As we look into pea prices and other pulses this morning, grain markets this morning are mostly green as weather & trade headlines continue to dominate.
“If you walk away, don’t walk away with something still left in the tank. Then you’re wondering like, ‘Man, what could I have done?’ When I’m done playing, I want to leave it all out on the field.” – Ryan Howard (former professional baseball player)
Pea Prices Tanking as Futures Move Sideways
Grain markets this morning are mostly green as weather & trade headlines continue to dominate sideways activity on the futures board, while pea prices pull back on bigger supply expectations. In outside factors, America’s top doctor when it comes to infectious diseases, Anthony Fauci, told Congress yesterday that he’s “cautiously optimistic” there’ll be a COVID-19 vaccine by early 2021.  Conversely, he’s pushing back against the idea that there’ll be a summer lull, in terms of new cases, and he’s probably right, given the surge in regions that have been a little too relaxed in their re-openings. 
On Monday afternoon, U.S. trade adviser, Peter Navarro, responded to a question on Fox News about the trade deal with China essentially being over, and he replied, “It’s over. Yes.”  This obviously caused a sell-off in the broader markets. President Trump quickly tweeted that, no, the deal is intact, and he’s optimistic that China “will continue to live up to the terms of the Agreement.”  Also, Mr. Navarro also said that his comments were taken out of context, but it’s clear that relations with between the #1 and #2 economies in the world are at a low. Is it worse to be in a trade war, or is it worse to have an agreement to continue to trade, but still be at each other’s necks?
Meanwhile, the MSCI World Index is currently indicating that stock prices are sitting valuations that mirror that of the dot-com bubble nearly 20 years ago.  Why is this happening? Central banks continue to provide liquidity to markets like never seen before, and so the risk is palpable because the central bank is going to fail, right? Further, the “Don’t fight the Fed” moniker has been relevant in more common times, but with a pandemic, recession, and overvalued stocks, the slope is looking slippery to the downside.  Further, a rise of average Joes becoming day-traders has also helped the market rebound to these levels that are now feeling extremely top-heavy.  I mean, we didn’t have a COVID-19 pandemic going on back in the early 2000s, but the market still crashed.
Weather vs Trade Headlines
Soybean prices firmed up a bit yesterday and some warmer temperatures forecasted for the Midwest through the end of June. The move in soybean futures follow some bullishness on, after the USDA said in their weekly crop progress report that the portion of the crop rated good-to-excellent (G/E) climbed by 2 points to 72% G/E.  Conversely, corn prices have fallen to multi-week lows amid 72% of the U.S. crop rated G/E, up 1 point on the week and a higher number than what the average pre-report guesstimate from analysts. Also playing a factor on corn and soybean prices is positioning ahead of the the June 30 stocks and acreage report.
While crop conditions and weather hangs over production potential, soybean prices continue to closely monitor trade headlines, and the market seems a bit unsure about how to handle the most recent one from China: guaranteeing boats of soybeans from the U.S., Brazil, and Canada don’t have the coronavirus in them.  Now, the irony is quite thick here (they’re basically saying, “don’t bring that virus back to where it came from!”) and the move seems highly politicized, as many organizations, including the WHO, CDC, USDA, etc. all say COVID-19 isn’t transmitted via food.  In some unrelated macro news, the CME Group is working on co-developing a soybean futures market for Brazil. 
In the wheat complex, HRS wheat futures continue to remain elevated, compared its winter wheat brethren in Chicago and Kansas City, which are actually sitting at levels not seen since last September. The USDA said this Monday that 75% of the crop is now rated G/E, down 6 points from last week’s 81% G/E rating. Nonetheless, good rains in Western Canada have put pressure on HRS wheat, as well as canola prices, intuitively pushing pause on weather premiums, something I mentioned in my weekly column for the Alberta Wheat Commission.
Pea Prices Indicating Big Harvest 2020?
Back at the beginning of May, I warned our Breakfast Brief readers that there was some serious downside risk for pea prices and lentil prices. At the time, we saw old crop yellow pea prices consistently trading on the Combyne Marketplace around $8 CAD/bushel, while old crop green peas were sitting closer to $12.50 CAD/bushel. In terms of new crop, we saw some yellow pea trades around $7 and new crop green peas were getting contracted around $9.
That said, we’re still seeing some new crop yellow pea prices trade in the $7 CAD/bushel range (i.e. this bid in central Alberta) and new crop green pea prices in the $9 to $9.50 range, which for the latter is surprisingly strong, given the expectations for a larger green peas crop in 2020/21. But for old crop, pea prices have fallen off the proverbial cliff, as the chart below shows. Nonetheless, pea exports have been generally consistent, with cumulative sailings topping 2.7 MMT, or good for nearly 30% above last year’s pace at this time.
AAFC’s June estimates of supply and demand for principal field crops noted this sentiment, especially for green pea prices. However, AAFC is expecting Canadian pea exports to drop in 2020/21, but China and Bangladesh are expected to remain the top destinations. With the weaker pea exports in 2020/21, AAFC is forecasting Canadian pea ending stocks for the new crop year to climb to 475,000 MT. If realized, this would be a 175,000 MT jump (or +58%) year-over-year and 128,000 MT above the 5-year average (or +37%).
Looking elsewhere, U.S. pea production is estimated by the AAFC to fall by 25% year-over-year to below 800,000 MT. The decline is largely due to planted acreage falling 12% from 2019 to 970,000 acres (especially in North Dakota), as well as expectations that yields will revert to the mean, after last year’s above-average haul. In the Land Down Undaa, ABARES said last week that pea production by Australian producers should climb 30% year-over-year to 259,000 MMT. The improvement is largely attributed to yields rebounding 30% to nearly 19 bushels per acre, after the last 3 years of drought have dramatically challenged growing capabilities.
Overall, I continue to maintain my stance that pea prices have more downside risk the further we get into the growing season, especially given the good start many pea crops got in terms of sun and rain. Like AAFC and many others, I’m expecting green pea prices to stay depressed, and only an increase in pea exports from the current forecast of 3.4 MMT would push the complex higher. Understandably, for that to happen, you’d need to see more business from China, or maybe some new buying from Europe. Yes, the increased demand for pea protein helps, but it won’t be enough to push ending stocks back to where we’re expected to end 2019/20 (300,000 MT).
Looking at lentils for a hot second, since early May, we’ve seen lentil prices trade sideways to higher, mainly due to India reducing its import tariff on Canadian lentils a few weeks ago. Since I expect this tariff to be re-introduced in the fall, make sure to check your contracts in terms of potential force majeure clauses that may allow buyers to walk. We saw this happen a few years ago and there were a lot of well-priced new crop contracts that basically went up in flames because of India’s government intervention via import tariffs.
On that note, I’m pretty heavily forward sold on new crop pulses, and given the downside risk mentioned, I’d recommend you to consider the same and list your new crop deal on Combyne here. There are now over 50 credit-verified lentil buyers and over 65 pea buyers on Combyne but not all of them post public bids, but just private ones for their network of Combyne Connections to see. Accordingly, post your Offer, and add any buyers as a Connection to be notified of both their public AND private Listings. In the meantime, here are a few public bids to look at for lentil prices:
- 28¢ CAD/lbs – new crop small red lentils – north central Saskatchewan
- 28¢ CAD/lbs – new crop large green lentils – north central Saskatchewan
- 27¢ CAD/lbs – new crop small green lentils – north central Saskatchewan
At 7:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.357 CAD, $1 CAD = $0.7369 USD)
Sept Corn: +0.3¢ (+0.1%) at $3.293 USD or $4.468 CAD
Aug Soybeans: +0.8¢ (+0.1%) at $8.728 USD or $11.844 CAD
Aug Soybean Meal (per short ton): +$1.20 (+0.4%) to $289.50 USD or $392.86 CAD
Aug Soybean Oil (cents per lbs): -0.08¢ (-0.3%) to 28.62¢ USD or 38.85¢ CAD
Sept Oats: -0.5¢ (-0.15%) at $2.903 USD or $3.939 CAD
Sept Wheat (Chicago): -0.3¢ (-0.05%) to $4.908 USD or $6.66 CAD
Sept Wheat (Kansas City): +1.5¢ (+0.35%) at $4.45 USD or $6.039 CAD
Sept Wheat (Minneapolis): +1.3¢ (+0.25%) to $5.25 USD or $7.124 CAD
Nov Canola: +0.2¢ (+0.02%) at $10.759/bu / $474.40/MT CAD or $7.928/bu / $349.59/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.