Jan. 16 – Grain Prices Find Hump Day Rebound

Grain prices are all in the green this morning after the last two days of selling, prompting the usual comments about bargain-buying.

“If I’m trying to rebound after a bad hole, I just go back to tempo and process and rhythm, and I cling to my routine.” – Zach Johnson (PGA Tour golfer)

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Grain prices are all in the green this morning after the last two days of selling, prompting the usual comments about bargain-buying. To help make sense of this sort of move, grain prices are basically telling us that traders have been exiting out of positions and/or profit-taking, which drives the market lower since there are more sellers than buyers. Then, they enter back into the market once the feeling is that the market is undervalued, meaning that there are more buyers than sellers and grain prices start to rebound.

In those two days of selling though, canola prices dropped below $480 CAD / MT as the market acknowledged some slower exports as well as recent political tensions between China and Canada. While the Canadian government still has the CFO of Chinese mobile phone giant Huawei on house arrest, the Chinese government recently accelerated the appeal process of Canadian man convicted of drug trafficking, changing his sentence from 15 years in prison to a death sentence. [1]

Speaking of tension with China but coming back to grain markets. a lot of the recent pushback on grain prices has been attributed to weaker optimism that a trade deal between China and the U.S. will come to fruition. This morning though, soybean prices are in the green thanks to it being recently announced that face-to-face conversations will be taking place in Beijing next week. [2]

Soybean Prices Higher on Renewed Buying Interest

Also supporting soybean prices is the buzz this morning that COFCO – the largest Chinese state grain-buying company – has been asking about U.S. soybean prices. [3] On that note, it’s worth mentioning that nearly 1 million pigs have had to be culled in China due to the spread of African Swine Fever across the People’s Republic! [4]

While most Monday’s FarmLead Breakfast Brief talk was about wheat prices, we did note that AgRural recently acknowledged some of the dryness issues in southern Brazil and reduced their estimate of Brazil’s soybean harvest to 116.9 million metric tonnes (MMT). It’s widely accepted that the earliest planted soybeans have not yielded as great as originally hoped for. [5] This week, Agroconsult dropped their forecast by 5.2 MMT to 117.6 MMT. Similarly, CONAB has downgraded their estimate to 118.8 MMT. [6] Last year, Brazil produced a record 119.4 MMT of soybeans!

Soybean exports out of Brazil this month will eclipse the previous record for the month of January of 1.5 MMT, but it won’t eclipse 2 MMT, as per AgriCensus calculations. Brazil definitely remains as the cheapest source of soybeans for Chinese crushers, but trade wires have been relatively quiet over the past few weeks.

While the USDA trade is nowhere to be found, private organizations like the National Oilseed Processors Association (NOPA) continues to operate full-tilt. Yesterday, we the NOPA crush number for December 2018, which showed 171.76 million bushels of soybeans were used by American processors (if converting bushels to metric tonnes, this would equal about 4.674 million metric tonnes). This is a new record for the month of December and 3.2% better than December 2017’s crush volumes.

I’ve said it multiple times before and I’ll say it again: the change in tradeflows have made the U.S. domestic soybean crush situation more important than ever. Further, U.S. soymeal is competitively priced as we know that, before the U.S. government shutdown, exports were tracking 10% higher year-over-year with 2.36 MMT shipped out.

Oil Prices Supporting Grain Prices, Not Movement?

While oil prices have been rocky, nowhere have they performed worse than for Western Canadian crude. Quorum Corp, who monitors Canadian grain movement, says that oil shipments won’t interfere too much with grain flows this year. [7] That is, unless it’s going south of the 49th parallel to the United States, which, would likely impact durum, oats, and hard red spring wheat trade the most.

Specific to oats, there’s been more attention given to the cereal as a reliable, potentially profitable option in the rotation for 2019. [8] As we mentioned in our 2019 outlook for the oats market though, we think current values are buying more acres and so I’m actually already 25% sold on 2019/20 new crop.

Returning to the grain movement topic, 80% of Western Canadian grain flow is going out to Thunder Bay or the West Coast. Even though there is issue of locomotives and train personnel needed to man these operations and thus the question gets asked, who gets priority? Oil or grain?

I doubt this issue will ever be fully solved unless a pipeline is built but it’s hump day (Wednesday) and I’ve barely had enough coffee to go down the worm hole of the current political environment. [9] I am quick to remind myself that since the Canadian government bought the Trans-Mountain Pipeline from Kinder Morgan, I am a shareholder in said stalled project.

To growth,

Brennan Turner

TF: 1-855-332-7653
@FarmLead on Twitter

At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3263 
CAD, $1 CAD = $0.754 USD)

Mar Corn: +2.3¢ (+0.6%) to $3.735 USD or $4.954 CAD
Mar Soybeans: +5.3¢ (+0.6%) to $8.985 USD or $11.916 CAD
Mar Soybean Meal (per short ton): +$1.40 (+0.45%) to $310.70 USD or $412.07 CAD
Mar Soybean Oil (cents per lbs): +0.02¢ (+0.05%) at 28.26¢ USD or 37.48¢ CAD  
Mar Oats: +3.5¢ (+1.2%) to $2.945 USD or $3.906 CAD
Mar Wheat (Chicago): +3¢ (+0.6%) to $5.14 USD or $6.817 CAD
Mar Wheat (Kansas City): +2.5¢ (+0.5%) to $4.98 USD or $6.605 CAD
Mar Wheat (Minneapolis): +1.5¢ (+0.25%) to $5.635 USD or $7.473 CAD
Mar Canola: +2.3¢/bu (+0.2%) to $10.814/bu / $476.80/MT CAD or $8.153/bu / $359.51/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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