Jan. 28 – Wheat Prices Climb as U.S. Government Re-Opens

Grain markets open the last trading week of January with only oats and wheat prices in the green. Some more positive news though is that the U.S. government is finally open!

“You cannot open a book without learning something.” – Confucius (Chinese philosopher)

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After the longest shutdown in history, a deal was made between the talking heads in Washington to fund the government for the next 3 weeks, which will get the government workers finally paid. It will also give the White House and Congress more time to discuss the main division between the two sides: border security. U.S. President Trump was very clear that he’s open to the idea of another shutdown if the two sides cannot come to an agreement on how to deal with the U.S.-Mexican border.

With the government back open, the big question everyone in grain markets is asking is, “when will the USDA put out the data?” [1] The next WASDE report is scheduled for a Friday, February 8th publication and the USDA is now confirming that that indeed will happen. [2]

Hightower Commodities says that, based on the current price ratio between December 2019 corn futures and November 2019 soybean futures, they are expecting American farmers to plant 91 million acres of corn and 86 million acres of soybeans for the 2019/20 crop year. [3] They’re also expecting final 2018/19 U.S. average corn yields to be lowered with the release of the pent up government data.

Hightower says that, under this scenario, and a ten-year trendline average corn yields of 176.5 bushels per acre in 2019/20, this would lead to the tightest stocks-to-use ratio since 2012/13. At 7.8%, this would also be the second-tightest since 1995/96 and the third-lowest since 1960/61. As mentioned in Friday’s Breakfast Brief, there is certainly a bit of a bullish scenario for corn prices that traders are starting to recognize.

P.S. I’ll be in Edmonton this week at the FarmTech Conference, presenting on Tuesday afternoon and then again on Thursday morning. [4] Also, stop by our booth in the tradeshow area to give some feedback on the newest tool we’ve been working on at FarmLead to help make cash grain trade easier.

Less Chinese Interest in Canadian Canola Exports?

AgriCensus is reporting that Chinese soymeal prices have climbed about 3% in the past week as the country is seeking to import protein feedstuffs other than Canadian canola meal. This is mainly tied to the political tension between the two countries since Canadian border security arrested Huawei’s CFO for extradition purposes to the United States. On that note, the U.S. has until this Wednesday, June 30th, to officially process the paperwork to move Meng Wanzhou.

Back to canola, market rumours suggested that there up to nine ships of Canadian rapeseed last week that were unloaded or waiting to be unloaded, but the Chinese government was prohibiting processors from crushing the seed. As such, this is providing support for additional soymeal buying.

For perspective, through Week 25 of the 2018/19 crop year, Canadian canola exports are tracking nearly 10% lower  year-over-year with just 4.76 MMT shipped out.

2018/2019 Week 25 Canadian canola exports - weekly

Worth noting is that Agriculture Canada’s most recent crop estimates dropped 2018/19 canola exports by 500,000 MT to 11 MMT. Conversely, they estimate 2019/20 Canadian canola exports at 11.2 MMT! This comes from 23.1 million acres of canola getting seeded this spring (a new record & nearly 7% above the five-year average) and average yields of 39.4 bushels per acre for a 20.5 MMT in canola production.

2019/20 AAFC Estimates - Canola Exports, Production

Wheat Prices Build on Rumours

Wheat prices continue to be supported by some of the colder North American weather and the dwindling exportable supplies in the Black Sea. This a result of a certainly smaller 2018/19 wheat output in these countries, notably Russian wheat production down 15% and Ukraine’s wheat harvest down 7% year-over-year. Add in Australian production dropping 22% from 2017/18 and the EU wheat harvest decreasing 9% year-over-year, and there is some bullish buzz for wheat prices!

Supporting the buzz for stronger wheat prices was a rumour last week that China was interested in buying up to 7 MMT of American wheat. While it was welcomed news and it helped hard red spring wheat prices a bit, the buzz lost some strength when it was announced that only an unknown buyer purchased just 40,000 MT of U.S. hard red spring wheat for the destination of China.

While the rumours of U.S. wheat exports has helped wheat prices a bit, it was Agriculture Canada’s updated crop estimates on Friday that caught my attention. In it, AAFC raised its estimate for 2018/19 Canadian wheat exports to 18.7 MMT, up 200,000 MT from their previous report and 7% above 2017/18’s shipments.

This number is precariously close to a new record, something that I think is possible, considering that through Week 25, Canadian wheat exports have nearly reached 8.9 MMT. This is almost 20% higher compared to the same time a year ago.

2018/2019 Week 25 Canadian non-durum wheat exports - weekly

The AAFC also raised their expectations for 2018/19 wheat prices by $5 CAD / MT to average of $230 CAD / MT (or $6.80 CAD per bushel). Keep in mind though that this includes winter wheat prices.

2019/20 AAFC Estimates - Wheat Prices, Ending Stocks

Worth also mentioning from Ag Canada’s estimates is that the government agency expects Canadian farmers to seed 20.4 million acres of non-durum wheat in 2019/20. This would be a 9% jump over 2018/19’s acreage and 11% above the 5-year average. From those acres, and average yields of a little more than 52 bushels per acre, the 2019/20 Canadian wheat harvest will top 28.1 MMT. This would be 8% higher than 2018/19 and 15% above the five-year average!

With the bigger crop, wheat ending stocks in the Great Wheat North will push from the 4.2 MMT they’re estimated to close 2018/19 at, up to 5.5 MMT for 2019/20 carryout. Ultimately, one of the conclusions that can easily be made is that today’s wheat prices likely won’t be available a year from now, especially when all the aforementioned countries who saw lower wheat production in 2018/19 are planting more wheat in 2019/20.

To growth,

Brennan Turner

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

Due to travel (literally sending this to you from 35,000 feet!), there is no futures prices in today’s Breakfast Brief but you can view them all 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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