Grain markets this morning are in the green, as weaker U.S. corn and soybean exports data are getting trumped by weather and production concerns.
“The upside to anger? Getting it out of your system. You got to express your anger. Then you have room for more positive things.” – Reba McEntire (American musician)
July 29 – Do U.S. Soybean Exports Have Any Upside?
Grain markets this morning are in the green, as weaker U.S. corn and soybean exports data is getting trumped by weather and production concerns. To wit, traders are looking for a 1 point drop for both corn and soybean good-to-excellent (G/E) crop ratings in this afternoon’s crop progress report to 56% and 53%, respectively. For perspective, the five-year average for G/E ratings this time of year is 71% for corn and 67% for soybeans.
In last Friday’s FarmLead Breakfast Brief, I touched on durum and spring wheat yields, but I also mentioned a private forecast of average U.S. corn yields below 160 bushels per acre. If realized in the upcoming August WASDE, it would certainly be bullish for corn prices but grain markets are also being cognizant of the slowdown in U.S. corn demand. Given the high corn prices, we know there are certainly some substitution effects taking place in the feedstuffs market, with more wheat going into livestock rations. We also know that ethanol processors are reducing production as margins are thinning amidst the great supply in the market.  What’s pretty significant though has been the slowdown in U.S. corn exports, which, at 45.3 MMT, are now tracking nearly 8% behind last year’s pace through Week 46 of the U.S. crop year.
U.S. Soybean Exports Slumping Along
Through Week 46 of the 2018/19 U.S. crop year, total U.S. soybean exports have totaled a little over 40 MMT (or 1.47 billion bushels if converting metric tonnes into bushels). This, however, is tracking more than 22% behind last year’s pace. We all know that the weaker soybean exports volume is due to the trade dispute with China that essentially started about 15 months ago. That said, in June, the People’s Republic receipt of U.S. soybean exports fell 2.5% year-over-year to a little under 615,000 MT.  That’s also down 37% month-over-month from the 977,000 MT of U.S. soybean exports taken in by China in May 2019.
Comparably, Brazilian soybean exports to China also fell in June to 5.5 MMT, down 30% year-over-year and 13% from the 6.3 MMT shipped out in May 2019. One could easily posit that this is a result of weaker demand, due to a smaller pig herd in China, which is down somewhere between 20% and 40% year-over-year (or the equivalent of somewhere between 100 and 200 million animals!). The reality is that China drives the soybean exports market, buying nearly two-thirds of all global soybean exports. 
Some solid math work by FAPRI and the University of Pretoria suggests that if the trade dispute between China and the U.S. were to end to today and the 25% tariff on soybean exports was removed, U.S. farmer incomes would increase by about 4%.  However, due to poor margins and the thinner aforementioned demand, Chinese soybean crushers aren’t really in a rush to buy more American soybean exports.  That said, the Chinese government recently approved a purchase of a small number of soybeans and wheat from Russia!  Nearly two years ago, we pointed out that Russia is the new wheat king, but their soybean production was also trending higher at a nearly exponential level.
Ultimately, there needs to be a resolution to this trade dispute between the U.S. and China if we are to get U.S. soybean exports going again. This week, negotiators from both sides will meet in Shanghai but there remains subdued optimism in the markets that something will get done.  The main sticking points continue to be Huawei, American intellectual property, and agricultural trade. And so, while the trade war payments totaling $16 Billion USD help out a bit, a more consistent buyer of U.S. soybean exports is needed to really help the bottom line of American farmers. 
Canadian Wheat & Barley Exports Ending Year Strong
With one week to go in the 2018/19 Canadian canola grain marketing year, cumulative shipments are tracking about 10%, or one million tonnes, behind last year’s pace.  With only 9.05 MMT shipped after 51 weeks, it’s clear that the canola trade dispute with China (read: political dispute) has also had a profound impact, dropping weekly average movement down to about 160,000 MT/week since January. This is about a boatload less than what was being averaged before China canceled a few import licenses!
What has been impressive is Canadian barley and wheat exports. For barley exports, total 2018/19 shipments are tracking nearly 14% higher over last year’s record levels, with 2.14 MMT currently shipped. In fact, Agriculture Canada recently raised its estimate for both 2018/19 and 2019/20 Canadian barley exports, including malt products, to 3 MMT for both years! From where I’m sitting, the higher estimate for barley exports is a function of strong Chinese demand, the drought in Australia limiting production and export potential, and some poorer protein in the EU barley harvest. 
For wheat exports, there’s similar carryover of trade potential heading into the 2019/20 crop year. With one week to go, 2018/19 Canadian wheat exports are tracking 12% higher year-over-year with nearly 17.8 MMT shipped out. Recent downgrades to the Russian and EU wheat harvests (and subsequently, wheat exports) may open the door for both U.S. and Canadian wheat exports to pick up some more business in 2019/20.
More specifically, in Russia, SovEcon cut its production forecast for the 2019/20 wheat crop there by 2.9 MMT to 73.7 MMT (the USDA’s current estimate is 74.2 MMT) due to weaker-than-expected winter wheat yields and low moisture reserves.  Further, on the back of a smaller harvest, the analytical agency cut 2019/20 Russian wheat exports by an incredible 6.2 MMT to now sit at 31.4 MMT (USDA at 34.5 MMT. 
And in the EU, last week, farmers in France were ordered by the government to stop harvesting due to the heatwave and subsequent fires breaking after combines were catching fire.  Despite the stress of this time of the year, let’s remember to put safety first.
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 = $1.3162 CAD, $1 CAD = $0.7598 USD)
Sept Corn: +3¢ (+0.7%) to $4.175 USD or $5.495 CAD
Sept Soybeans: +3¢ (+0.35%) to $8.918 USD or $11.737 CAD
Sept Soybean Meal (per short ton): +$1.40 (+0.45%) to $306.30 USD or $403.16 CAD
Sept Soybean Oil (cents per lbs): +0.04¢ (+0.2%) to 28.67¢ USD or 37.736¢ CAD
Sept Oats: +0.5¢ (+0.2%) to $2.58 USD or $3.396 CAD
Sept Wheat (Chicago): +6.3¢ (+1.25%) to $5.023 USD or $6.611 CAD
Sept Wheat (Kansas City): +5.3¢ (+1.2%) to $4.373 USD or $5.755 CAD
Sept Wheat (Minneapolis): +2.3¢ (+0.45%) to $5.268 USD or $6.933 CAD
Nov Canola: +2¢ (+0.2%) to $10.238/bu / $451.40/MT CAD or $7.778/bu / $342.95/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.