Grain markets are lower as Monday’s crop progress report continues to be digested, and profits are taken off the board, despite some more challenging weather this week.
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June 19 – Next Week’s Crop Progress Report Will Drive Markets
Grain markets are lower as Monday’s crop progress report continues to be digested, and profits are taken off the board, despite some more challenging weather this week. We’ll dig into the various factors moving grain markets soon, but I just wanted to quickly touch on some political factors.
First, the Canadian federal government finally approved the expansion of the Trans-Mountain pipeline, after buying it from Kinder Morgan last year for $4.5 Billion CAD.  As a shareholder (read: taxpayer) in this government-owned pipeline, I’m glad to see this move forward, but so are many major investors who are asking “is Canada is open to energy investment dollars again?” If so, this will probably provide some strength to the Canadian Dollar in the short-term.
On the U.S.-China battlefront, the leaders of the two countries are expected to sit down face-to-face in Japan next week at the G20 Summit.  Ahead of the two Presidents meeting, trade negotiators are headed back to the table to try and put something together for executive signatures. In the meantime, the trade war subsidies that the U.S. government are offering American farmers are being challenged by other members at the World Trade Organization as unfair practices.  India is in the same camp of being challenged at the WTO as Prime Minister Modi there has pledged to boost farmer incomes.
What’s Bullish and Bearish Anymore?
There is more rain in the forecast for pretty much all North America’s growing regions, which is both bullish and bearish, depending what crops you’re focused on. For the bearish side of things, Western Canada continues to get some rains, albeit some aggressive storms have brought hail and a lot of rain at once. One example would be in Swift Current, SK where some flooding happened yesterday. However, this moisture is welcomed in an area that’s been hoping for a rain for a few months and is likely saving canola, hard red spring wheat, durum, and pulse crops. Southern and central Manitoba farmers were also grateful to finally get some moisture as well! 
Granted, it’s maybe too late for some fields but this is where I caution you to not wear “front-window” glasses, which is to say, what you see out your front window doesn’t equal the entirety of what’s going on. The bias can be strongly emotional, given the mental and financial attachment to your fields, but trying to understand why grain markets move the way they do ultimately involves separating logic from emotion.
On the bullish side of things flood warnings and flash flood watches are in effect for various areas around Ohio, Indiana, Illinois, and Nebraska. Not only has the wet weather challenged the pace of planting, but also the movement of commodities. The American waterway system have been significantly impacted, with many locks and dams closed or operating on a limited basis as Mike McGinnis of Successful Farming reports.  This, in turn, has negatively impacted river barge traffic.
As a result, trucking and rail transportation of grain has become much more important, and it’s becoming the better option for many farmers as basis levels at the river market are widening, simply because these elevators are full up with corn and soybeans that can’t go anywhere. Mike Steenhoek from the Soy Transportation Coalition probably said it best: “For agribusinesses, it’s the old phenomenon of if you can’t move product out your back door, you’re less willing to accept product through your front door.” Expectations across the ag industry in the American Midwest is that July will see very busy movement for grain, if it stops raining, that is. One that note…
Crop Progress Report Supports Corn, Soybean Prices
The USDA said in this past Monday’s crop progress report that U.S. corn is at 92% complete and soybean planting is 77% done. This means that, as of Sunday, June 16th, there is still 7.2M acres of corn and 19.5M acres of soybeans left to be planted! Next Friday, on June 28th, we’ll get the next acreage estimate from the USDA, but it’s unlikely to show fully baked in Prevent Plant acreage numbers, as that FSA certified acreage data doesn’t become available until October.  I would guesstimate that the USDA will acknowledge at least some reductions in both that acreage estimate but also the July and August WASDE reports. All this in mind, multiple major soybean-growing states are well behind their seasonal averages. Will next Monday’s crop progress report show any different?
To be blunt (again), this is unprecedented delays in seeding dates and, as a result, yield potential continues to be in question. However, the USDA said in this crop progress report that the corn crop’s good-to-excellent (G/E) rating stayed the same at 59%. This number and the first soybean rating in next week’s crop progress report might be a bullish surprise for the market next week because Bryce Anderson from DTN says that the next 7 days “maintains the very wet conditions across the Midwest and in much of the Southern Plains.”  The bullish side has to wonder who, if anyone, will still be planting the last week of June? Accordingly, I think next week’s crop progress report and the first one in July will be the driver of the range that grain prices settle into this summer.
On the wheat front in this week’s crop progress report, hard red spring wheat conditions were estimated at an average of 77% G/E across the U.S., down 4 points on the week. This was mainly attributed to Montana’s wheat rating dropping a significant 14 points in one week to 68% G/E. Winter wheat’s G/E rating was the same as last week at 64% G/E, which weighed on winter wheat prices. However, the wet weather has certainly slowed combining activity with just 8% of the crop in the bin. This is starting to get a bit behind the 25% seen harvested by this time a year ago and the five-year average of 20%.
Usually, I would asterisk any concern for this slow start to Harvest 2019, when the combines roll, we tend to push it until they plug. The only asterisk in this crop progress report (and probably next week’s crop progress report as well) is that, with the aforementioned rain, any harvest crop progress will be limited and the percentage will continue to fall behind their long-term averages. Further, with all this rain falling on a crop ready to be harvested, quality concerns are starting to mount. This immediately suggests different wheat characteristics like protein, moisture, and certainly vomitoxin and bleaching will be looked at more closely this year in the U.S. (for now, that is).
At 7:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3369 CAD, $1 CAD = $0.748 USD)
Sept Corn: -5¢ (-1.1%) to $4.505 USD or $6.023 CAD
Aug Soybeans: -5.5¢ (-0.6%) to $9.148 USD or $12.229 CAD
Aug Soybean Meal (per short ton): -$2.40 (-0.75%) to $321.10 USD or $429.28 CAD
Aug Soybean Oil (cents per lbs): +0.08¢ (+0.3%) to 28.41¢ USD or 37.98¢ CAD
Sept Oats: -11.8¢ (-4%) to $2.805 USD or $3.75 CAD
Sept Wheat (Chicago): -11.5¢ (-2.15%) to $5.24 USD or $7.005 CAD
Sept Wheat (Kansas City): -12.3¢ (-2.55%) to $4.648 USD or $6.213 CAD
Sept Wheat (Minneapolis): -5.5¢ (-1%) to $5.533 USD or $7.396 CAD
Nov Canola: -5.7¢ (-0.55%) to $10.739/bu / $473.50/MT CAD or $8.0333/bu / $354.18/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.