Wheat prices are the only thing in the green this morning for grain prices thanks to some follow-on buying from Friday’s buzz that U.S. wheat is getting more competitive.
“When in doubt, choose change.”
– Lily Leung (Hong Kong Actress)
Wheat Prices Finding Their Footing?
Wheat prices are the only thing in the green this morning for grain prices thanks to some follow-on buying from Friday’s buzz that U.S. wheat is getting more competitive on an international front.
Specifically, Egypt bought 240,000 MT of wheat last week, with half of it coming from American ports.  It’s been suggested that Egypt may turn away from Russia as its principal wheat supplier as their amount of exportable supplies start to slow, but also there are questions about the quality coming out of their facilities.
The bigger news coming out of the Black Sea this Monday though is Russia having fired upon and then captured three (3) Ukrainian warships off the coast of Crimea, the annexed region that Russia took control of a few years ago. As it relates to grain markets, there are questions about whether or not grain exports in the Azov Sea (where the naval clash took place) will be impacted. Reports are that its business as usual right now.  It’s expected that Ukraine will vote today on whether to impose martial law or not. 
Should wheat exports indeed be impacted, this could be a quality opportunity for wheat prices to find its footing again.
Wheat Prices Looking at All Options
Staying on the exports front, there was some buzz this week that France was able to sell a boat of wheat to China. U.S. wheat was supposedly competitive on a FOB basis, but the freight was too costly to make it into the mix.
Canadian wheat though is certainly getting bought up by China though. Using data available through the end of September, China is the largest importer of Canadian wheat in 2018/19, buying nearly 366,000 MT.  This beats out the next largest importer of Canadian wheat, the U.S., by a little more than 15,000 MT. It’s also basically triple what China imported through the same period in 2017/18.
Something to consider is that China, right now, accounts for about 144 MMT of the 2018/19 global wheat carryout, up 12 MMT year-over-year. If we don’t include China in the mix, 2018/19 worldwide wheat ending stocks are expected to drop 24 MMT year-over-year to 123 MMT.
Translation: way less tradeable wheat in the world and the markets are pricing this in accordingly. And it seems that Canada is taking a driver’s seat for the higher quality market and it’s helping support prices from heading much lower.
In the lower quality market, Russia and Ukraine still seem to be playing hardball, and that’s impacting European exports. In the most reporting through November 11th, EU soft wheat exports for the 2018/19 crop year have only totaled 5.9 MMT, down 24% year-over-year. It’s widely expected though that EU wheat exports will start to accelerate in the second half of the crop year as the Black Sea exportable supplies start to try up.
Glancing at Europe’s 2019/20 prospects, rains have fallen in western and northern areas that were pretty dry this past growing season. Thus, with an ideal seedbed, it appears that EU farmers in these regions are planting more wheat than last year. Strategie Grains estimates that total 2019/20 seeded areas in the EU of soft wheat will be nearly 60.1 million acres, up 6% year-over-year.
A Crop Update From Brazil
AgRural is saying that Brazil’s soybean farmers will be harvesting soybeans in December, thanks to the fastest seeding campaign ever. 89% of Brazil’s expected soybean area, or 88.5 million acres, which is about 11 points above the average for this time of year.
On that note, Safras e Mercado pushed Brazil’s soybean estimate up to 122.2 MMT, a bit higher than the USDA’s estimate of 120.5 MMT in the November WASDE. AgroConsult is the most bearish, saying Brazil’s soybean crop could hit 129 MMT.
While farmers are busy finishing up seeding, there are likely some changes coming to the agricultural industry in Brazil as in a few weeks, the country’s President-Elect Jair Bolsonaro will officially take office.
Bolsonaro is generally backed by the agricultural industry and is a staunch advocate of free markets.  This means that he’s right-leaning, which would be a reversal for Brazil which saw four terms of more liberal governments.
Likely one of the first things that Bolsonaro could tackle is getting rid of the minimum freight rates, which was passed by the previous government earlier this year to try and offset ballooning diesel prices.
With unemployment at 13% and a staggering 14 million people out of work, Bolsonaro’s priorities are to cap pension spending, reform the tax system and get one of the world’s biggest agrarian economies moving again after two years of recession. Brazil’s soybean prices have dropped quite a bit and so getting rid of the freight benchmark seems like an obvious and easy first win for the President-Elect.
Probably the most significant thing for the environmentalists is that Bolsonaro has threatened to quit the Paris Climate Accord.  With a 13% unemployment rate, Bolsonaro may look to open up some loopholes that would allow for more Amazon forest clearing to allow for increased farming, logging, and mining activity.
Overall, with some right-leaning leadership in Brazil going forward, it’s likely the country will try to expand its resource part of the economy, meaning more competition in the ag markets.