Grain markets are slightly mixed, with canola prices continuing their downward slide, as the complex weighs flooding, China, and the Prospective Planting report this Friday.
“Panic causes tunnel vision. Calm acceptance of danger allows us to more easily assess the situation and see the options.” – Simon Sinek (British-American author)
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Mar. 25 – Canola Prices Panic on China
Grain markets are slightly mixed, with canola prices continuing their downward slide, as the complex weighs flooding, China, and the Prospective Planting report this Friday. Said flooding has taken out about 1/6th of U.S. ethanol production capacity as Mother Nature’s activities have forced operations to halt or slow to significant lull. 
It was confirmed last Friday that COFCO, China’s state-buying grain agency, bought 300,000 MT of U.S. corn. This was the first time that China has bought this much American corn in one shot in over 5 years, and certainly seems related to Beijing trying to showcase some good will towards better trade relations. Still no signs of more soybean purchases though and this has weighed on soybeans prices as Brazil is over 2/3s done its harvest and it looks to be like the second-largest crop in history.
Acres Battling Geopolitical Risk
This Friday, we’ll get the USDA’s numbers for 2019 acres in the United States. We’ll review the pre-report guesstimates in more detail in Friday morning’s Breakfast Brief but with the Federal Crop Insurance deadline now passed, there’s been some buzz of more coverage for corn. In a Farm Futures survey of producers that lasted the first 3 weeks of March, corn acreage was suggested at 90.9 million, up 600,000 from the January estimate.
Comparably, soybean acres were bumped 1.3 million acres from the January survey, to now sit at 85.9 million acres. For perspective, 89.145 million acres of soybeans and 89.14 million acres of corn were planted in the U.S. in 2018. Also, in the Farm Futures survey, total wheat acres were projected at 45.9 million acres in 2019, the lowest in a century.
While we’ll get to some of the geopolitical risk in Canada in a second, across the 49th parallel in the U.S., trade talks with China were expected to resume later this week; U.S. lead negotiator Robert Lighthizer and Treasury Secretary Steven Mnuchin are both on their way to Beijing again. 
While most of the U.S. grain markets were focused last Friday on the NOAA forecast for the next three months, everyone in Canadian grain markets, namely canola prices, were talking about trade with China, or suddenly lack thereof. Accordingly, the knee-jerk reaction to canola prices was significant on Friday.  Canola prices were on track to make about a 1% gain on the week, until they dropped more than $14 CAD/MT on Friday, which represented a 2.3% decline in terms of weekly performance.
Canola Prices Battered
The Canola Council of Canada said that China had stopped its purchases of all canola products from the Great White North. This is significant as the People’s Republic represents the largest single market of any of Canada’s crops; in 2018 this amounted to $2.7 Billion CAD in canola seed exports, about $1 Billion in canola oil shipments, and roughly $500 million in canola meal.
The impact was also felt on new crop contracts, with canola prices down sharply. This might’ve have been also to do with updated balance sheet expectations from Agriculture Canada as the agency dropped 2018/19 exports by 1 MMT from its February estimate to now sit at 9.8 MMT. This meant that 2018/19 canola ending stocks were raised by the same amount to now sit at 3.5 MMT. 
Put another way, the AAFC has finally accounted for the fact that Canadian canola exports have not been meeting expectations. Through Week 33, Canadian shipments have totaled 6.03 MMT, down 8.5% year-over-year. With the lower exports and greater carryout, AgCanada acknowledge the impact on the 2019/20 crop year by dropping this spring’s acreage by 865,000 to 22.24 million. This would equate to production coming in at 19.75 MMT. This still means though ending stocks for next year were raised from their previous forecast by 800,000 MT to 3.3 MMT. As such, their forecasted value for average canola prices has dropped considerably.
Pea, Flax, Wheat, or Barley Exports at Risk?
Overall, there’s two things that we’re starting to hear from FarmLead users. First, canola contracts that producers are supposed to be delivered on are being “suspended until further notice”, which creates a fear of those contracts might be canceled outright which could have a significant impact on cashflow at seeding time. Of course, you could get another contract but at today’s canola prices, it’s a significant discount to what might’ve been contracted a few months ago. Second, there is already some talk that other crops might be next on China’s list, notably peas, flax, and wheat.  We already know that peas are being subject to harsher quality inspections than in previous months.
Another big question is if barley is on the list or not. We know that China has accounted largely for the significant increase in Canadian barley exports, and has, in turn, been a supportive floor for elevated feed barley prices. Through last week, we saw feed barley prices on the FarmLead Marketplace delivered into Lethbridge trading up to the $275 CAD/MT level. Again, behind this number though is competition for barley exports. In fact, through Week 33 of the Canadian barley crop year, total barley exports are tracking 28% higher year-over-year with 1.64 MMT shipped out.
That being said, the AAFC has not raised its target for full-year shipments, staying at 2.7 MMT, which would be a 4.5% decline year-over-year. So, something is certainly off there but I think that the statisticians will come to their senses eventually, acknowledging what’s going on with barley exports, just like they finally have with canola exports. Conversely, what the AAFC numbers team has increased their expectation for is seeded acreage to now sit at 7.413 million acres. This would be a 10.5% jump year-over-year and 13.5% above the five-year average. At an average yield of 66.7 bushels per acre, the production number is getting eerily close to the record set back in 2013/14 of 10.28 MMT.
Worth noting on the barley exports front is that European malt barley prices are continuing to increase for both new and old crop. Reports from German barley trader Evergrain suggests that French winter malt barley is in big demand and Chinese is looking for movement in the second half of the 2019 calendar year.  All things being equal, I think this Chinese demand has more to do with the lack of available product from Australia than anything else. As such, Canadian barley exports are likely safe, for now.
At 6:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3408 CAD, $1 CAD = $0.7459 USD)
May Corn: +0.5¢ (+0.15%) to $3.788 USD or $5.078 CAD
May Soybeans: +2.3¢ (+0.25%) to $9.06 USD or $12.147 CAD
May Soybean Meal (per short ton): +$0.70 (+0.2%) to $315.70 USD or $423.28 CAD
May Soybean Oil (cents per lbs): -0.05¢ (-0.15%) to 28.61¢ USD or 38.36¢ CAD
May Oats: +0.3¢ (+0.1%) to $2.788 USD or $3.737 CAD
May Wheat (Chicago): -1.5¢ (-0.3%) to $4.645 USD or $6.228 CAD
May Wheat (Kansas City): -2.3¢ (-0.5%) to $4.428 USD or $5.936 CAD
May Wheat (Minneapolis): -1¢ (-0.15%) to $5.713 USD or $7.659 CAD
May Canola: -4.5¢ (-0.45%) to $10.249/bu / $451.90/MT CAD or $7.644/bu / $337.05/MT USD
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