Grain markets are in the red as we end July on trade war rumours, weather, and crop progress data flip flop for attention from the complex.
“Knowledge comes, but wisdom lingers. It may not be difficult to store up in the mind a vast quantity of facts within a comparatively short time, but the ability to form judgments requires the severe discipline of hard work and the tempering heat of experience and maturity.” – Calvin Coolidge (30th President of the United States)
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July 30 – Trade War, Weather, & Crop Progress Top of Mind
Grain markets are in the red as we end July on trade war rumours, weather, and crop progress data flip flop for attention from the complex. President Trump recently suggested that he thinks the Chinese will wait until 2020 to get a trade war deal done, mainly because that’ll be closer to the next U.S. Presidential election.  However, with the trade war still firmly on, China has fallen from first to fifth in terms of ranking of the largest buyers of American food and agricultural products.
Monday’s crop progress report showed us that the U.S. corn and soybean crops continue to be about a week to two weeks behind in terms of development. It’s a bit of a different story for the cereals though as crop ratings and crop development are relatively in line with years past for the likes of U.S. spring wheat, barley and oats.
Fertilizer and crop inputs player Nutrien says that their forecasting U.S. corn acres to jump significantly in 2020 to 95 million.  The firm is basing their estimate on how current December 2020 corn prices on the futures board (around $4.15 USD/bushel) is buying acres today. Should you see a bit of a rally in corn prices this fall due to production shortfalls (which I’m expecting), 2020 corn prices could easily get back up to the $4.50 level and indeed, should they materialize, I think that those values should be locked in aggressively by producers. This is mainly because, with 95 million corn acres, you can bet corn prices will fall back below $4 by next summer.
Weather and Wheat Production
Last Friday, I talked about the potential for American wheat yields to come in a little bit below average, after last week’s crop tour. Where wheat yields are surely negative is in Brazil as a recent frost has damaged the crop in the state of Parana, which means that Brazil will likely need to import more wheat this year.  State government agency Deral estimates that total wheat production in Brazil will be 16% less than their previous estimate, with now just 2.72 MMT forecasted to be harvested. Before the frosts, the federal government estimated 7.2 MMT of wheat imports this year, mostly from Argentina.
Ironically, it looks like the 2018/19 Argentina could harvest a record crop this year of around 21 – 23 MMT, up from the previous record set last year of 19 MMT.  This is a function of acreage expected to expand by nearly 1.24M acres but also some good growing conditions and a favourable weather outlook going forward. With bigger wheat production in Argentina, but a smaller one in Brazil, Argentine wheat prices for 12% protein, according to AgriPac are sitting around $215 USD/MT (or $5.85 USD and $7.70 CAD per bushel if converting metric tonnes into bushels). This up about $15 USD/MT year-over-year.
Coming back to North America, Drew Lerner of World Weather Inc. says that we should not expect an Indian Summer this fall in Western Canada and the U.S. Northern Plains.  This basically means that the first frost is likely going to be an around average dates, which isn’t going to be a great thing considering that crops are 1 – 2 weeks behind in more than a few places, not to mention fields being quite stagey. Right now the Grain World crop tour is taking place across the Canadian Prairies with results expected later this week.  Agriculture Canada is currently expecting Canadian non-durum wheat production to come in at 27 MMT this year, but that’s down 1.7 MMT from their previous forecast.
Trade War Getting Attention from Soybeans
In Monday’s FarmLead Breakfast Brief I discussed the upside potential for U.S. soybean exports, or rather, lack thereof until a trade war resolution is made between China and the United States. Recently, President Trump called out the Chinese government for not buying agricultural goods as they had promised in previous trade war negotiations.  As I put it on TD Ameritrade Network yesterday morning, China hasn’t been “walking the talk” when it comes to soybean purchases during this trade war.  Overall, total U.S. soybean exports are tracking more than 22% behind last year’s pace.
While China says that it’s been buying more American soybeans, May 2019 saw about 30 boats of U.S. beans go to China, while there were only about 8 boats in June.  The good news is that 9 boats of U.S. soybeans bound for China were inspected just last week, the most for a single week since February!  That said, U.S. soybeans are still expensive to options in Brazil or Argentina, with the latter country receiving some Chinese officials in August to show off some of their crush plants. [enter final] As a reminder, China is the #1 consumer of soymeal in the world, while Argentina is the #1 producer of the feedstuff.
Further, with the run-up in U.S. corn prices this spring/summer, Chinese firms “have no profit from importing U.S. corn.”  Also, the reality is that China’s demand for feedstuffs is slumping as the size of their pig herd continues to drop, thanks to African Swine Fever. In fact, Rabobank just put out a new estimate that China’s pig herd could decrease by as much as 50% compared to last year, or the equivalent of more than 200 million animals!  The good news is the meat demand in Asian and African markets continues to grow, with people in the latter enjoying “longer, healthy lives, according to The Economist. 
Tomorrow afternoon we’ll get the USDA’s June soybean crush report, which is expected to come in around 159.4 million bushels as per a survey of analysts from Reuters. For what it’s worth, U.S. soybean crush has run about 6% above estimates so far in the 2018/19 crop year, according to University of Illinois ag economist Todd Hubbs.  Further, with 1.734 billion bushels expected to be used through the first 10 months of the marketing year, only 350 million bushels are needed to meet the USDA full-year target of 2.085 billion bushels.
This demand though, combined with the weaker soybean exports means soybean ending stocks should still sit around 1 billion bushels. Mr. Hubbs posits that, to get carryout back below 500 million bushels, we’ll need to see average soybean yields in the U.S. closer to 44.7 bushels per acre. Currently, the USDA is estimating 48.5 bushels per acre. Until the next WASDE report on Monday, August 12th, soybean and other grain prices will likely remain rangebound as the debate will grow over yield predictions and a trade war resolution.
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 = $1.3141 CAD, $1 CAD = $0.761 USD)
Sept Corn: -2.8¢ (-0.65%) to $4.085 USD or $5.368 CAD
Sept Soybeans: -4.8¢ (-0.55%) to $8.795 USD or $11.557 CAD
Sept Soybean Meal (per short ton): -$0.60 (-0.2%) to $302.10 USD or $396.98 CAD
Sept Soybean Oil (cents per lbs): -0.10¢ (-0.35%) to 28.34¢ USD or 37.24¢ CAD
Sept Oats: -0.5¢ (-0.2%) to $2.57 USD or $3.377 CAD
Sept Wheat (Chicago): -5¢ (-1%) to $5.023 USD or $6.60 CAD
Sept Wheat (Kansas City): -4¢ (-0.9%) to $4.295 USD or $5.644 CAD
Sept Wheat (Minneapolis): -3.3¢ (-0.6%) to $5.255 USD or $6.905 CAD
Nov Canola: -3.9¢ (-0.4%) to $10.131/bu / $446.70/MT CAD or $7.71/bu / $330.94/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.