Grain markets this morning are mixed (but oats prices are in the green – what do they know other wanting to rebound from their recent pullback?) as general uncertainty remain in the markets.
“To know what you know and what you do not know, that is true knowledge.” – Confucius (Chinese philosopher)
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What Oats Prices Know and Australia’s Wheat Harvest
Grain markets this morning are mixed (but oats prices are in the green – what do they know other wanting to rebound from their recent pullback?) as general uncertainty remain in the markets. Yesterday, the move that got the most headlines was from the U.S. Federal Reserve which cut interest rates by 50 basis points (or 0.5%) in hopes to defend the American economy against the impact of the coronavirus. I wasn’t the only person who thinks that this move by the Fed is the least fundamentally correct monetary policy decision they could make.  That said, investors and even President Trump have been calling for the Fed to ease economic concerns of the coronavirus.
While the move weakened the U.S. dollars and helped grain prices, notably soybean prices, find some positive gains yesterday, broader financial markets sold off. That said, the United States is not the only country to who’s firing up the printing presses and injecting more money into their economies. In Italy – one of the countries with largest cases of coronavirus outside of China – announced plans to inject €3.6 Billion (or about $4 Billion USD) into their economy.  Nearby in Germany, the forthcoming stimulus package is now being politicized as the German economy was slowing even before the coronavirus became a international headline.  Taiwan has injected $2B but the biggest dollars being spent are by China, who continue to work on easing the financial impact of the coronavirus. 
Switching gears quickly, railroad movement of Canadian grain is starting to get back to normal after the past few weeks of climate protests.  CN Railway CEO Jean-Jacques Ruest admitted that roughly 1 MMT, or about 10,000 carloads of grain capacity were lost during the protests and that “of all the supply chains, the one that will take the longest (to recover) is the grain.”
Oats Harvest 2020 to be Burdensome?
Speaking of increased supplies, there’s been a lot of hype lately around oats this year as alternative crop to wheat or barley in the rotation. Oats prices have performed well this fall/winter, even though we saw record average oats yields in Canada’s Harvest 2019. The main reason behind the healthy performance of oats prices has been some stronger demand, both domestically and abroad. While oats prices on the cash market have clearly pulled back, they’re still sitting a little higher than they were a year ago.
On the domestic side, there’s been more use, but the buzz word(s) continue to be oat milk. Heck, even outspoken musician Jann Arden seems to be in favour of oat milk.  As a reminder though, it only takes about 500 MT of oats to produce 5M litres of oat milk it’ll take some work but capturing some market share from almond, soy, and other milk alternatives but it is doable. That said, expectations are oats prices skyrocketing any time soon should be kept in check (just like yellow pea prices, despite the hype around pea protein). The bottom line is that these new demand line items are good for the longer term structure of oats prices, but you want see a 20% pop or anything.
On the international side of things, through Week 29 of the 2019/20 crop year, Canadian oats exports are tracking about 12% higher year-over-year with nearly 1 MMT sailed so far. That said, Agriculture Canada is currently expecting total crop year oats exports to hit 2.6 MMT. This would be largest oats exports program since 2.8 MMT was eclipsed in the 2007/08 crop year and oats prices have generally reflected this.
However, the amount of interest in oats for 2020 is probably going to create some “burdensome supplies” according to one buyer, which would just confirm the boom/bust cycle of the cereal that we’ve seen in the past.  In their February estimate , Agriculture Canada suggested that oat acres in Canada for Plant 2020 would come at 3.93M, up about 9% or 325,000 from Plant 2019. In the United States, the USDA is currently estimating that oats acres this year will grow by about 3%, but combined with yields returning to their average, production is expected to climb by 24%. Accordingly, the USDA is expecting U.S. oats prices in 2020/21 to fall by about 15% compared to the current crop year.
Overall, while new crop oats prices have pulled back a bit, there are still some decent bids out there. That said, I’d recommend you post your new crop oats indication on Combyne as a public Listing. Even though it’s public, you’re not going to be getting random phonecalls from buyers you don’t know, but they are able to start chat convos with you. More simply, even while you post publicly on the trust based Combyne cash grain marketplace, you can still filter who you want to deal with on your next grain deal. As a reminder, there are not subscription on transaction fees to us Combyne.
Bigger Aussie Wheat Harvest in 2020?
As a follow-up to the USDA’s annual Ag Outlook forum a few weeks ago, ABARES, Australia’s chief commodity forecaster had their own annual conference. At it, ABARES suggested that Australian farmers will increase acres seeded into wheat by nearly 20% from last year to 29.7M.  Combined with the thinking from ABARES that Aussie farmers will get better moisture in the coming months, they are estimating that 2020/21 Australian wheat production will hit 21.3 MMT. This would be a 40% climb from the recent downgrade of this past year’s wheat harvest by ABARES to 15.17 MMT, which they just updated a few weeks ago.
Maybe one of the best lines from the ABARES event came from Australian Ag Minister, who said, despite the challenges “agriculture is sexy again, just add water”.  What he’s referring to is the spotlight that agriculture is getting from consumers (i.e. sustainability, environmentalism, etc.) but the clear moisture deficit in the Land Down Undaa. After all, wheat is a weed and can grow in some pretty tough conditions, but there is not a lot of soil moisture in the Aussie dirt. Ultimately though, many analysts, including yours truly look at this new estimate by ABARES as just a dart thrown and nothing to really take too seriously. Yes, Aussie farmers will increase wheat acres, but this wheat harvest forecast is definitively questionable.
At 8:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3369 CAD, $1 CAD = $0.748 USD)
May Corn: -0.3¢ (-0.05%) at $3.81 USD or $5.094 CAD
May Soybeans: +3.5¢ (+0.4%) to $9.07 USD or $12.126 CAD
May Soybean Meal (per short ton): -$0.30 (-0.1%) to $309.80 USD or $414.72 CAD
May Soybean Oil (cents per lbs): +0.55¢ (+1.9%) to 29.71¢ USD or 39.72¢ CAD
May Oats: +3.3¢ (+1.25%) to $2.678 USD or $3.58 CAD
May Wheat (Chicago): -4.5¢ (-0.85%) to $5.228 USD or $6.989 CAD
May Wheat (Kansas City): -2.5¢ (-0.55%) at $4.558 USD or $6.093 CAD
May Wheat (Minneapolis): -2.5¢ (-0.45%) to $5.315 USD or $7.106 CAD
May Canola: +0.2¢ (+0.02%) to $10.585/bu / $466.70/MT CAD or $7.917/bu / $349.09/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither th 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.