bit further, we know that the best corn prices aren’t usually seen during harvest time. More specifically, September and October aren’t usually the best times to be contracting, but rather that’s when you should be trying to deliver on contracts made during the previous months.

This isn’t just specific to corn prices. It’s a very similar situation for canola prices and wheat prices, or others that have a futures board where outside speculators have an influence. Ultimately, if you see the market starting to push higher in early-to-mid-May, then you should be selling into that strength!

Can Monetary Policy Influence Grain Markets?

One of the biggest factors often overlooked in grain markets is the macroeconomic influence of monetary policy. This is the strategy implemented by a central bank – namely the U.S. Federal Reserve – to help maintain stability in markets by “influencing the amount of money and credit in the U.S. economy”.[4] For 2018, this monetary policy in the U.S. and Canada was marked by several interest rate increases.

Going forward into 2019, most economists agreed that the Federal Reserve’s – or “the Fed” as they’re commonly known – must avoid a recession by keeping inflation in check while allowing for modest growth. That being said, there are a lot of factors suggesting the U.S. economy is tracking well to start 2019, bond yields and stock markets are suggesting a higher risk of continued to depressed growth. This is especially true as other international economies have slowed.

On this note, the Wall Street Journal recently reported the at a major economic conference held in Atlanta, “a widely held view was that a deceleration in growth is inevitable thanks to rising global threats, Washington’s instability, and a fading boost from the tax cuts.” [5]

If you start to see economic growth slowing, then it’s very likely that the likes of the Fed and the Bank of Canada won’t continue their trend of increasing interest rates. That being said, if they do ignore some of the bond and stock market indicators, and interest rates continue to rise, the impact on farmers is notable. More specifically, it might be worth looking at changing some of your variable rate financial products to a fixed rate.

Will 2019 Grain Markets Flop or Fly?

Ultimately, grain markets in 2019 will largely be a function of the usual players: acres planted and Mother Nature. The newest variable though – a trade war and/or protectionist policies – will have more of say, especially to start the new year!

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3531 
CAD, $1 CAD = $0.7391 USD)

Mar Corn: +1.3¢ (+035%) to $3.835 USD or $5.121 CAD
Mar Soybeans: +5.8¢ (+0.6%) to $9.268 USD or $12.375 CAD
Mar Soybean Meal (per short ton):  +$2 (+0.66%) to $321.40 USD or $429.16 CAD
Mar Soybean Oil (cents per lbs): +0.05¢ (+0.15%) at 28.75¢ USD or 38.39¢ CAD  
Mar Oats: -3.3¢ (-1.15%) to $2.768 USD or $3.695 CAD
Mar Wheat (Chicago): -1.8¢ (-0.35%) to $5.163 USD or $6.893 CAD
Mar Wheat (Kansas City): -1.3¢ (-0.25%) to $5.05 USD or $6.743 CAD
Mar Wheat (Minneapolis): -0.3¢ (-0.05%) to $5.70 USD or $7.611 CAD
Mar Canola: -0.2¢/bu (-0.02%) to $11.006/bu / $485.30/MT CAD or $8.243/bu / $363.44/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.

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