While we’re digging into barley prices a bit today, futures grain prices this morning are in the green, trying to rebound from yesterday’s sell-off.
“Every living being is an engine geared to the wheelwork of the universe. Though seemingly affected only by its immediate surrounding, the sphere of external influence extends to infinite distance. – Nikola Tesla (Serbian-American inventor)
Aug 2 – How are Barley Prices Affected by Corn, Trade War?
While we’re digging into barley prices a bit today, futures grain prices this morning are in the green, trying to rebound from yesterday’s sell-off. From a performance standpoint, corn prices lost about 7% for the month of July, while soybean prices basically ended July where they started.
One of the main reasons for the drop in grain prices yesterday is that President Trump announced that the U.S. will implement a 10% import tariff on the only $300 Billion of Chinese imported goods that haven’t been already taxed.  Given that China is a major soybean buyer, it doesn’t look like those 25% import taxes are going away any time soon.
Also in the outside markets, on Wednesday, the U.S. Federal Reserve lowered their interest rate by 25 basis points (or 0.25%) due to their concerns of the impact of the trade war with China on the U.S. economy, as well as slowing global economic growth.  While this is the first time they’ve made a cut in more than a decade, and that the Fed suggested that their interest rate cut this week wasn’t the start of an easing cycle, we, in fact, might just be getting started. More specifically, there’s likely going to be more pressure put on the U.S. economy and so, the market is now believing that there’ll be more cuts in the future to account for the trade policy coming from the White House. 
Estimating Canola, Corn, & Soybean Production
On a quick demand note, June’s soybean crush data suggests that 157.6 million bushels were used in June, nearly 2 million bushels below what the market was expecting to see and almost 8 million bushels below May’s crush volumes.
While we know China is buying more soybeans from Brazil, it appears that they’re buying more canola oil too. Chuck Penner of Left Field Commodity Research points out that Chinese canola oil imports have skyrocketed over the last few months.  This might be a function of replacing the smaller volumes of canola seed being imported but it’s hard to say at this point. Worth noting is that this past week’s Grain World crop tour in Western Canada estimates this year’s Canadian canola crop at 19 MMT off an average yield of 39.9 bushels per acre.  Last year saw an average canola yield of 39.8 bushels per acre and total production of 20.3 MMT, but that was mainly because there were more acres planted in 2018 versus this spring.
Also pushing grain prices lower yesterday was some weaker-than-expected export sales and better (read: cooler) weather forecasts for most of the growing regions in the United States. There is some buzz in the market that crops will get worse before they get better.  On a related note, INTL FC Stone has updated their forecast for the U.S. corn and soybean crops, estimating average yields of 167.4 bushels per acre and 47.2 bpa, respectively (the USDA is currently at 166 and 48.5). This would add up just under 14 billion bushels of total production for corn (or 355.5 MMT if converting bushels into metric tonnes) and nearly 3.75 billion bushels of soybeans (or 101.9 MMT).
As a comparison, Brazilian firm Datagro Consultoria estimates that the country’s 2019/20 soybean production will be a record of 125 MMT while the 2019/20 corn harvest would also be a new record of 104.3 MMT.  This soybean production number, if realized, would be a 7% jump over the 2018/19 harvest, but it’s really on the back of planted soybean acres expanding by 2% year-over-year to a new record of 90.94M acres.
What’s Moving Barley Prices?
Over the course of the past month, rain across Western Canada has brought down barley prices as buyers anticipate a better crop than once expected.  From the highs of near $290 CAD/MT delivered into Lethbridge that we saw trade on the FarmLead Marketplace just last month, feed barley prices have dropped about $40 to now sit around $250 CAD/MT. Comparably, average feed barley prices in Saskatchewan have now dropped below $200. Providing a little bit of support to both feed barley prices and malt barley prices has been the strong pace of barley exports, as mentioned in Monday’s FarmLead Breakfast Brief (alongside the update for wheat, canola, corn, and soybean exports).
In Australia, drought conditions continue to be seen in the eastern-producing states, which is always where a lot of the barley demand is in the country-continent. However, given the strong runup in barley prices last year, the USDA’s attaché in Australia is forecasting barley acres for the 2019/20 crop year in the Land Down Undaa to expand by about 12% over last year.  This includes an expected record number of acres seeded in Western Australia at the expense of wheat, mainly because barley prices are paying better than that of wheat.
On the trade front, China continues to be the biggest buyer of Australian barley as they were responsible for more than two-thirds of all barley exports from the country through the first 7 months of their marketing year (which starts November 1st). While total shipments have totaled 1.5 MMT less than the previous year, this is likely a function of the investigation that China has ongoing on Australian barley pricing. Japan is the second-largest market for Australian barley exports, but, like China, their shipments are down a bit year-over-year as well.
Staying in the barley market but moving east, Turkish barley production in 2019/20 is expected to come in at 7.9 MMT, according to the USDA’s attaché there.  This is down from an original forecast of 8.5 MMT thanks to poor rains and despite, Turkey’s barley acres growing by about 5% year-over-year to 9.4M acres.
Heading a bit north from Turkey, Kazakhstan’s agriculture ministry says that new record of 7.4M acres was planted in 2019, up 18% year-over-year. Accordingly, UkrAgroConsult believes that barley production in the Black Sea country could top 4.5 MMT, a new record and about 13% bigger than the 4 MMT taken off last year. Accordingly, it’s estimated that Kazakhstan’s barley exports could total more than 2 MMT this year.
Overall, we know China is buying more feed barley and while Australia might not be a go-to supplier this year, Canada seems poised to contribute a lot of supply to the People’s Republic again in 2019/20. However, the likes of Kazakhstan and other Black Sea barley producers could certainly be in the mix as well, thanks to these bigger harvests, but also the friendlier political relations than the current relationship with Canada. It’s not to say that barley will be caught in a trade war, but there are other barley suppliers out there other than just Canada and Australia. For barley prices in general, the crop is looking pretty good and this will weigh on values. At a more simplistic level, should we see corn prices continue to pull back, then it’s likely that feed barley prices will too.
Have a great weekend!
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 = $1.3245 CAD, $1 CAD = $0.755 USD)
Sept Corn: +3.8¢ (+0.95%) to $3.965 USD or $5.252 CAD
Sept Soybeans: +5.8¢ (+0.65%) to $8.585 USD or $11.371 CAD
Sept Soybean Meal (per short ton): +$1.90 (+0.65%) to $297 USD or $393.38 CAD
Sept Soybean Oil (cents per lbs): +0.12¢ (+0.45%) to 27.92¢ USD or 36.98¢ CAD
Sept Oats: +2.5¢ (+0.95%) to $2.61 USD or $3.457 CAD
Sept Wheat (Chicago): +3¢ (+0.65%) to $4.788 USD or $6.341 CAD
Sept Wheat (Kansas City): +3¢ (+0.7%) to $4.188 USD or $5.546 CAD
Sept Wheat (Minneapolis): +2.8¢ (+0.55%) to $5.213 USD or $6.904 CAD
Nov Canola: +6.1¢ (+0.6%) to $10.086/bu / $444.70/MT CAD or $7.615/bu / $335.75/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.