May 16 – Grain Prices Continue the Battle with Weather, Trade Risk

Good Morning!

Grain prices this morning are mixed as the weather is battling it out with trade risk, as well fresh headlines regarding domestic demand.

“Pessimism never won any battle.” – Dwight Eisenhower (34th US President)

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Grain Prices Continue the Battle with Weather, Trade Risk

Grain prices this morning are mixed as the weather is battling it out with trade risk, as well fresh headlines regarding domestic demand. Wet weather across the Midwest has stalled Plant 2018 progress a bit, but the market continues to watch for a NAFTA deal to hit Paul Ryan’s desk today or else there may not be a new agreement before the end of 2018. Also, worth mentioning is that China’s Vice Minister is in Washington this week to discuss.

On the farming front, the Plant 2018 campaign has certainly accelerated, as indicated by Monday’s crop progress report from the USDA. Informa just increased its estimates of acres getting planted. Compared to the USDA’s 88 million acres of corn, Informa is now estimating 89 million. For soybeans, Informa raised its estimate to 89.4 million acres, slightly higher than the USDA’s forecast of 89 million acres right now.

In Brazil, there’s some moisture being seen in a few places through the weekend that will provide some temporary relief, but then it’s expected that dry conditions will return after that. AgResource offices in South America are positing that both the USDA and CONAB and overstating Brazilian corn production by 7-10 million tonnes. This would suggest a crop closer to about 80 million tonnes, and expectations are that we’ll see those reductions in June and/or July WASDE reports.

Moisture continues to be a concern in a few places in Western Canada. [1] This is especially true for Manitoba, as per the most recent crop report. [2] Without any significant rains in the forecast, the market is getting a bit edgy. However, I’m cautious about saying we’re in a drought again this year.

Barley Prices Looking for Direction

There is a fair amount of buzz out there in the Canadian Prairies that more malt barley acres are getting seeded this year. With malt barley prices at $3.75 USD or $5 CAD /bushel, it’s not necessarily the best-returning crop in the rotation for all farmers, but it’s also not the worst!

We’re cognizant of some of the changes in beer demand in America, as well as how beer companies are changing their barley-buying practices in other areas around the world.

Also, we’ve looked into the implications for the demand side of the balance sheet now that Cargill is closing its Spiritwood, ND malt barley facility. The flipside here is that the Chinese beer market is getting “crafty,” in addition to the increasing demand for feedstuffs (i.e., feed barley) by China.

While Canadian barley acres are climbing slightly in 2018/19, so are Australian and Argentina’s barley acres.

In fact, the USDA is currently estimating that farmers in Argentina will grow a record 3.5 million-tonne barley crop. We’ll take it with a grain of salt now though as farmers trying to double-crop are coming off a drought. Granted, rains have certainly been falling recently (and slowing down the corn and soybean harvests there), Argentina’s farmers will be planting into some drier conditions.

All things being equal, feed barley prices continue to be resilient. However, stronger barley prices (and feed grain prices) in general have put pressure on livestock prices in Canada. [3] Drier conditions in the US Southern Plains are also leading to liquidation of herds, which means potentially less demand for the still-large amount of feed grains available in North America.

Bullish Grain Prices Forecast in the Long-Term?

NOPA’s crush report showed us that a little more than 161 million bushels of US soybeans were crushed in April 2018. This the largest amount ever used in April and 16% higher year-over-year. The bearish part of the report (and that has the largest impact on canola prices) is that soy oil stocks increased to more than 2.09 billion pounds. That’s the largest amount of reserves in the past five years.

FocusEconomics says that, while the uncertainty around trade between the US and China is up in the air, soybean prices look attractive in the long term. [4] In 4Q2018, their average guesstimate for soybean prices is $10.38 USD /bushel on the Chicago futures board. For 4Q2019 (think 2019/20 soybean prices), they see an average forecast of $10.95.

For corn prices, FocusEconomics thinks that strong ethanol use and exports will support better values in the future. The average price forecasted in 4Q2018 is $4.24 USD per bushel. A year later, in 4Q2019, the average value forecasted for corn prices is $4.39.

For wheat prices, the grain market has struggled to find any fresh bullish news to help push things higher. What’s clear though is that the quality and size of the US winter wheat crop is less than what it was last year. This in mind, the average forecast is for $5.08 USD /bushel for Chicago soft red winter wheat prices in 4Q2018 and $5.60 for the same period in 2019.

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2869 
CAD, $1 CAD = $0.7771 USD)

Jul Corn: 1.5¢ (0.37%) to $4.038 USD or $5.196 CAD
Jul Soybeans: -5.3¢ (-0.52%) to $10.135 USD or $13.043 CAD
Jul Soybean Meal (per short ton): -$1.20 (-0.31%) to $381.10 USD or $490.445 CAD
Jul Soybean Oil (cents per lbs): -0.01¢ (-0.00%) at 30.95¢ USD or 39.83¢ CAD  
Jul Oats: 1.3¢ (0.30%) to $2.415 USD or $3.108 CAD
Jul Wheat (Chicago): 2.0¢ (0.41%) to $4.955 USD or $6.377 CAD
Jul Wheat (Kansas City): 2.8¢ (0.54%) to $5.125 USD or $6.595 CAD
Jul Wheat (Minneapolis): 4.8¢ (0.79%) to $6.110 USD or $7.863 CAD
Jul Canola: $-2.00 (-0.37%) to $12.054/bu / $531.50/MT CAD or $9.367/bu / $413.00/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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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