Grain markets are mostly in the red as lower energy prices weigh on the complex (and with implications for Plant 2020 planning).
“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” – Albert Einstein (German theoretical physicist)
Plant 2020 Questions (Have you Seen Corn, Durum Prices?)
Grain markets are mostly in the red as lower energy prices weigh on the complex (and with implications for Plant 2020 planning). Specifically, wheat prices are leading the complex lower on disappointing demand from Egypt, the world’s largest wheat buyer after they bought only 120,000 MT from Russia, instead of something closer the 800,000 MT or so that was expected. Somewhat playing a role is the fact that 62% of U.S. winter wheat crop is rated in good-to-excellent condition through Sunday.
While we continue to see headlines about oil production cuts, oil prices continue to fall because many don’t think the production drop will be enough to match this new normal of lower demand. Frankly, the global oil industry is not built for a market where cars are getting 3-4 weeks out of every tank of gas (it’s more like 3-4 days)! That said, the number of oil rigs drilling in the U.S. dropped for the 4th straight week and are now at the lowest since December 2016.
This has a significant impact on major oil-producing countries like Russia, Nigeria, everyone in the Middle East, and obviously Canada. Despite what the Canadian government has talked about in terms of their balance sheet being one of the strongest in the G20, this is just not true. In a very sobering op-ed from the Globe and Mail, Veritas Investment Research reminds us that “In Canada, all forms of debt – consumer, corporate and government – were already at record levels before the crisis, with Canada’s pre-crisis public and private debt-to-GDP already more than 300%. 
The risk of default, especially at the consumer and corporate level is, thus, intuitively quite high. When these two columns can’t contribute to the government’s balance sheet, their so-called strong foundations are suddenly very shaky. This, combined with weaker global demand for Canadian natural resources (namely mining, oil, and gas), the suggestion from Veritas for a 60¢ Loonie suddenly appears more realistic than reverie.
Durum Prices Changing Plant 2020 Plans?
Statistics Canada says that a few of its agricultural survey-based reports – including their first estimate of Canadian Plant 2020 cropping plans – will be delayed due to COVID-19 slowing, if not stopping their work out right.  Statistics Canada also said its stocks report and updated June acreage estimates will also be delayed (they were originally scheduled for May 7 and June 29, respectively). While one opinion could be that these reports are useless and the market believes the private market instead, the other is that getting these government estimates help provide direction in the market.
Unfortunately, the delay likely also means more uncertainty and thus, more potentially more volatility in grain markets. What I think is most frustrating for the entire industry is that government reports, be it from the USDA or Statistics Canada, have become less reliable because they people behind them seem to have a tough time adapting, be it to a remote workforce or new technology that could make their jobs more accurate, efficient, and effective. Put more bluntly by Darin Newsom, you’re better off watching the actual market (i.e. basis, spreads, etc.) than you are trying to follow inconsistent government reports. 
According to many analysts, one crop that may see less acres in Plant 2020 could be durum. Why? Sharp quality discounts schedules continue to lead to a disappointing return on the balance sheet, especially with higher-yielding spring wheat options out there.  That said, and as mentioned a few weeks ago, the Prospective Plantings report from the USDA, it was estimated that American farmers will plant 4% less durum for Plant 2020, with 1.29M acres getting seeded. In Canada, it’s estimated that Plant 2020 could see anywhere between a 10% to 25% jump in durum acres.
The reality though is that durum prices on both side of the 49th parallel are about 25% higher than spring wheat prices and that’s tempting to chase. As mentioned in my weekly column for the Alberta Wheat and Barley Commission, durum prices are also 23% higher than they were a year ago (or nearly $2 CAD/bushel better) and the best since August 2017.  Accordingly, we’ve continued to see farmer offers for durum on Combyne, our completely free cash grain marketplace, get picked off at much better levels than we’ve seen in the past few years.
Helping durum prices a bit has been the strong export campaigns from both Canada and the United States. With the Canadian Loonie poised to head lower, Canadian durum exports are likely to continue to see this trend of strong shipments (especially when I know importers around the world are more interested in buying durum from any country not named Italy). This is also helping draw down stocks after a few good years of production in North America. What this all adds up to is potentially even better durum prices over the next year (or at least near current levels), but as always, this will depend on how many durum acres ultimately get seeded and, of course, Mother Nature. 
Plant 2020: What Will Pay This Year?
Ultimately, heading into Plant 2020, I think that oats, durum, and wheat in general are going to do well. For oats, this new lockdown paradigm and a recession that could last 2 years means breakfast is likely going to be on more of a budget. This means more inexpensive staples, such as oatmeal and to meet the market’s requirements, quality has become increasingly more important. 
Despite the record amount of wheat still available in the world, and a record harvest 2020 pending, demand is up, and export restrictions have kept the market on edge. While I’m not expecting to see 2008, 2012, or 2016 wheat prices this year, I think 2020/21 crop year prices could average anywhere from 10-15% higher than 2019/20. This will be especially true for durum prices (Sidenote: here’s a decent bid on Combyne for some HRS wheat in central Saskatchewan. Remember to tap the “Connect” button so you’re adding this buyer to your network!).
I’m also expecting some strong demand for pulses. For example, while we’re seeing bids like this 28¢ CAD/lbs bid for small red lentils in central Saskatchewan routinely appear, we’ve seen final deals over the past few weeks around that 30¢ mark (second reminder: hit the “Connect” button so this buyer sees your future Listings, and you get notified of theirs). As mentioned by my friend Chuck Penner of Left Field Commodity Research, it’s not just old crop prices for pulses that are improving, but new crop pries as well. 
Accordingly, I’m recommending to post some new Listings on Combyne for both old and new crop coverage if you have pulses and durum. You can easily set your price expectations on Combyne with your Listing so that your buyers know what you’re looking for. However, given the uncertainty in the market, I’m also recommend being a little nimble. For example, getting a $7.75 forward contract with an Act of God clause for new crop yellow peas is better than holding out for $8, not getting it, and then you’re hoping for better prices in the fall (Reminder here: hope is not a risk management strategy).
On the downside, I have some bearish concerns for corn, canola, and soybeans heading into Plant 2020.  We all know that corn demand has lost a lot of lustre with the ethanol industry slowing its processing to a near standstill. All things being equal, it’s not surprising to hear from the U.S. Grain Council’s Chief Economist, Mike Dwyer, that U.S. corn stocks are starting to swell.  Further, Mr. Dwyer notes that corn exports will be increasingly relied upon, and thus scrutinized in terms of the direction for corn prices.  Currently, the USDA is expecting more than 97M acres of corn to get planted in the U.S., and as per Monday’s crop progress report from them, 3% of it is already in the ground. 
For the oilseeds, there’s a double-whammy of demand destruction that we’re potentially facing. First, is the lower demand for cooking oils from restaurants around the world. However, since canola and soy oil are used in a lot of other consumer products, but demand for new things has certainly fallen with the COVID-19 lockdowns. The second is that with meat demand somewhat set now at a new, lower level because of the lack of needs from the global hospitality industry, this potentially means less animals, which means less demand for feedstuffs (like canola meal or soymeal) overall.
Now, I’m not saying that prices for these 3 uber-important crops are going to plummet, I just don’t think the upside potential is anywhere near as strong as it looks for cereals and pulses today. Another way to think about is that the stability in demand for cereals and pulses is looking a lot stronger right now than it is for corn, soybeans, or canola. Accordingly, with demand stability comes price stability, but without it, obviously more volatility is expected and with supply largely accounted for, demand is the major factor that grain markets will be focusing on going forward in this new COVID-19 world.
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At 8:30 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4078 CAD, $1 CAD = $0.7104 USD)
May Corn: -2¢ (-0.6%) at $3.24 USD or $4.561 CAD
May Soybeans: -1.5¢ (-0.2%) to $8.455 USD or $11.903 CAD
May Soybean Meal (per short ton): +$5.20 (+1.8%) to $292.70 USD or $412.05 CAD
May Soybean Oil (cents per lbs): -0.20¢ (-0.75%) to 26.54¢ USD or 37.36¢ CAD
May Oats: -1.3¢ (-0.45%) to $2.76 USD or $3.885 CAD.
May Wheat (Chicago): -10.8¢ (-1.95%) to $5.38 USD or $7.574 CAD
May Wheat (Kansas City): -8.3¢ (-1.7%) at $4.755 USD or $6.694 CAD
May Wheat (Minneapolis): -5.3¢ (-1%) to $5.158 USD or $7.261 CAD
May Canola: +2¢ (+0.2%) to $10.39/bu / $458.10/MT CAD or $7.38/bu / $325.41/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.