Soybean prices are leading the grain market again this morning, with winter wheat prices not far behind, thanks to ongoing drought concerns.
“As history has repeatedly proven, one trade tariff begets another, then another – until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.” – Mark McKinnon (US political advisor)
For Grain Markets, Trade Trumps Weather
Grain markets are cautiously mixed this morning as the geopolitical risk of an American-driven trade war is taking a higher seat that bullish/dry weather in Argentina and the US South. Also, weigh on the minds of grain markets participants is this month’s WASDE report, out at noon on Thursday, March 8th.
Friday saw a major sell-off in the grain markets, especially for the wheat complex with winter wheat futures dropping double-digits while spring wheat prices also lost about a dime in Minneapolis.
The reason for the sell-off was mainly attributed to profit-taking. However, last Friday gave us weekly export numbers from the USDA, and they were certainly not bullish. US corn exports remain at 28% below last year’s pace whereas American soybean shipments abroad are tracking 13% lower year-over-year. US wheat exports are the best performing, relatively speaking, as shipments are down only 6% compared to this time a year ago.
Thursday night last week, on our FarmLead Insights page, we recapped how grain prices performed in February posted or our FarmLead Insights page. On Friday, we also looked at what’s going on with the Indian Rabi-grown pulses, specifically as it relates to the red lentils crop and potential for a record chickpeas harvest. This has obvious implications for the peas markets.
Other than India, one of the more pressing issues for Western Canadian grain prices is the lack of grain movement via railroads.  We took a deeper dive into the situation last week, and we’ve published a pretty intense analysis and opinion on the issue – head to your GrainCents dashboard as we made it available for all readers of all crops there.
Western Canada and parts of the Northern Plains have gotten or will be getting some heavy snowfall early this week as a Colorado Low system takes over for the next few days. The moisture will be welcome, albeit, for the railroads, it’s more than likely another excuse as to why weather is trumping (grain) trade.
Update on South America’s Soybeans
Over the weekend, Garrett and I looked extensively at the historical nature of USDA’s approach to updating South American soybean production. For our soybean readers, we specifically asked, and answered the question, of “how high would soybean prices go with the weather?”.
For our canola readers, we had to take a different approach and consider some of the external factors that affect canola prices but not soybeans. The question asked, and answered, was “will soybeans drive canola prices even higher?”
First, we know that the soybean harvest as of last week pegged the Brazilian harvest at 39%. This in line with the five-year average but behind last year’s 46% pace. Yes, there is some challenging weather in the central regions that is slowing downfield activity, but as you can tell, it’s not that bad.
Moving over to Argentina, the Buenos Aires Grain Exchange continued to drop their expectations for the soybean crop there. The BAGE dropped their soybean production forecast in Argentina from 47 million to 44 million tonnes. For perspective, the USDA’s current forecast of Argentine soybean production is 54 million tonnes (for those struggling to do the math on this Monday morning, that’s a 10 million-tonne, or 23% difference).
The reason for the BAGE’s production downgrade was mainly attributed to their crop ratings, which rated 76% of the Argentine crop poor-to-very poor. 2 weeks ago that P/VP rating was 56%. Also, in mid-February, 75% of the soybean fields’ moisture were ranked dry or very dry. Now, the percentage of soybean fields ranked dry or very dry is 87%. That’s what happens when average rainfall in the country for the entire month of February was a little more than 1.5 inches.
Healthy rains are in the forecast for the end of next week, with ¼ to 1¼ inches expected. While the rains might help soil moisture a bit, it’s widely expected that it’s too little, too late for most of the Argentine soybean and corn crops.
The likely lower amount of soybeans coming out of Argentina has many grain markets participants optimistic that international buyers will switch their demand to the United States. And for that, the US soybean industry should be saying thank you. 
Fancy a Trade War?
The problem is that, with the recent tariffs implemented by the Trump administration, China might not be all that interested in “Buying American.” Late last week, President Trump pushed out a 25% tariff on imported steel and a 10% import tax on aluminum. The length of the tariffs will last for “a long period of time” according to President Trump.
As one US executive of a construction and agricultural equipment manufacturer said in a Wall Street Journal interview recently, “It’s going to bring a dynamic of risk and volatility that we haven’t had to deal with in a while.”
This move impacts everything from Bug Lights to Apple Macs, as noted by Bloomberg.  While everyone is worried about China retaliating with a push back on agriculture, only 3% of US imports of steel, as measured by value, came from the Chinese in 2017.  In fact, it’s Canada who is the biggest supplier of steel to the United States, and the White House has made it clear that there will be no exemptions. 
This can certainly have an impact on the ongoing NAFTA renegotiations. It also could impact America’s ability to get back to the table on TPP. U.S. President Trump says that he would be open to rejoining the TPP if the terms were improved.”  Japan is apparently driving the talks with the US, and have reminded the current American government that without rejoining TPP, China gets to set the rules for global rules on trade and investment. 
Ultimately, with heightened geopolitical risk playing a role in grain markets, it’s a risk on approach to start the first full week of March 2018 trading.