November 9 – Forget the WASDE; Is A Trade War Starting?

Good Morning!

Today’s FarmLead Breakfast Brief looks at the bump in spring wheat prices and what we’ll be watching for in today’s November WASDE report. We also explore some of the broader winds of trade happening, especially in India, China, and Russia.

Also, tomorrow, at 1PM EST, I’ll be hosting a webinar on the Challenges of Grain Marketing. Feel free to join me and the other 152 people who have registered for it thus far! Space is limited to secure your spot ASAP.

Also, if you’re in Red Deer, AB this week for Agri-Trade 2017, stop by the FarmLead booth in the Prairie Pavilion and check out the new things we’re bringing to the grain marketing table!

“The philosophy of protectionism is a philosophy of war.”
– Ludwig von Mises (Austrian-American theoretical economist)

Except for spring wheat prices, grain markets this morning are quietly jostling around ahead of today’s big release.

Today at noon EST, the USDA will release its November WASDE report. In Tuesday’s Breakfast Brief I discussed WASDE corn expectations. In yesterday’s Breakfast Brief I talked abouWASDE soybean expectations.

I haven’t provided much chatter about other crops, mainly because the balance sheet for those isn’t expected to move too much.

Overall, the areas in the November WASDE that we think could have an impact on the market today include:

• US. corn yields – it’s bearish if they’re raised;
• Brazilian soybean exports – it’s bearish if they’re raised;
• Australian wheat production and exports – it’s bullish if they’re lowered;
• Russian wheat production and export – it’s bearish if they’re raised; and
• US spring wheat abandonment acres – it’s bullish if they’re increased [1]

The market is already price in some lower harvested acres (and more abandoned acres) as Minneapolis spring wheat prices rallied nicely yesterday. The rally is continuing this morning. You need to post your spring wheat on FarmLead now and reward this rally with a sale.

What’s better than selling your crop at a profit?
Selling it for a bigger profit.
Post on FarmLead and get access to 500 competitive buyers.

Trade War Chatter Heating Up

Yesterday, American and Chinese companies signed 19 agreements worth $9 billion in soybeans or about 12 million tonnes of the oilseed.

This is great news. However, China is taking longer to issue safety certificates for cargoes of GMO soybeans. [2]

According to one trader, certs have been harder and harder to get since April, and while things eased up over the summer, it’s tough again. As a result, most Chinese crushers are buying hand-to-mouth.

Switching gears a bit, yesterday, Russian President Vladimir Putin penned an op-ed for Bloomberg on trade in Asia. [3]

He left the United States completely out of his piece.

It’s a purposeful slip of the pen and speaks quite directly to Putin’s bid for greater economic trade between Asia and Russia. This is especially timely since the U.S. pulled out of the Trans-Pacific Partnership nine months ago.

However, there are still some discussions going on, and a deal might get done with the remaining countries, including Canada. Canadian ag groups are telling the government to leave the text alone though. [4]

The Russian Ag Ministry said today that they’re aiming to increase their grain export capacity to 7.5 million tonnes per month within three years. [5Currently, they’re only able to ship out five million tonnes, meaning this infrastructure expansion would increase grain export capability by 50%.

This year, in 2017/18, total Russian grain exports are forecasted to hit 45 million tonnes. Already, exports-to-date are up 23% from where they sat a year ago.

This expansion of Russia’s grain export program is a broader trend that we started talking about back in September. In the past 15 years, Russian grain export capacity has increased nine-fold.

Here in North America, the fourth round of NAFTA renegotiations are set for next week in Mexico. We’re going to dig into this a bit more ahead of the talks in some FarmLead Insights pieces, but it’s doubtful a deal is close to being made.

Weather Helping Crop Progress

While we’ll be watching the numbers in real-time later today, farmers who aren’t finished their harvest yet will likely be out doing so. The weather over the next few weeks in the Midwest appears pretty favorable. In the next five days, Commodity Weather Group says below-average rainfall is expected. [6]

In the 10-day forecast, only eastern parts of the Midwest are likely to see some wet weather. Snow does come into the forecast towards, US Thanksgiving, two weeks from now.

There are certainly some challenges though for farmers in the Dakotas and Minnesota, who remain a bit behind on their corn harvests.

South of the equator, the weather is also looking more cooperative.

There are a few more days of rain expected in Northern Brazil before average-to-below-average temperatures. In this concerning for those fields that have just been seeded and looking for some heat to get the seeds germinated and up, out of the ground.

Southern Brazil and Argentina should see dry weather the next 11-15 days, but beyond that is a bit concerning. As per AgResource, the long-term forecast suggests the area is trending drier, suggesting the emergence of La Nina. [7]

Goodbye Pea Prices?

Less than a week ago, I discussed how India was mulling the idea was putting an import tax on pulses like peas.

Yesterday it happened.

The Indian government announced that it would impose a 50% import duty on peas and 20% import duty on wheat. [8]

In 2016/17, with high prices, Indian farmers produced a record crop of pulses. This year, in 2017/18, they’re expected to produce the second-largest crop of pulses (again, with 2016/17 being the record).

Some think the bark of the Indian import tax is worse than its bite. Yellow peas are the cheapest in the world.

However, more than 40% of Canadian peas are exported to India. Last year, sales of lentils and peas to India topped $1.1 Billion CAD!

Two weeks ago, the Indian government raised their minimum support prices for the winter season, Rabi crops. [9] Grain prices that government will now pay Indian farmers include:

• Wheat prices: $267 USD / metric tonnes (or $7.25 USD and $9.25 CAD per bushel)
• Barley prices: $217 USD / metric tonne (or $4.75 USD and $6 CAD per bushel)
• Lentil prices: $654.50 USD / metric tonne (or 30 USD and 38 CAD cents per pound)
• Chickpeas prices: $677.60 USD / metric tonne (or 31 USD and 39 CAD cents per pound)

The USDA attaché in India says that the significantly higher MSP for wheat prices will encourage more wheat planting for the rabi crop season. Indian farmers prefer to plant wheat over pulses anyways, considering that it has a guaranteed government procurement program.

For both Canadian and US farmers of peas, this isn’t a good thing in my opinion.

It’s even worse for those players who have shipments en route as we speak. Perhaps it could be worse though?

Peas exports out of Canada have already been slower this year. As of the end of October, just 850,000 MT of Canadian peas had been shipped out (total, not just to India).

That’s almost 40% behind last year’s pace.

Yesterday, we saw a lot of buyers of pulses on the FarmLead Marketplace (and off it) go no bid on many of their pulses.

Ultimately, I think we’ll need to let the dust settle here, but it remains to be seen if the Canadian or American governments will respond to India with any in-kind trade penalties.

To growth, 

Brennan Turner
President/CEO | FarmLead

1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:10 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2731 CAD, $1 CAD = $0.7855 USD)

Dec Corn: unchanged at $3.483 USD or $4.433 CAD
Nov Soybeans: +3.8¢ (+0.4%) to $10.023 USD or $12.759 CAD
Dec Soybean Meal (per short ton): +2.70 (+0.85%) to $317.90 USD or $404.71 CAD
Dec Soybean Oil (cents per lbs): -0.07¢ (-0.2%) to 35.30¢ USD or 44.94¢ CAD  
Dec Oats: -1.3¢ (-0.45%) to $2.683 USD or $3.415 CAD
Dec Wheat (Chicago): unchanged at $4.268 USD or $5.433 CAD
Dec Wheat (Kansas City): unchanged at $4.275 USD or $5.442 CAD
Dec Wheat (Minneapolis): +10.5¢ (+1.65%) to $6.54 USD or $8.326 CAD
Dec Canola: -2.3¢/bu / -$1/MT (-0.2%) to $11.789/bu / $519.80/MT CAD or $9.26/bu / $408.30/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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