Grain markets this morning are mostly green as bullish news for oil prices and supply concerns in South America and India are helping everything from soybean to lentil prices
“Every day, you have to prove yourself and convince – move forward and challenge yourself.” – Christine Lagarde (President of the ECB and former chair of the IMF)
Lentil Prices, Soybean Exports, & Freight/Labour Challenges
Grain markets this morning are mostly green as bullish news for oil prices and supply concerns in South America and India are helping everything from soybean to lentil prices. Snow falling in Western Canada yesterday has caused some concerns for Plant 2020 but the silver lining is that it came on April 2nd, not May 2nd.  There’s a lot of moving parts to the grain markets these days so the length of the Breakfast Brief is a bit longer and thus, a bit more time-consuming to put together!
Lentils Prices Looking Speculative
In the last week of so, we’ve seen lentils price on the Combyne cash grain marketplace pick up, both for old and new crop. This move by lentil prices has been largely speculative though as there continues to be concern over the rabi winter pulses harvest in India (something mentioned in last Wednesday’s Breakfast Brief), as well as countries securing food supplies while they can. In India, with labourers heading back to their village during the 21-day quarantine, there are serious fears of not only the ability to get the crop off, but also clean/process it, and take it to market.  Obviously this creates supply concerns, which push lentil prices (and that of other pulses) up a bit. At the domestic level in Western Canada, red lentil prices have made a more pronounced rally than green lentil prices.
I’ll asterisk this by saying we did see some activity for large green lentils prices close to 30₵ CAD/lbs but this move was short-lived with the order being filled pretty quickly. If you have some old crop or are looking to lock in new crop lentil prices, posting a public Offer to on Combyne is a smart play right now, given the sporadic demand being filled by a variety of different buyers.
That said, we saw a large influx of new bids go up on the Combyne cash grain marketplace – lentil, peas, barley (feed and malt), durum, oats, canola, CPS and HRS wheat, etc. Click on said Bids on our new marketplace and add these buyers to your network to start negotiating and/or never miss out on new bids from them in the future. Also, since they’re connected with you, when you list an Offer to sell some grain, they’ll get notified of your new price indication. P.S. You can check out their profiles before you hit the “Connect” button.
Speaking of online activity, Campbell Soup saw retails sales up 57% year-over-year for the four weeks ending March 22, while sales of General Mills product were up 51%. More interesting (but also obvious) was Adobe Analytics research says that the buy-online, pick-up-in-store purchased has spiked 62% year-over-year.  Simply put, the COVID-19 lockdowns have caused a real divide between online and traditional businesses.  This is probably most publicly evidenced by the filing of bankruptcy by Dean & Deluca’s, one of New York City’s most famous grocery and deli chains. 
While the demand is welcome, it’s a bit sporadic, which is causing issues downstream. For example, dairy farmers in both the U.S. and Canada are having to dump milk!  On the flipside, home flour use has soared during the lock downs, which has helped drive some milling wheat prices.  An interesting fact that I learned yesterday from one of our Combyne credit-verified grain buyers that the main use of flour in the home in the U.S. (up until COVID-19, that is) was for deep-frying things!
Oil Prices, Freight, & Jobless Claims
In yesterday’s U.S. jobs report, a record 6.6M Americans filed for unemployment benefits last week, double the 3.3M who applied the week before. Historically-speaking, this in unprecedented.  That means that roughly 6% of the entire labour force in the U.S. is back on the unemployed sidelines in just the last week. Digging deeper, at least 10% of the workforce in states like Pennsylvania, Nevada, and Michigan have filed for jobless benefits in the past 3 weeks!  That said, this morning’s jobs report showed that U.S. unemployment in March rose to 4.4% from 3.5% in February, with 701,000 jobs shed.  However, keep in mind that this does not reflect the aforementioned millions of EI claims made over the past few weeks.
One of the areas that continues to be a major focus of traders is freight. From China to Argentina to France to Canada and the U.S., there’s a strong demand for freight. With a lot of one-way hauls happening, it’s getting a bit more expensive, and as fertilizer delivery season is nearing, that freight in the major agricultural-producing regions in North America is going to become even more in demand. That said, yesterday, the Baltic Dry Index posted its largest daily gain in 11 years, whereas the International Grain Council’s Grains and Oilseeds Freight Index fell to its lowest in 3.5 years due to weaker demand for smaller ships. 
Yesterday, oil prices saw a record one-day performance, as WTI crude oil prices closed 25% higher, slightly down from the 35% gains seen earlier in the day. The reason behind the record-breaking one-day performance was a tweet from U.S. President Trump that after talking with the Crown Prince, MBS, of Saudi Arabia, they and Russia would cut production by 10 -15 millions barrels per day.  Ironically, the Saudis and Russians said that they had never talked but the oil market didn’t care, because the U.S. intervening was considered bullish in its own right. That said, there are now reports are surfacing that OPEC has called an emergency meeting for Monday to agree on production cuts, which is continuing to support oil prices this morning. 
Despite the bullish buzz in oil markets yesterday, soybean oil prices are remaining near 13-year lows. The bottom line is that, even with U.S. soybean oil exports hitting 2019/20 marketing year high last week, it’s just a very difficult environment to rally. Why? With less vegetable oils needed at restaurants around the world, the demand function remains the biggest cloud hovering over edible oils market. For our Western Canadian readers, this intuitively means less demand for canola oil (although, I’ll admit, it’s not like edible oil demand has NOT tanked like oil demand has!).
On a related note, U.S. ethanol production fell last week to its lowest level since September 2013 with 840,000 barrels/day produced last week, a drop of 165,000 bpd week-over-week and 159,000 bpd year-over-year.  With the drop in demand, there continues to be a lot of apprehension to get behind the USDA’s 97M corn acres print in their Prospective Plantings report from earlier this week.
Soybean Exports, Harvest Update from South America
The ethanol demand buzz isn’t that much different in another major ethanol-producing country: Brazil. This week, 2 of Brazil’s largest fuel distributors declared “force majeure” on their ethanol purchases as nearby demand dropped by more than 50% in one week.  Despite the demand downturn, Brazilian farmers remain optimistic about the future of ethanol production. 
What Brazilian producers are more focused on though right now is the completion of their soybean harvest and the planting of their second/safrina crop corn. What’s hard to ignore though is the devaluation of the Brazilian Real currency, thanks to the COVID-19 crisis, which is helping push record high corn and soybean prices even higher.  That said, Brazil shipped a record 11.644 MMT of soybeans in March, blasting past the previous record by more than 2 MMT.  Conversely, U.S. soybean exports last week were the second-lowest of the marketing year with less than 500,000 MT sailed. That said, soybean exports sales topped trade expectations with 1.071 MMT being contracted, including 131,000 MT to China.
The other dynamic helping soybean prices rebound a bit this morning is that yields from the soybean harvest in the southern most state, Rio Grande do Sul, are expected be down about 40% year-over-year due to one of the worst droughts in the region in recent memory.  This will also have a serious impact on the yield capability of the second/safrinha corn crop in the region. 
Next door in Argentina, the government has gone into pretty much full lockdown mode to fight the spread of the COVID-19 virus.  Unfortunately, the impact on the Argentina agricultural industry is pronounced. The Rosario Grains Exchange is reporting that soybean deliveries to crush plants in the country have been halved in the past few weeks and are dropping further.  The reason behind is local municipalities are denying trucks to reach their destinations, something the federal government had previously approved. As a reminder, Argentina is the world’s largest soymeal exporter. They’re also #3 in the world for both corn and soybean exports.
From a crop condition standpoint, the soybean harvest in Argentina is 8% complete, which is in line with the average. However, just 33% of the crop is rated in good-to-excellent (G/E) condition, down from 52% a year ago. Similarly, just 32% of Argentina’s corn crop is rated G/E (well down from 53% a year ago), although 22% of the crop is in the bin, up a bit from year ago.  The blame for the poorer crop is dryness in February and early March, which has been followed by unseasonal rains, which has, in turn, delayed harvest progress. 
Phew. That was a lot. Have a great weekend!
Due to some time constraints, the futures grain markets data isn’t included in today’s Breakfast Brief but you can review them here at your convenience.
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