July 8 – Weather in Driver’s Seat for Next Six Weeks

Grain markets this morning are in the green on concerns that the hot, dry weather over the next few weeks is going to be too much for a crop that’s way behind in terms of development.

“No matter how good a driver you are, you have to have the right car and the right team behind you in order to succeed.” – Nico Rosberg (German F1 race car driver)

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July 8 – Weather in Driver’s Seat for Next Six Weeks

Grain markets this morning are in the green on concerns that the hot, dry weather over the next few weeks is going to be too much for a crop that’s way behind in terms of development.

Last week was a shortened week of trading due to Canada Day and the Fourth of July in America. Accordingly, volume was light, and the oilseeds complex saw the worst performance, highlighted by soybeans dropping almost 2% on Friday alone, This was mainly attributed to the ongoing trade dispute with China and big stockpiles revealed on Friday, June 28th by the USDA.

Futures prices through the first week of July 2019

Mixed Tensions Between the U.S. & China

Granted, there were some solid export sales numbers this week for U.S. soybeans, it wasn’t enough to keep traders from taking profits on Friday. Keep in mind that, through the first 9 months of the U.S. soybeans marketing year, just under 7 MMT of soybeans have sailed to China. This is down 75% year-over-year. Further, a total of 35.8 MMT of U.S. soybeans have been shipped to all destinations over those same 9 months, but it’s down 26% year-over-year and the smallest volume for that period in the last 6 years!

In demand news for soybean prices other news, there are reports that African Swine Fever is still breaking out in southern parts of China. [1] Unsurprisingly, Chinese officials are now admitting that they see “shortcomings” in the current plan/recommendations to stall the spread of the disease. [2] Cargill has finally come up with a blunt reality as they think that a 24% drop in the Chinese hog herd would be conservative and that it’ll be a decade before China’s pig population fully recovers from the ASF outbreak. [3] On the flipside, the agricultural giant thinks that there will be more demand for poultry products by Chinese consumers at the expense of the more expensive pork.

On the political front, after the G20 Summit in Japan, trade representatives between China and the U.S. will meet again this week but there is quite a bit of doubt in the markets that anything will change this month. [4]

Crop Progress Way Behind Last Year

While this year’s crop in the U.S. Midwest needs more heat, there are a few meteorologists who are pointing to 1993 as the comparable that 2019 might turn out to mimic. [5] Comparably, Drew Lerner from World Weather Inc. said last week that he does not expect the growing season to be extended for anything in the northern parts of the U.S. Midwest. [6] For Lerner, he’s looking at years like 1965, 1983, and 2001 as the ones to compare/contrast 2019 to. For some growing areas, it’s going to be a struggle all the way until the combines roll. [7] For the next week though, DTN’s forecast is looking pretty hot in Eastern Canada and southeastern parts of the U.S., including parts of the Corn Belt. [8]

Dry Weather is Expected through the middle of July in the U.S.

This afternoon’s crop progress report is expected to show crop ratings of 58% good-to-excellent (G/E) for U.S. corn fields and 56% for soybean crops. Comparably, last Monday we saw corn’s G/E rating at 56% (it was 76% a year ago) and soybeans at 54% (it was 71% a year ago). The worst crops are being found in the Eastern Corn Belt, notably Ohio, Indiana and parts of Northern Illinois. For example, in last Monday’s crop progress report, for Ohio, just 28% of soybeans and 31% of corn was ranked in G/E health. Spring wheat’s G/E rating in today’s crop progress report is estimated to come in at 77% (was 75% last week).

On the other side of the border, after some timely rains in mid-June, cereal crops are looking pretty good. However, for some other crops, namely pulses and oilseeds, it might’ve been too little, too late. For example, after I drove through about half of Saskatchewan the first week of July to visit with relatives, I am extremely doubtful that AAFC’s current average yield estimate of 39.4 bushels per acre will be realized. To back me up, just 35% of Saskatchewan’s canola crop is in G/E health through the first week of July.

Of course, we could have a late summer/fall that helps a canola crop in many places that is about 2 weeks behind development. If not though, we might see another harvest with a high green count. I do not think though that canola prices have fully factored in the issues with this year’s Western Canadian canola crop, instead, taking a wait-and-see approach.

Unlike Canola, Feed Barley Prices Are Paying

Finally, we end with feed barley, which continues to be one of the shining stars for Western Canadian farmers. While there was a bit of concern for production, most areas are seeing their barley crops growing just fine and new crop pricing has relaxed a bit. However, the demand structure for feed barley, both domestically and for export markets, is as strong as ever, and therefore, we’re seeing old crop feed barley prices delivered into Saskatchewan elevators at all-time highs (again). There is some bearish sentiment out there though that demand might suffer as a result of the Chinese ban on Canadian meat imports.

Saskatchewan feed barley prices through June 2019

Overall though, feed barley prices continued to be supported by the fact that Canada has benefitted from now major growing issues, unlike other parts of the world. [9] This is especially notable for Australia – Canada’s main barley competitor into the Asian markets – as the country is entering it’s 3rd year of drought and has lost some market share to Canadian exporters.

Overall, as we’re now into July, volatility in grain prices will subside a bit, unless there are some major trade issues resolved (pretty much, I’m just looking at you, China, regarding American soybeans and Canadian canola). More than anything, the market will be focused on the production potential for the majority of this month, with a pretty good idea of how good (or bad) the 2019 North American crop will be by the middle of August.

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

At 8:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3057 
CAD, $1 CAD = $0.7659 USD)

Sept Corn: +3.8¢ (+0.85%) to $4.425 USD or $5.778 CAD
Aug Soybeans: +2.3¢ (+0.25%) to $8.783 USD or $11.467 CAD
Aug Soybean Meal (per short ton): +$0.50 (+0.15%) to $306.30 USD or $399.92 CAD
Aug Soybean Oil (cents per lbs): +0.15¢ (+0.55%) to 27.71¢ USD or 36.18¢ CAD  
Sept Oats: +0.5¢ (+0.2%) to $2.788 USD or $3.64 CAD
Sept Wheat (Chicago): +1¢ (+0.2%) to $5.16 USD or $6.737 CAD
Sept Wheat (Kansas City): +2¢ (+0.45%) to $4.473 USD or $5.84 CAD 

Sept Wheat (Minneapolis): -0.3¢ (-0.05%) to $5.33 USD or $6.959 CAD
Nov Canola: +1.6¢ (+0.15%) to $10.058/bu / $443.50/MT CAD or $7.704/bu / $339.68/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.

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