May 24 – Corn, Wheat Prices Earning a Weather Premium

“Many people think of perfectionism as striving to be your best, but it is not about self-improvement; it’s about earning approval and acceptance.” – Brene Brown (U.S. leadership expert)

[maxbutton id=”4″ window=”new” ]

Grain prices this morning are all in the green, led by corn and wheat prices, as a weather market continues to materialize in the complex. The move higher this morning is ahead of a three-day weekend for the futures market, as trading will be shut down on Monday for the American Memorial Day holiday. Supporting grain prices this morning as well as news that the Mississippi River has also been shut down near St. Louis to boat/barge traffic because of high water levels and strong currents. [1]

Yesterday, President Trump announced the second trade war aid program for farmers, and while the $16 billion earmarked is $4 billion more than the first installment, no specific prices per crop were shared. [2] U.S. Agriculture Secretary Sonny Perdue said “Farmers themselves will tell you they’d rather have trade than aid (but) they’ll need some support,” in the absence of a deal.

The Trump administration said that they’re not earmarking a specific dollar amount for each crop, as they don’t want to potentially influence what farmers do for the rest of Plant 2019 (which would have serious implications, as mentioned in Wednesday’s FarmLead Breakfast Brief). It’s been estimated though that without the $2/bushel for soybeans that was suggested earlier in the week, more U.S. farmers will stick to their guns and plant corn. Allendale says that “Corn acres will still fall from the March report, perhaps by 2 to 4 million acres,” but the 8 million-acre handle that some were talking about is very unlikely. [3]

Staying in politics, India’s Prime Minister Narendra Modi was re-elected yesterday, re-enforcing the populist trend that we’re seeing around the world where leaders seem to have a focus on nationalism and protectionism (i.e. U.S. and Brazil). [4] While global lentil acreage is down for the 2019/20, I still don’t see India lifting their tariffs on pulses unless there is a poor monsoon season. Conversely, in the U.K., British Prime Minister Theresa May announced her resignation this morning as a result of not being able to convince Parliament of the Brexit package that she negotiated with the EU. [5]

Playing Spring Wheat Prices, Canola Exports

Corn and spring wheat prices have certainly enjoyed a strong run over the last 2 weeks, both rallying more than 50¢/bushel. On that note, I and others have said in the past many times to sell into strength and these specific sorts of rallies. As such, we got those cues this week from many of the talking heads. This included a recommendation in Western Canada to sell into the strength of spring wheat prices and canola prices. [6] As I mentioned in my Wheat Market Insider article for the Alberta Wheat Commission this week though, I’m a bigger fan of locking up basis contracts right now  on new crop spring wheat, especially since basis values are notably better than this same time a year ago. [7]

Tread carefully here though as locking in the futures price on that basis contract might happen in the next few weeks as drought concerns might start to fade and weather premiums with it. There definitely are some dryness concerns mounting in the Canadian Prairies, but remember that it takes a shower or two for speculators lose that bullish taste in their mouths. [8]

As for canola prices, said same dryness is starting to provide a bit of support. However, Agriculture Canada recently put a major damper on things by significantly lowering their forecast for canola exports this year and next, and thus, raising ending stocks. More specifically, AgCanada dropped their forecast for 2018/19 canola exports by 500,000 to 9.3 MMT and their 2019/20 estimate by 2.5 MMT (!!!) to just 8 MMT. Compare this to the USDA’s Canadian attaché who also updated their estimates, lowering 2018/19 canola exports by 850,000 to 9.75 MMT, but raised their 2019/20 estimate by 200,000 MT to 10.3 MMT. [9]

Certainly, there are some discrepancies in terms of how much of an impact the slowdown in Chinese buying will affect Canadian canola exports. What’s also certain though is that there will still be a relatively large Canadian canola harvest (close to 19 MMT according to the AAFC).

European Crops Aren’t Burning?

Strategie Grains downgraded their estimates of the EU wheat and barley crops last week by 900,000 and 700,000 MT respectively. [10] They did note that the forecasted rains will likely alleviate in concerns of a second straight drought across Europe and sure enough, those rains did show up and will likely prevent serious damage. [11] However, temperatures have been on the cool side and more moisture would be beneficial to help really finish the crop off well. Here are a few forecasts for the EU wheat harvest (not including durum) and its four largest producers compared to a year ago:

  • All of the European Union: 143.9 MMT (+13% YoY; estimated by Strategie Grains);
  • France: 33.2 MMT (-4% YoY; Coceral)
  • Germany: 24.3 MMT (+20% YoY; German farm co-op);
  • United Kingdom: 15.5 MMT (+11% YoY; CRM AgriCommodities); and
  • Poland: 10.9 MMT (+12%; Sparks Polska)

Also, worth mentioning, is Germany’s winter barley crop (mostly used for feed) will jump by 33% year-over-year to 9.8 MMT, while the spring barley crop (used for malt/beer) will fall by 4% to 2.11 MMT. The country’s farm co-op also said that fewer rapeseed acres in the country means production should fall more than 17% from last year to 3.04 MMT. [12] Across the whole of Europe, Coceral is estimating the EU’s rapeseed harvest this year at 17.9 MMT, down 600,000 MT from their previous estimate thanks to a sharp reduction in the French harvest. [13]

Overall, the wheat crop out of Europe is still looking bigger than last year, but the rapeseed crop is certainly going to be smaller. This in mind, I’m more cognizant of the rally in wheat prices potentially slowing down before the one in canola prices does. Granted, there are a lot of bearish factors in North America – namely a big 2019 oilseed crop – but both Australia and Europe are going to have smaller canola/rapeseed crops. That said, the window to capture the highs in canola and wheat prices before the North America harvest is likely going to happen in the next 2 to 3 weeks.

Have a great weekend!

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.345 
CAD, $1 CAD = $0.7435 USD)

July Corn: +5¢ (+1.3%) to $3.948 USD or $5.309 CAD
July Soybeans: +6.6¢ (+0.8%) to $8.283 USD or $11.14 CAD
July Soybean Meal (per short ton): +$1.30 (+0.45%) to $298.50 USD or $401.48 CAD
July Soybean Oil (cents per lbs): +0.29¢ (+1.1%) to 27.07¢ USD or 36.41¢ CAD  
July Oats: +3.3¢ (+1.05%) to $3.078 USD or $4.139 CAD
July Wheat (Chicago): +6¢ (+1.3%) to $4.763 USD or $6.406 CAD
July Wheat (Kansas City): +5.8¢ (+1.35%) to $4.31 USD or $5.797 CAD 

July Wheat (Minneapolis): +7.5¢ (+1.4%) to $5.418 USD or $7.286 CAD
July Canola: +2.9¢ (+0.3%) to $10.049/bu / $443.10/MT CAD or $7.472/bu / $329.45/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.

Share on facebook
Share on twitter
Share on linkedin


About the Author

Recent Posts