Grain markets are mixed as the complex moves on weather, strong canola exports, wheat concerns, and the signing of the “Phase One” trade deal between the U.S. and China.
“Rest is not idleness, and to lie sometimes on the grass under trees on a summer’s day, listening to the murmur of the water, or watching the clouds float across the sky, is by no means a waste of time.” – John Lubbock (English philosopher)
Watching Canola Exports, Wheat Harvest, & a Trade Deal
Grain markets are mixed as the complex moves on weather, strong canola exports, wheat concerns, and the signing of the “Phase One” trade deal between the U.S. and China. National Australia Bank recently dropped its estimate of the wheat harvest in Australia to 15.5 MMT, well below the 19 MMT that most other players, including the USDA, are estimating.  Dealing with a third straight year of drought, it’s expected that other players will take up Australia’s lost ability to meet the same volumes of wheat, barley, and canola exports of years past.
Due to the holiday Monday, U.S. grain exports data won’t be out until later this morning, but we already know that less grain is being moved. More specifically, the Association of American Railroads says that grain moving by rail dropped by 16% in September compared to a year ago. Further, grain movement on the St. Lawrence Seaways for the March to September period is down 10%, namely due to less corn and soybeans moving through it.
That said, were grain demand is optimistically strong is domestically, namely corn for ethanol and soybean crush. For the former, the Trump administration proposed a new formula earlier this week to boost biofuel demand but industry and farmer groups have scoffed at the idea.  The House Agriculture Committee chairman said that “the EPA’s announcement falls short of the promises made by the President.”  Meanwhile, U.S. ethanol production is running a little more than 5 behind last year.
On the weather front, Manitoba, southern parts of the Corn Belt, Minnesota, and other areas surrounding the Great Lakes are expected to receive more rain over the next week.  However, freezing temperatures are also expected across said Great Lakes and the eastern Corn Belt will likely kill off any crops not yet mature. For those fields that are ready to combined, they’re going to be tough to get to, but leaving them out over winter isn’t the best idea, especially soybeans.  In my experience, the smaller oilseeds – like canola, flax, and mustard, tend to weather the winter a bit better. Looking more long-term, the NOAA is expecting the Northern Plains to have a winter that’s a little above-average on the precipitation side of things. 
EU Signaling for Canadian Durum, Canola Exports?
We’ve started to see more Canadian canola heading to Europe, and it’s creating a boost to port activity in Thunder Bay.  In the first 10 weeks of the 2019/20 crop year, more than 191,000 MT of canola has been loaded through the Northern Ontario port, nearly 9 times the volume of canola exports shipped out by this time a year ago. Aggregately, through week 10, Canadian canola exports are tracking 2% higher year-over-year with 1.52 MMT sailed.
One of the main reasons for the increase in canola exports is the smaller rapeseed crop out of Europe. A few weeks ago, I suggested that canola prices might find some more legs as we get into the fall/winter seasons. This is a function of both higher canola exports to countries not named China, and some seasonality. On the former though, we know countries like France (and the rest of Europe) are looking for more canola/rapeseed after this past year’s significantly lower harvest. Combine this with the fact that Australia’s canola exports are expected to be lower, Canadian canola exports are best poised to fill the gap here.
The French agriculture ministry just updated its Harvest 2019 numbers, saying that the country’s rapeseed harvest fell by nearly one-third from last year to 3.54 MMT, or a drop of nearly 1.5 MMT.  While yields were the same last year, it was the harvested area that also dropped by a third. It’s worth mentioning that Strategie Grains estimates next year’s 2020 harvest of EU rapeseed at 19.3 MMT, thanks to an area seeded bumping up 7% year-over-year to 13.7M acres.  Put simply, the opportunity to gain some EU market share for Canadian canola exports is now!
In other crops, the French farm ministry said the country’s barley production this year would top 13.64 MMT, good for a 22% bump from last year’s smaller harvest. This was mainly because of France’s barley yields jumping 13% from last year and harvested area expanding by 9% to 4.76M acres. On the other side of the coin is the French durum harvest. Harvested area of the pasta-making wheat dropped by nearly a third, but yields improving by 22% from last year equated to total durum harvest in the country of 1.566 MMT. This would still be a drop of about 13% of 230,000 MT from last year.
Intuitively, this is also a potential window of opportunity for international players to increase their durum exports to the EU. Worth noting is that, through Week 10 of the 2019/20 crop year, Canadian durum exports are tracking 57% higher year-over-year at 920,700 MT.
The Reality of a U.S.-China Trade Deal
In Wednesday’s FarmLead Breakfast Brief, I discussed how the U.S. and China reached a “Phase One” agreement to slow down the trade war between them. This included some significantly large purchasing of U>S. agricultural products by China. In reality, the U.S. hasn’t sold more than about $29 Billion of agricultural goods to China, yet President Trump is calling for $40 – $50 Billion in purchasing.  Further, Chinese negotiators are adamant about the purchases being at fair-market prices and based on actual demand needs.
The kicker here though is that, if China has to ask its state-owned players like COFCO to buy more American, this is essentially what the World Trade Organization would call “managed trade”, something that’s illegal. The one thing that China probably needs more of than anything right now is protein, and mostly in the form of livestock. Pork prices in the People’s Republic jumped by 69% in September, compared to the same month in 2019. That’s up from the 50% year-over-year jump in August, as China continues to battle the spread of the African Swine Fever.
The benefit of higher protein prices in China is that they’re making their way back to this side of the Pacific Ocean.  Live cattle futures are up nearly 15% since the start of the current month-long rally while futures for lean hogs have jumped about 10% in the past month. With the strength in livestock prices, this could support feed grain prices a bit, but that’ll be a function of whether or not Asia continues to buy animals.
Have a great weekend!
Grain prices futures data is not available in this morning’s FarmLead Breakfast Brief but you can view them here.
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