Grain markets this morning are mostly in the green, but trade flows are putting pressure on the likes of canola but supporting lentil prices.
“The most reliable way to forecast the future is to try to understand the present.” – John Naisbitt (American author)
Lentil Prices, Weather Forecasts, & Trade Deals
Grain markets this morning are mostly in the green, but trade flows are putting pressure on the likes of canola but supporting lentil prices. Good rains in South America weighed on soybean prices, as they’re likely to help speed up the pace of planting, which AgRural pegged at 46% as of last week, below the seasonal average of 60% planted by now. That said, soybean and corn prices are back in the green this morning as optimism around trade war talks and Harvest 2019 pressures are giving the bulls ground.
In Monday’s crop progress report, the USDA said that the U.S. corn harvest is 55% complete, while the soybean harvest is 75% done.  Simply put, Harvest 2019 continues to pace behind both the pre-report expectations of 58% for corn and 77% for soybeans, and the five-year averages of 75% and 87%, respectively. Farmers in the Western Corn Belt and the Northern Plains are the furthest behind, including North Dakota which only has 10% of its crop harvested (usually at 60% by now). Minnesota, America’s #4 corn producer, is only at 44% complete (75% average), while farmers in Iowa have finished harvesting just 43% of their corn fields (72% average).
That said, more snow is in the forecast for the western Corn Belt this week. Further south in Texas and Oklahoma, heavy rains are expected. There is also a potential for snow as temperatures dip below freezing, just as winter wheat seeding has finished up. The Canadian Prairies are seeing some very frigid temperatures, with the thermometer dipping down to almost -20 degrees Celsius in Red Deer, AB last night, where some of the FarmLead team is for the Agri-Trade Expo this week. If you’re headed there, be sure to stop by our booth on the Centrium Concourse, get a T-shirt or hat, and learn about our newest innovation for cash grain trade. I’ll also be in Red Deer on Friday!
China Needs Ag Commodities (Badly)
Yesterday we got some solid news on the trade war front that China has lifted its ban on Canadian beef and pork imports.  After a four-month ban, it’s becoming clear that China is scrambling to deal with a reduced supply of pork and the subsequent explosion of meat prices there, something I’ve talked about lot, including last Wednesday’s FarmLead Breakfast Brief. In addition to re-approving Canadian pork and beef, China also approved the imports of Brazilian offal, which includes byproducts like organs and is potentially a $2 Billion USD/year market in China. 
New Chinese ambassador and former Managing Director of McKinsey & Company, Dominic Barton is clearly working on repairing relations between Ottawa and Beijing and this removal of the import ban on Canadian meat is a good first step. That said, while there were some canola discussions between Canadian and Chinese officials at the WTO in Switzerland last week, it’s more likely that China will continue to import canola through third parties, notably the UAE.  That said, domestic Canadian canola crush volumes are cruising along with 2.46 MMT processed through Week 12 of the 2019/20 crop year.  That’s up 28% year-over-year and 30% above the five-year average. Comparably, Canadian canola exports are in line with last year and the five-year average with just over 2 MMT sailed so far.
Conversely, a few weeks ago I mentioned that American soybean exports are at a pivotal moment with China. Washington and Beijing are reportedly close to signing “Phase One” of a trade war deal, which would see China import more American agriculture goods, while the U.S. would eliminate or ease current tariffs on Chinese goods. There’s been suggestion that Presidents Trump and Xi will meet and sign the deal in Muscatine, IA, a place that Xi has stayed twice in the past 3.5 decades, and also where he befriended current U.S. Ambassador to China, Terry Branstad. 
Lentil Prices and an El Nino
Talking about next year already, an international team of scientists say that there’s an 80% chance that we’ll see an El Nino event in 2020.  That being said (and as usual), we should be taking these forecasts with a grain of salt as, back in April, the U.S. Climate Prediction Center said an El Nino was supposed to happen this past summer.  While it did bring a ton of rain during the spring and summer months to the American Midwest, above-average precipitation did not hit the Canadian Prairies until much later in the summer.
Looking outside of North America, El Nino tends to bring a lot of dryness to eastern parts of South America, southeast Asia, Africa, and Australia. Worth mentioning is that a recent survey of Aussie farmers by INTL FCSTone says that the wheat crop there will come in at 15.54 MMT, well below any other current estimate (the USDA is at 20.5 MMT). 
While Australian has been dealing with dry conditions for the past 3 years, the last El Nino event brought back to back droughts to India in 2015 and 2016 as it severely impacted the monsoon rains. We can all remember how pea and lentil prices saw record highs as Indian buyers sought out supply to make up for the significant production shortfall in their country.
On that note, lentil prices in Western Canada have been finding some legs. This is especially true for large green lentil prices as traders in India have been concerned about the size and quality of the pigeon pea crop there.  Since large green lentils are a substitute for pigeon peas, higher pigeon pea prices means higher green lentil prices.
There have been some concerns about the quality of this year’s lentil harvest, but the large majority of the crop was taken off before frost, snow, and rain fell on the Canadian Prairies. In fact, in late September, the Saskatchewan provincial government was rating 16% of the lentils harvest as a #1, 55% a #2, and 22% a #3 (at that time, 75% of the lentil harvest was complete).  Also worth noting is that Canadian lentil exports have started to slow down a bit, but they are still tracking well. Through week 12 of the 2019/20 crop year, nearly 200,000 of lentils have been exported, which is more than 1.5x better than what we saw at this time a year ago.
To help set expectations, we shouldn’t be expecting 2015 and 2016 lentil prices to return this year. Further, it’s unlikely that record lentil prices would return next year either. However, the market has clearly re-established where lentil prices should be (relative to supply and demand) and with the foundation set, lentil prices could certainly stay elevated in 2019/2020 (compared to 2018/19 at least!).
Due to some early morning travel, grain futures prices are not in this FarmLead Breakfast Brief but you can find them here.
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