Jan. 23 – Soybean Prices Gain on Dryness in Brazil

Grain markets are mostly in the green again this morning but factors impacting soybean prices – namely Brazilian weather and trade war talks, continue to be the focus of most market makers.

“Don’t gain the world and lose your soul; wisdom is better than silver or gold.” – Bob Marley (Jamaican musician)

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Grain markets are mostly in the green again this morning but factors impacting soybean prices – namely Brazil weather and trade war talks, continue to be the focus of most market makers. Some issues in the Black Sea regarding wheat exports are also starting to lift wheat prices a bit. Canola prices have climbed back above $485 CAD / MT on some weakness in the Canadian Dollar as it dips back below 75 cents USD this morning.

On the farm services front, the USDA said yesterday that they’re going to re-open all FSA offices tomorrow (Thursday, January 24th) to offer services critical to this time of year, namely loan and tax document services. [1]

As producers get ready for tax season and putting some financial backing in place ahead of Plant 2019, the CEOS of the three major American farm credit lending institutions met with the National Economic Council this week saying that things on the farm economy front are getting close to a tipping point. [2] They specifically warned that, after 4 years of lower corn and soybean prices, more than a few farmers are about to run out of options and weather further financial distress. The only way they see an improvement in the situation is the end of the trade war with China.

On that note, Creighton University’s Rural Mainstreet Index (RMI) survey of banks in January suggests that rising loan defaults are the #1 economic challenge that these agriculturally-dependent community financial entities will face in 2019. [3]

Wheat Prices Gaining with Black Sea

Dwindling wheat stocks in the Black Sea – namely Russia and Ukraine – are starting to support wheat prices. Since mid-2018, the two Black Sea exporters have been shipping out wheat at a torrid pace and it’s starting to show. This is something that we discussed in detail in our recap of 2018 wheat prices a few weeks ago.

On Friday last week, the Russian Agriculture Minister said that they’re looking to control domestic grain prices (namely wheat prices) through the means of subsidies for rail freight. [4] By supporting the cost of freight to pull wheat from locations further away from the ports, this would help maintain a port price that’s still competitive on the global level.

The alternative, of course, is that the port price of Russian wheat would go up, since it’s costing exporters more to get it there. Should that be the case, then you’ll likely see wheat prices from the likes of the U.S., Canada, Europe, and Argentina become more competitive. As a reminder, here’s a look at how the USDA last projected the top wheat exporters from their December WASDE report.

2018 Wheat Exports - Top 5 Countries

In Ukraine, more than 83% of the agreed volume of milling wheat exports has already been shipped. This, despite more than 5 months still left to go in the 2018/19 shipping season / crop year. That said, the Ukrainian Ministry of Agriculture there has urged those in the wheat exports game to comply with the limitation memorandum set a few months ago. It’s to be determined if the players will all follow the rules!

Finally, in Belarus, some extremely cold weather could damage the dormant winter crop there, namely in southeastern areas of the Black Sea country. For perspective, Belarussian farmers seeded nearly 3 million acres of winter grains this past fall for the 2019 harvest.

Quick sidenote: one of the places that a lot of Black Sea wheat exports head is Egypt. The state grain buying agency there, the GASC, recently got $1 Billion in funding to help speed up the payment process to their wheat suppliers. [5] More recently, there has been a lot of question marks around Egypt’s ability to pay for their grain imports as a result of a foreign exchange crunch. This deal likely could mean that the financing associated with deferred payments will be taken out of offers provided to the GASC.

Translation: wheat prices offered to Egypt could drop by $3 – $4 USD / metric tonne.

Soybean Prices Weigh Brazil, Argentina Weather

Again, soybean prices found some strength on optimistic-sounding trade talks between China and the U.S. and some hot weather in Brazil.

Currently, the weather forecasters seem to have some consensus that the dry streak in at least Mato Grosso du Sul will last into early February. It’s estimated that now that 6% of the Brazilian soybean harvest is complete but it’s mostly in the north where combines are rolling.

Ray Grabanski of Progressive Ag Marketing says that the Brazilian soybean crop will lose “probably 2% to 4% yield potential per week of severe dryness from here on out, with the greatest losses in February if the dryness persists”. [6] This is mainly because most of these crops are in the bloom and podding stages of the growth cycle, so moisture is still important.

In Argentina, above-average precipitation is expected for roughly the southern two-thirds of the country. The problem, however, is that this area has already been getting most of the moisture this year and many are starting to wonder about yields. [7]

As per the Buenos Aires Grain Exchange, only 49% of the soybean crop in Argentina is rated in good-to-excellent (G/E) condition. Technically, that is an improvement week-over-week but if we break it down, the condition of double-cropped soybeans is rated 40.5% G/E while full-season soybeans are sitting at 52% G/E. For the latter, 42% of the crop is blooming and 5% of these full-season beans are already setting pods.

Ultimately, the weather situation in Brazil is almost starting to take priority for the direction of soybean prices instead of trade war talks.

To growth,

Brennan Turner

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

At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3338 
CAD, $1 CAD = $0.7498 USD)

Mar Corn: +1.3¢ (+0.35%) to $3.803 USD or $5.072 CAD
Mar Soybeans: +3.3¢ (+0.35%) to $9.125 USD or $12.171 CAD
Mar Soybean Meal (per short ton): +$0.30 (+0.1%) to $313.30 USD or $417.87 CAD
Mar Soybean Oil (cents per lbs): +0.20¢ (+0.7%) at 29.26¢ USD or 39.03¢ CAD  
Mar Oats: -2.8¢ (-0.95%) to $2.943 USD or $3.925 CAD
Mar Wheat (Chicago): +3.3¢ (+0.6%) to $5.245 USD or $6.996 CAD
Mar Wheat (Kansas City): +3.3¢ (+0.65%) to $5.13 USD or $6.842 CAD
Mar Wheat (Minneapolis): +4.8¢ (+0.85%) to $5.768 USD or $7.693 CAD
Mar Canola: +1.1¢/bu (+0.1%) to $11.022/bu / $486/MT CAD or $8.264/bu / $364.38/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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