Canadian soybean exports are seemingly next on China’s hit list as grain markets are grappling with a trade war between opposite sides of the Pacific Ocean.
“Criticism in good faith is good. When it’s targeted solely to destruction, I’m not interested.” – Andrea Bocelli (Italian singer)
May 17 – Canadian Soybean Exports Next on China’s Hit List
Of course, the week that I come down with a bad a fever and infection, the grain markets make some incredible volatile moves. While I’m about 80% of normal, the likes of soybean prices are also still in progress of getting back to where they started the month of May.
Grain markets this morning are mixed as the complex tries to extend its short-covering run, despite some more rain in the forecast. This would put pressure on corn getting planting, suggesting that more soybeans could instead get seeded. As the USDA’s May WASDE Report on Friday showed, there’s certainly a lot grain still in the U.S. and around the rest of the world. The USDA also asterisked their 2019/20 crop forecasts, acknowledging that U.S. planted acres are likely to change for corn and soybeans. As I mentioned in my weekly grain markets recap on RealAgriculture.com, the bearish tough love from the WASDE report may be outlasted by the declining yield potential of this year’s American corn crop. 
Getting a big corporate first, the new CEO at Bunge says that they will downsize before trying to build the company back up.  “This is about simplification, accountability, and speed,” said Gregory Heckman, who joined Bunge’s board back in October but was most recently the CEO of Gavilon. Heckman also noted the impact on feed prices and meat tradeflows from the African Swine Fever epidemic happening in China will last for years. The Chinese Ministry of Agriculture said earlier this week that pig herds in the People’s Republic are 21% lower than same time a year ago.
Trade War is “Game On”
Like after moving the hockey nets on the street to let a car go through, put the nets back in place because the trade war is “Game On!”. The trade war between the U.S. and China is capturing most of the headlines again, with accusations and tariffs being handed out left, right, and centre.
John Deere’s stock price is taking a hit this week thanks to the trade war, as the tractor-maker is seeing its status downgraded by a lot of the analysts covering the company. In fact, John Deere CEO Samuel Allen declared that, “ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases.” 
On Wednesday, President Trump signed an executive order barring U.S. firms from using telecommunications gear made by companies deemed a national security risk, which could easily include a lot of Chinse firms. Further, the U.S. government will be screening the purchase of Huawei equipment by American companies. Additionally, they effectively put Hauwei and 67 of its global affiliates and subsidiaries on an export blacklist, in addition to banning the telecom giant from participating in the development of America’s 5G network.  It’s expected that Hauwei will also be put on an “Entity List” which means that any U.S. company will need a special license to sell products to the world’s largest networking gear maker and second-largest smartphone brand.
The White House maintains that the pursuit against Huawei is separate from the trade war negotiations. However, if we’re being honest, they go hand in hand. If you need proof, just look at China’s reactions the Huawei CFO, Meng Wanzhou being detained in Vancouver and the subsequent impact on Canadian canola prices and exports. One could argue that China knows very well that they have a formidable American opponent in President Trump and company, especially when compared to the actors in Ottawa.
North American Soybean Exports Taking Big Hit
With China likely not buying much American soybeans thanks to the trade war back on, it’s likely that we’ll continue to see U.S. soybean exports suffer.
Conversely, soybean prices in Brazil are starting to creep up from their harvest lows, albeit AgriCensus is reporting that sales have slowed: about 72% of Mato Grosso soybeans had been contracted through April, down from 80% at this time a year ago. Brazilian farmers are very aware that China may not need as much of their soybean exports this year.
Soy Canada sent a memo out earlier this week to its members suggesting that Chinese custom authorities are cracking down on Canadian soybean exports.  Inspections are happening at a slower pace but are also more intense, with officials on the other side of the Pacific are now looking for contaminants that Canadian food inspectors are not testing for in the export process. We all know the impact on that Chinese inspections have had on Canadian canola exports, namely the price being drug the gutter.
This intensified inspection process is a big deal considering that China has been the destination for 91% of all Canadian soybean exports (via licensed facilities) in the 2018/19 crop year through March 2019. Literally, 9 out of every 10 boats of Canadian soybean exports in the 2018/19 crop year have gone to China! Worth also noting is the total volume of Canadian soybean exports to China, as, through March, they’re tracking 132% higher year-over-year. More acutely, through March 2019, 3.056 MMT of Canada soybean exports have gone to China, versus the 1.315 MMT shipped in the 2017/18 crop year through March 2018.
Politics Ruling Grain Markets?
Complicating the relationships between Beijing and Ottawa was the former arresting two Canadian citizens yesterday on espionage charges.  Technically, the two have been detained for months but no formal charges had been laid until now. Overall, the political interference in grain markets has been augmented, notably, with the U.S. government announcing an additional $15 Billion in trade war financial aid to American farmers, the second round of support for lost incoming due to the trade war. 
This week, the Grain Growers of Canada called on the Canadian federal government to support Canadian farmers in the “increasingly unpredictable trade environment”.  While the Prime Minister’s Office has provided more dollars for cash advances for Canadian canola farmers, that money has to be paid back; the American farmers’ aid does not.
Overall, with the federal election less than 6 months away in Canada and more presidential candidates appearing every day for the 2020 run for the Oval Office, politics are intertwining with grain markets more and more. As much as I’m against political interference in markets, it’s clear that the governments of both the U.S. and Canada have to figure out how to help their farmers. As such, I don’t expect political involvement in grain markets to slow down and you shouldn’t either.
Have a great weekend!
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3487 CAD, $1 CAD = $0.7415 USD)
July Corn: +4.8¢ (+1.25%) to $3.838 USD or $5.176 CAD
July Soybeans: -3.3¢ (-0.4%) to $8.365 USD or $11.282 CAD
July Soybean Meal (per short ton): -$1.80 (-0.6%) to $299.60 USD or $404.07 CAD
July Soybean Oil (cents per lbs): -0.14¢ (-0.25%) to 27.58¢ USD or 37.20¢ CAD
July Oats: +0.8¢ (+0.25%) to $2.95 USD or $3.979 CAD
July Wheat (Chicago): +5.3¢ (+1.1%) to $4.723 USD or $6.369 CAD
July Wheat (Kansas City): +5.3¢ (+1.25%) to $4.22 USD or $5.692 CAD
July Wheat (Minneapolis): +10.8¢ (+2.05%) to $5.375 USD or $7.249 CAD
July Canola: -3.4¢ (-0.35%) to $10.104/bu / $445.50/MT CAD or $7.491/bu / $330.32/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.