Jan. 30 – Wheat Exports Creating Directional Confusion

Grain markets this morning are all in the green as U.S.-Chinese trade negotiations start back up but I’m watching wheat exports this week, namely out of Russia.

“You cannot change your destination overnight, but you can change your direction overnight.” – Jim Rohn (American motivational speaker)

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Grain markets this morning are all in the green as U.S.-Chinese trade negotiations start back up but I’m watching wheat exports this week, namely out of Russia. Of note is that canola prices continue to hover around that psychological $485 CAD / MT level while soybean prices have been slowly climbing over the past few weeks.

There is one month left before the “tariff truce” between the U.S. and China expires. Unfortunately, U.S. Commerce Secretary Wilbur Ross recently was quoted as saying the negotiations are miles apart! [1] Complicating the negotiations is that the U.S. has formally applied to extradite Huawei CFO, Meng Wanzhou, from Canada as the American has accused her and her company of “circumventing sanctions on Iran and stealing trade secrets from T-Mobile. [2]

Coming back to grain markets, Oil World is suggesting that soybean prices might start to see more benefit from the benefit of crop damage in South America. [3] The German analytical firm thinks that U.S. soybean exports should benefit and that volume expectations should be raised from 2Q2019 going forward. Cash canola prices are looking for their own sense of direction as exports and domestic crush have been relatively mute, especially compared to last year.

Flax prices are holding up today, but that might not be for long. [4] Agriculture Canada is expecting farmers to plant 988,000 acres of the oilseed in 2018/19, a jump of 15% year-over-year. Based on some higher yields, production is expected to climb 25% year-over-year to 615,000 MT. This aligns with the thinking from our outlook for the 2019 flax market, which mainly suggests that there is more downside risk in the market today for flax prices.

Questionable Russian Wheat Exports

In Monday’s FarmLead Breakfast Brief, I talked extensively about wheat prices and about some of the factors influence the market not only today, but also for the 2018/19 crop year. For a few weeks now, the rumour mill has been circulating as it relates to Russia’s wheat exports and whether or not they’ll put some restrictions in place or subsidize freight to get more grain to the port. This is because of the speculation (including by yours truly) that Russia’s exportable wheat supplies are running out.

That being said, so far in the 2018/19 crop year, Russia has apparently exported 25.3 MMT of wheat, up 11% year-over-year. This, despite Russian wheat exports this crop year are forecasted to drop 12% year-over-year. Clearly, there’s a discrepancy in terms of what Russia’s wheat exports are forecasted to do versus what’s actually going on.

2018-2019 Top 5 Countries - Wheat Exports

On that note, Russia’s Minister of Agriculture came out this week and suggested that the country’s wheat production in 2018/19 will come in around 67 MMT. [5] This is a bit surprising though as it’s been suggested that Russian wheat acres planted this fall were up year-over-year. From a total production scenario, the total 2019/20 harvest of all grains is expected to hit 108 – 110 MMT. From this, the expectation that Russia will export 42 MMT of total grains, including 36 MMT of wheat exports.

The other factor in this situation is that Russia’s grain watchdog is starting to put more eyes on the industry. [6] The “Rosselkhoznadzor” is reportedly looking to strengthen controls on wheat exports (and grains in general) in order to keep domestic grain prices down.

As I stated at the beginning of the 2019 calendar year, these sorts of nationalist/protectionist policies are playing head games with grain markets and traders for two reasons. The first, it’s a constant rumour mill of what is actually happening in Russia, and the second is now it opens up the door of wheat exports from other countries. Simply put, which countries are poised to capitalize on the window of opportunity? American and Canadian wheat exporter are certainly watching things closely.

That being said, we’ll really know how American wheat exports have been performing when, later this week, the USDA will release its first data in over a month!

To growth,

Brennan Turner

CEO
FarmLead
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contact@FarmLead.com
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Due to travel, there are no grain markets futures data in today’s FarmLead Breakfast Brief, but, for your convenience, you can find corn prices and other futures values right here.

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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