Grain prices are all in the red as, this morning, we dig into canola prices, wheat harvest, and some of the outside factors influencing the complex.
“The accolades, just like the scrapes and bruises, fade in the end, and all you’re left with is your ambition.” – Nicole Krauss (American author)
July 22 – Will Canola Prices Get off the Downtrend Track?
Grain prices are all in the red as, this morning, we dig into growing conditions, canola prices, wheat harvest, and some of the outside factors influencing the complex.
Last week’s heatwave was likely welcomed by a lot of fields looking to get some good stress on the crop but the heat won’t be all good, especially for the really late-planted crops.  That said, it’s expected that most of the Midwest will see less than half of their normal rains over the next week or so, according to Commodity Weather Group. Shallow root systems will be negatively impacted by the heat if there’s not much moisture for them to latch on to, albeit it’s worth mentioning that today’s corn and soybean hybrids are much better at withstanding these extreme conditions. With the heat though, fund managers increased their net-long position in corn futures to a 14-month high.
On the political front, while the U.S. and China are still having their phone call trade war talks happening, some companies are looking to buy more U.S. product.  One could look at this as an olive branch of goodwill, but we’re still waiting for shipments of previously bought U.S. soybeans by China to get shipped.
Steady Canola Prices, But Stocks Lowered Again
Last Friday, Agriculture Canada shared its most recent estimates for the upcoming 2019/20 crop year.  In most of these reports, I’ve been eyeballing the canola numbers, especially after AAFC put out an ending stocks number of 5.3 MMT in their May publication. However, Ag Canada dropped their estimate for Canadian canola carryout for the second straight month. Despite the 1.325 MMT drop in forecasted 2019/20 stocks over the last two months, the AAFC’s estimate for canola prices has stayed the same.
In their July report, Canadian government officials lowered 2019/20 anticipated production by 325,000 MT but did acknowledge that there could be more cuts yet. Specifically, Agriculture Canada wrote in their report,
“Soil moisture remains deficient across large parts of Manitoba and Southern Alberta. Yields will be more dependent than usual on rains during the months of July and early to mid-August. AAFC is still assuming trend yields with any revisions to yield estimates likely to be downwards.”
While rain showed up just in the nick of time, Western Canadian crops are far from the bin, especially canola.  I think that, indeed, Ag Canada’s current average yield estimate of 39.43 bushels per acre could be on the low-side of things. Accordingly, given the decline in canola prices from their June rally, we should expect to see a little bit of rebound in the coming weeks. Of course, a resolution to the trade dispute with China would help, with my bet that it could easily prop up canola prices on the futures board by about $25 – $40 CAD/MT. Cash values would likely follow the futures canola prices accordingly, albeit basis would probably widen a bit (as is usually the case in any crop when the futures rally).
Looking elsewhere, rapeseed acreage in Russia this year is pegged at 4.18M acres with expectations that the crop will production about 2.27 MMT.  It’s worth noting that Russian rapeseed acres, as a function of total oilseed acres, has climbed from 4% to nearly 12% over the last 2 decades. Soybean acres have also jumped considerably, from 8% of all oilseed acres back in 2000 to 21% today, with 7.17M acres seeded for the 2019/20 crop year.
Wheat Prices Pressured by Wheat Harvest
As mentioned in last Monday’s FarmLead Breakfast Brief, wheat prices continue to see a lot of volatility. However, wheat prices lost some ground last week as the combination of weaker corn prices and the wheat harvest accelerating in the North Hemisphere was enough for bearish sentiment to take over.  While protein is running a bit below average for the U.S. wheat harvest, feedlots are happy to take the wheat as a substitute for expensive corn.
In Europe, the wheat harvest is ongoing, and numbers are looking pretty good despite the late-June heatwave that hit the continent. The above-average warm weather in the E.U. caused analysts to trim their production expectations in June but now numbers are being revised higher again as combining accelerates. Through July 15, 33% of the French soft wheat crop was in the bin, and while that’s nearly half of the 66% seen a year ago, it is a marked improvement from just 9% combined the previous week. 
Estimates for the soft wheat harvest in France is now sitting closer to 38 MMT (34 MMT last year), while Germany’s haul is expected to jump nearly 20% year-over-year to 23.85 MMT. Looking elsewhere, analysts are expecting the UK wheat harvest to come in around 15 MMT (14 MMT last year) while Polish farmers should combine 10.7 MMT, up nearly 10% from last year. The biggest rebound might be in the Baltic Sea, especially Sweden, where the country’s farm co-op is estimating production to double year-over-year to 3.2 MMT.
Overall, we’re likely seeing the beginning of some seasonal lows for all grain prices, not just wheat or canola prices. Unless there’s a major weather event that happens in the next 3 to 5 weeks, wheat prices specifically should trade sideways to lower before beginning to creep higher again. Probably the main catalyst that analysts are pointing for wheat prices to find some strength again will be the aforementioned feed demand.  Bottom line here is that you shouldn’t be selling into the weakness that we’re seeing today and instead, look for the fall rally that we usually get (and as I mentioned in last week’s Alberta Wheat Commission’s Market Insider column).
At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3043 CAD, $1 CAD = $0.7667 USD)
Sept Corn: -5¢ (-1.15%) to $4.258 USD or $5.553 CAD
Sept Soybeans: -1.5¢ (-0.15%) to $9.058 USD or $11.814 CAD
Sept Soybean Meal (per short ton): -0.20¢ (-0.05%) to $312.30 USD or $407.33 CAD
Sept Soybean Oil (cents per lbs): -0.02¢ (-0.05%) to 28.18¢ USD or 36.76¢ CAD
Sept Oats: +0.8¢ (+0.3%) to $2.725 USD or $3.554 CAD
Sept Wheat (Chicago): -3.3¢ (-0.65%) to $4.993 USD or $6.512 CAD
Sept Wheat (Kansas City): -2¢ (-0.45%) to $4.38 USD or $5.713 CAD
Sept Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.28 USD or $6.887 CAD
Nov Canola: unchanged at $10.197/bu / $449.60/MT CAD or $7.818/bu / $344.71/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.