Nov 28 – Grain Prices Following Volatile Geopolitical Risk

Good Morning!

Grain prices this morning are slightly in the green as the bargain buying from yesterday seems to be following into today’s trading ahead of the G20 Summit in Argentina.

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Grain Prices Following Volatile Geopolitical Risk

Grain prices this morning are slightly in the green as the bargain buying from yesterday seems to be following into today’s trading ahead of the G20 Summit in Argentina through the weekend.

Wheat markets are considering that, given the recent dump of snow over Sunday and Monday across much of the western Corn Belt and part of the Southern Plains, it’s likely that the U.S. winter wheat seeding campaign in these areas is now finished. In Monday’s USDA crop progress report, 95% of intended acres had been seeded, behind the 99% usually seen by this time of year. 86% of the U.S. winter wheat crop has emerged, versus the 5-year average of 92%, and 55% of the crop is rated good-to-excellent, down one point year-over-year. Rounding out the crop progress report, 94% of both U.S. corn and soybean fields have been harvested, slightly behind their 5-year averages.

As mentioned in Monday’s FarmLead Breakfast Brief, wheat prices are also watching the stand-off between Russia and Ukraine, and if grain flows will be disrupted in the Azov Sea. For perspective, the freight route only accounted for about 6% of Ukraine’s total grain shipments in October, as most of Ukraine’s exports head out through southwestern ports. For the most part, avoiding moving grain, the region seems logical since it’s a definite unknown how tensions could flare up at any point but grain prices are watching for it closely.

Trade War in the State of Tit-for-Tat

Yesterday, soybean prices were able to recoup most of their double-digit losses from Monday as volatility remain the mot du jour. While the January 2019 contract is sitting around $8.80 USD/bushel today in Chicago, technical analysts are still suggesting that there’s a return to the downside to the $8.30 – $8.40 levels. [1] Oil prices are also rebounding which is a good sign given the strong correlation between oil markets and oilseeds.

Grain prices are watching and waiting for what goes down in Argentina later this week at the G20 Summit. For the past month, there’s been a lot of speculation about China and the U.S. coming to terms on ending their trade war, but as we’ve gotten closer to a get-together, optimism as declined. U.S. President Trump has already indicated that he’ll put another $265 Billion in tariffs on all Chinese goods not being taxed thus far. [2]

It would include the likes of iPhones, tablets, and laptops, which would likely be a direct hit to the U.S. consumer. However, instead of the usual 10% tariff rate that’s been implemented on previous rounds of tariffs, President Trump says the rate will be 25% if a deal isn’t reached.

Should a deal ending the trade war be reached through this week, there’s some speculation that we won’t see the same sort of soybean demand from China though as they’re dealing with the African Swine Fever hitting their hog markets. [3] Also potentially slowing imports is the fact that China is currently sitting on 7.45 MMT of soybean stocks, a decade-high for this time of year.

In October, China shipped in 6.92 MMT of soybeans. 94% of it came from Brazil. It’s estimated that December soybean imports are expected by more than a third year-over-year, from nearly 9.6 MMT in December 2017 to 6 MMT this year. Finally, one estimate has pegged 1Q2019 imports somewhere between 11 -12 MMT, well below the 19.6 MMT shipped in during 1Q2018. With the slowdown in demand is the slowdown specifically related to declining soymeal demand as hog farms don’t replenish their herds as aggressively in years past.

Grain Prices Thinking 2019 Acreage Already?

With soybean prices where they’re at, it’s widely expected that we could see a drastic reduction 2019 U.S. acres, dropping 5-6 million from the 89.1 million planted in 2018. It’s been suggested that a lot of these lost soybean acres will be in wheat country, meaning it’ll go back into the cereal. [4] The USDA is estimating 51 million acres of all wheat planted for the 2019/20 crop year, but grain prices might start factoring in a larger spring wheat base. For context, we also know farmers in Russia, Europe, Australia, and even Canada are likely to plant more wheat for next year’s harvest.

There are a fair amount of those 2018 soybean acres that will also go into corn as that’s the main go-to in many areas since there’s not much else to be planted. [5] Yes, there’s options of wheat (as mentioned), as well as potentially sorghum, oats, and barley, or even canola and flax in North Dakota and Minnesota, but in most states, corn is the easiest fallback crop. There are some question marks about corn acres going too, too high as chemical and fertilizer costs are rising, also a by-product of the trade war. [6]

Sidenote: hybrid rye is being found to be a suitable substitute for corn in pig diets. [7] Between this and demand for cover crop seed, rye prices have been trading at record levels on FarmLead. I strongly suggest you post yours now on the Marketplace if you’ve still got some in the bin as farmers are likely to chase these returns in 2019, bringing acres up and prices down.

Switching gears a bit, there is some buzz that we might see India lift its import tariffs thanks to the drier rabi crop season that farmers there are experiencing right now. [8] While this is certainly positive for the prices for pulses, it’s unlikely to get the Indian government to ditch their import tariffs before their election in 2Q2019. However, we do think that there is a bit of a longer-term contrarian situation for the lentils outlook, and potentially also durum prices.

Ultimately, there’s a lot that could happen between now and spring 2019.  Right now, with all the geopolitical risk and corresponding trade tariffs in the market, grain prices are depressed. If any of these situations turn brighter, grain prices could do the same.

To growth,

Brennan Turner

CEO
FarmLead
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contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

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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