Grain markets this morning are mostly lower as demand for things like soybean & lentil exports are pushing up against weather & production potential.
“Be still when you have nothing to say; when genuine passion moves you, say what you’ve got to say, and say it hot.” – D.H. Lawrence (English poet)
Hot Lentil Exports, Cooling Soybean Exports?
Grain markets this morning are mostly lower as demand for things like soybean & lentil exports are pushing up against weather & production potential. Wheat prices are taking a fall this morning as healthy rains in drier areas is putting the bears in charge. Outside grain markets, this week is a pretty big one on the macro front as, on Thursday, we’ll get the 2Q2020 American GDP print from the U.S. commerce department and heading into the report, the market is expecting to see a year-over-year contraction of 33%! 
While everyone knows the number is going be bad, investors are deciding if Federal Reserve monetary policy and our fiscal policy from the US government is going to be able to be enough of a crutch to keep the economy going. In my opinion, with no viable solution to solving the COVID-19 virus for at least another year, there’s A LOT of downside risk and like Elon Musk said on Friday, unless more stimulus goes directly into the pockets of consumers, we’ll be dealing with more economic headaches in the coming weeks and months, not less. 
Speaking of reports, later this afternoon we’ll get the weekly crop progress report from the USDA, grain markets are expecting to see slight improvements in both corn and soybeans, by 1 point. If realized, this would put U.S. corn and soybean good-to-excellent (G/E) ratings at 70% each. More attention is being given to western parts of the Corn Belt, namely western Iowa, where most of the region is categorically in moderate-to-severe drought. 
While grain markets know not to price grain according to just one production region, this is likely providing a little support for corn prices for the time being. That said, good weather is still needed for the next month and a bit, but the weather premium window is closing and expectations are that corn prices will head back to $3 USD/bushel on the futures board.  In that line of thinking, money managers increased their net-short position in corn futures by about 7,000 lots last week to sit at their largest bearish position so far in June.
Soybean Exports Competition is Real
While I was talked about the decent pace of Chinese purchasing of US corn exports in a Breakfast Brief a few weeks ago, I also mentioned China’s frothy demand for Brazilian soybean exports. In that post, I mentioned how it was estimated how roughly 85%, or 9.66 MMT, of China’s 11.16 MMT of soybeans imported in June came from Brazil. Well, Chinese customs officials came out with an updated number, saying that they actually imported 10.51 MMT from Brazil in June, a new record for any month and nearly double what was shipped from Brazil to China in June 2019.  It was also up nearly 20% from the 8.86 MMT of Brazilian soybean exports imported by China in May 2020. Comparably, China brought in just under 270,000 MT of American soybean exports in June, down 56% year-over-year and 46% from May.
Something worth pondering on is that China had a record low supply situation of soybeans back in March. Today, soybean supplies in China are sitting at 7.4 MMT, the highest they’ve been since November 2018 and double what they were back in March. That said, Brazil is still shipping out soybeans like their life depended on it! Brazilian grain exporter association, Anec, is estimating that, based on current shipping line-ups and sailings, Brazil’s soybean exports in July will total 8.8 MMT. This would be up nearly 50% from the 6 MMT sailed in July 2019.
In terms of new crop soybean exports, demand continues to be fairly solid, and if China were to make good on its Phase One trade deal terms, the U.S. soybean balance sheet should get a lot tighter. However, China has a long way to go to meet said Phase One targets, and talk is cheap when it’s easy to buy and then cancel shipments. That said, what’s favouring U.S. soybean exports going forward is the U.S. Dollar hitting its lowest level since January (should help international purchasing power) and the fact that Brazil is running out of soybeans to ship out!
While most of the attention will be paid to 2020/21 soybean exports sales, 2019/20 American shipments are still tracking 3% below last year with 38.81 MMT sailed through Week 46 (or 1.426 Billion bushels if converting metric tonnes into bushels). With 6 weeks left in the U.S. soybean crop year, it’s worth the reminder that the USDA is expecting a 2019/20 total in U.S. soybean exports of 44.91 MMT, or 1.65 Billion bushels)
Lentil Exports Strengthen but Prices Soften
With limited competition on the railroads, Canadian grain, oilseed, and pulses exports have performed phenomenally over the last few months. Specific to the pulses category, Canadian lentil exports are tracking nearly 3x what they were a year ago with 1.13 MMT shipped by licensed exporters, according to the CGC. While this doesn’t account for the non-licensed exporters, AAFC is banking on this accelerated pace of lentil exports, as they raised their 2019/20 lentil exports forecast by 200,000 to 2.4 MMT. If realized, this would be the first time since 2014/15 that Canadian lentil exports have outpaced production.
It’s also one of the reasons that AAFC says Canadian lentils stocks-to-use ratio will fall to a very tight 3.6% or 100,000 MT carryout. Year-over-year this is a major drop in the stocks-to-use ratio column (2018/19 was 26%!) while ending stocks of just 100,000 that AAFC is now forecasting would be an 85% drop. This intuitively looks bullish for lentil prices but I’m a bit cautious as the outlook for the current Canadian crop is pretty positive: 90% of Saskatchewan pulses are either developing normally or slightly ahead of the norm, while 90% of Alberta’s lentils are rated in G/E condition.
Going forward, the strong pace of lentil exports should continue into the 2020/21 crop year (which starts this Saturday!?! Where has our summer gone!?!). The obvious difference from 2019 to 2020 growing campaigns is obviously the production number, thanks to planted acreage jumping by 12% to 4.233M acres. Therein, with Canadian lentil production climbing 14%, or 308,000 MT, year-over-year, ending stocks should bump up a bit to 175,000 MT.
Looking at the big picture, demand for pulses like lentil exports is expected to continue to grow, according to the UN’s Food and Agriculture Organization.  The FAO is currently forecasting that Canada will ship out 7 MMT of all pulses by 2025, albeit the growth is largely attributed to demand for peas, not lentil exports. More specifically, Pulse Canada says that “There are no signs that Chinese demand for yellow peas will diminish, and in fact, with the investment we’ve seen in the fractionation industry.”
However, the big asterisk will continue to be India as they are not only the largest consumer of pulses, but also the largest producer. That said, India is receiving healthy monsoon rains this year, with moisture totals so far coming in 10% above average.  Thanks to the rains, kharif (summer) crop planting in India is out to a fast start, and this should put some pressure on lentil prices and exports, as tur/pigeon peas, being planted now, compete with green lentils. While no one is expecting a bumper crop in India, the healthy monsoon rains is also bearish in the sense that India may re-instate its higher import tariffs. Nonetheless, we’re still seeing some healthy prices on the Combyne Marketplace today like 30 cents/lbs in west central Saskatchewan for old crop large green lentils or 19 cents/lbs for #3 small red lentils in south central Saskatchewan.
At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3377 CAD, $1 CAD = $0.7476 USD)
Sept Corn: -0.3¢ (-0.1%) at $3.26 USD or $4.361 CAD
Sept Soybeans: unchanged at $8.988 USD or $12.023 CAD
Sept Soybean Meal (per short ton): +$2.20 (+0.75%) to $295.70 USD or $395.56 CAD
Sept Soybean Oil (cents per lbs): -0.35¢ (-1.15%) to 29.57¢ USD or 39.56¢ CAD
Sept Oats: -1¢ (-0.35%) to $2.845 USD or $3.806 CAD
Sept Wheat (Chicago): -7¢ (-1.3%) to $5.325 USD or $7.123 CAD
Sept Wheat (Kansas City):-5.5¢ (-1.2%) at $4.44 USD or $5.939 CAD
Sept Wheat (Minneapolis): -3.8¢ (-0.75%) to $5.115 USD or $6.842 CAD
Nov Canola: -1.1¢ (-0.1%) at $11.05/bu / $487.20/MT CAD or $8.26/bu / $364.21/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.