Grain markets this morning are mixed as trading activity after Friday’s October WASDE report starts to settle down/stabilize.
“Failure gets a bad rap, but I’d like to change that. Failure is necessary. Let it in. Chew it up, and use it as fuel for your soul.” – Christina Tosi (American chef)
October WASDE Provides Fresh Fuel for Bulls
Grain markets this morning are mixed as trading activity after Friday’s October WASDE report starts to settle down/stabilize. After a sharply higher day on Friday, grain markets started some corrections on Monday as profits were booked ahead of harvest activity in North America and planting pace in South America picking up.
Speaking of which, this week’s Crop Progress report, published yesterday, showed the U.S. corn and soybean harvests at 41% and 61% complete, both about 2 points above pre-report expectations.  However, good-to-excellent ratings for both crops fell 1 point week-over-week to 61% G/E for corn and 63% for soybeans. On the flipside, U.S. winter wheat planting was pegged at 68%, also slightly above what the market was expecting.
Speaking of expectations, there is some buzz in the market that China may increase its corn imports quota, as the math suggests there is way more already booked than the 7 MMT the People’s Republic has officially indicated they’ll bring in. Market analyst and broker, Allendale, is suggesting this morning that China will raise their corn import quota somewhere between 15 – 20 MMT, especially considering that already nearly 10 MMT of 2020/21 U.S. corn has been bought by China, with another 3.9 MMT booked by unknown (but most agree that “unknown” = China).
All this in mind, corn futures on China’s Dalian commodity exchange hit new record highs yesterday on the slow pace of harvest and questionable supplies (hence the talk about import quotas increasing).  Worth also noting, however, is that with Chinese corn supplies in question, China is likely to import more barley, and given the trade riff with Australia, it’s not surprising to see Canadian barley exports tracking almost 3 times higher than what we did a year ago, and thus, feed barley prices are looking pretty attractive right now. P.S. I did timestamp this call back in July for more Canadian barley exports going to China but so did a lot of other people so this shouldn’t be all that surprising!
October WASDE Helps Grain Markets
On Friday, October 9th, the USDA published its October WASDE report, and with it, more than reset the goalposts.  Going into the report, last Friday morning I mentioned that the USDA was going to drop U.S. corn and soybean inventories, but the actual numbers they published were pretty bullish. Further, grain markets were watching for increased exports across the board, and the USDA didn’t disappoint, adding even more bullish fuel for the bulls.
On the supply side of things, the USDA actually raised average corn yields by 0.7 bpa to 178.4, while soybean yields were raised by 0.3 to 51.9; regardless, both updated yield numbers are still new records. The kicker, however, was that the USDA lowered harvested acres for corn by about 800,000 in the October WASDE, while harvest soybean acres were felled by 633,000 acres. As a result, U.S. corn and soybean production numbers both came in below the market’s expectations, and thus, was bullish for investors.
While we knew that ending stocks were going to be lower (given the significant reduction by the USDA in their quarterly grain stocks report on September 30th) the trade’s pre-report guesstimates were still too high. Compared to their September WASDE report, the USDA cut their forecast for U.S. soybean ending stocks by more than a third to now sit at 290M bushels, a five-year low. Helping drive this was an increase in U.S. soybean exports by 3.5% to nearly 60 MMT.
As I mentioned going into the October WASDE, this increase in exports is important, considering that U.S. soybean exports sales have already hit 40.7 MMT (or nearly 1.5B bushels, if converting metric tonnes into bushels) for the 2020/21 crop year. I’m repeating myself, but it’s worth repeating: This is nearly TRIPLE what had been bought by this time a year ago. Of course, the warm, fuzzy feeling many are having about soybean prices and demand right now may not last forever as Brazil’s crop will be harvested in a few months.
However, the soybean planting pace by Brazilian farmers is the slowest it’s been in a decade, with just 3.4% of fields seeded so far, according to AgRural thanks to some quite dry conditions (11.1% was seeded as of this time a year ago).  That said, healthy rains are expected through next week in many areas, which could take some legs out from under any bullish soybean traders. Nonetheless, after the last 2 years of intense soybean exports campaigns to China, even the Brazilian Ag Minister says that they need to start to diversify away from China (which is a positive for U.S. soybean exports). 
October WASDE Boosts Russian Wheat
Also seen in the October WASDE was Russia’s wheat harvest being raised from last month’s estimate by an astounding 6 MMT to now sit at 83 MMT, making the 2020/21 wheat crop their 2nd-largest ever. On the bullish side of things, Russian wheat exports were raised by 1.5 MMT, Ukraine’s crop was dropped by 1.5 MMT, Canadian production was lowered by 1 MMT, and the Argentine wheat crop was felled by 500,000 MT. However, this was obviously not enough to offset the major production adjustment from Russia and global wheat ending stocks climbed higher by more than 2 MMT to now sit at 321.5 MMT, which, as a reminder, is a new record.
While the move in corn and soybeans in Friday’s trading after the October WASDE release helped wheat prices a bit, values have since retracted a bit. Notably, Chicago SRW wheat futures have been toying with $6 after touching a new 5-year high last week. But this is very likely the top as, with the larger Australian and smaller Argentine wheat harvests coming to market in the next month, this should put pressure on wheat speculators, especially in Chicago and Kansas City futures. 
The good news for spring wheat growers is that, last week, Minneapolis futures held up well against the gains in its SRW and HRW counterparts. Accordingly, there is more expectation that HRS wheat futures could remain elevated in the coming weeks, while the winter wheat values start to retract. However, it is worth mentioning that traders in the Minneapolis HRS wheat market remain “stubbornly short” so any covering of those positions should be watched closely. 
In that vein, low-protein wheat and/or feed wheat continue to be priced incredibly well on the cash market, be it Canada or the U.S., and I’m cognizant of the increased downside risk here (if you’re not, re-read the last 2 paragraphs). If you’ve got some you’re looking to move now or even in a few months, ensure all your bases are covered, and post a Combyne Listing today! If some of your trading network is not yet on Combyne, share your Listings with them so that they understand your deal expectations upfront (versus having to repeat the same info over and over again in separate conversations).
Apart from some healthy trading activity on Combyne for feed wheat and low-protein wheat, we’ve also seen an uptick in Listings and negotiations for durum, flax, yellow peas, and small red and large green lentils. For the pulses, I mentioned over 2 weeks ago in a Breakfast Brief that the run up lentil and pea prices was likely but that the former would start to stall as India re-raises their import tariff on Canadian lentils to 33% (from the current 11%). Nonetheless, with 43 vessels sitting on the Canadian west coast waiting to be filled with Canadian crops, export demand seems to be strong (or at least as long as railroads stay open!).
At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3139 CAD, $1 CAD = $0.7611 USD)
Dec Corn: -1.8¢ (-0.45%) to $3.895 USD or $5.118 CAD
Jan Soybeans: +4.8¢ (+0.45%) to $10.518 USD or $13.819 CAD
Dec Soybean Meal (per short ton): +$3.30 (+0.95%) to $359.30 USD or $472.08 CAD
Dec Soybean Oil (cents per lbs): -0.01¢ (-0.03%) to 33.61¢ USD or 44.16¢ CAD
Dec Oats: -1¢ (-0.35%) to $2.833 USD or $3.722 CAD
Dec Wheat (Chicago): -3.5¢ (-0.6%) to $5.905 USD or $7.759 CAD
Dec Wheat (Kansas City): -5¢ (-0.95%) to $5.263 USD or $7.121 CAD
Dec Wheat (Minneapolis): -2.3¢ (-0.4%) to $5.42 USD or $7.121 CAD
Jan Canola: unchanged at $12.07/bu / $532.20/MT CAD or $9.187/bu / $405.06/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.