Grain markets are mostly in the green this morning on fresh headlines of higher Chinese pork prices and ongoing Harvest 2019 delays.
“Life is not a spectator sport. If you’re going to spend your whole life in the grandstand just watching what goes on, in my opinion you’re wasting your life.” – Jackie Robinson (first African-American MLB baseball player in the modern era)
Pork and Soybean Prices Watch One Other Closely
Grain markets are mixed this morning on fresh headlines of higher Chinese pork prices and ongoing Harvest 2019 delays. Putting a damper on some of the slightly bullish news is the good pace of planting in Brazil, now ahead of the seasonal average, albeit behind last year’s torrid pace. 
In their weekly crop progress report on Monday, the USDA said that U.S. farmers have harvested just 41% and 62% of their corn and soybean crops, respectively. As mentioned in Monday’s FarmLead Breakfast Brief ahead of the crop progress report, the market was expecting to see the corn harvest at 48% and the soybean harvest at 65%. While solid progress was made over the weekend, grain markets are now factoring in the snow that most of the Western Corn Belt and northern states received yesterday, while the Eastern Corn Belt got rain. 
That said, across many areas in the northern half of the United States, it’s a bit of mess when it comes to Harvest 2019. In parts of Iowa, farmers can’t even get into the fields.  In parts of the Northern Plains, the combination of snow, rain, wind, and rain has created pockets of dirt that are more like trampolines than solid ground to work on.  Needless to say, the pictures on social media of stuck equipment and/or combining in the snow are quite plentiful. Accordingly, the USDA recently reminded American farmers that if they’re experiencing a delay to this year’s harvest, they should file a Notice of Loss with their approved insurance provider and request more time to harvest. 
Meanwhile, harvest in parts of the Canadian Prairies has basically stopped until spring, as blizzard-like conditions have dumped more than a foot of snow in some places. My own family in Foam Lake, SK has over 1,000 acres of canola left to combine and as we close the door on October, it’s unlikely we’ll get the combines flying again until spring.
Higher Pork Demand, Prices Means What?
Some top headlines in grain markets this week included Chinese pork prices tracking towards $8 USD/kg (or about $17.70/lbs) as the smaller hog herd (due to African Swine Fever) and colder weather in the People’s Republic have had a doubly bullish impact on prices.  Between the supply and demand side of things, the pork shortage is pulling up prices for other meat, like beef and lamb. We already know that prices for other substitutes, like eggs, are at fresh three-year highs.  The multi-billion dollar question is, at what price will Chinese consumers stop buying meat because it’s too expensive?
The opportunity to try and stave off food price inflation (namely protein prices) would be to import more product and Dennis Smith from Archer Financial Services says the table is set for “huge amounts of U.S. pork to be shipped to China in the next several months.”  What can you expect though when Chinese hog prices are five times higher than America’s, as Jim Long from Genesus Genetics notes?  As we get to the end of the calendar year, you can see how U.S. pork sales and exports have taken off.
Two months ago, I asked how long China could last without American soybeans and/or pork and it seems like we might be at that breaking point. That said, China’s pork producers are trying to rebuild their herds and this means that more female pigs are being held back from slaughter and being used for breeding instead. However, many producers haven’t completely eradicated the ASF virus from their farms and so, after re-stocking their barns, their new animals are also being infected and the culling cycle starts all over again.  My question from a September FarmLead Breakfast Brief of “will the African Swine Fever ever be solved?” still holds true today.
Some Chinese pork players, like New Hope Liuhe, are busy stocking its first overseas pig farm in Vietnam.  One could look at this move as an attempt to rebuild inventory for the Chinese pork market, but another angle is that the Chinese pork players are seeing blood on the streets and are moving in to other geographies decimated by African Swine Fever to grab a share of the market. Nearby, in the Philippines, the spread of the African Swine Fever is costing their pork industry about $20 million USD per month. 
Pork and Soybean Prices Face Off
Rabobank thinks that that the longer-term outlook for soybean prices is weak, given the ongoing trade spat between the U.S. and China and the uncontrollable spread of the African Swine Fever disease.  They estimate the African Swine Fever virus has cost soybean prices about 50¢ – $1 USD/bushel, while the trade war has added another $1 – $1.50/bushel of a price reduction. Put another way, without these two factors in play, soybean prices might be closer to $12/bushel in Chicago than the $9.35 they’re sitting at this morning on the January 2020 contract.
The bottom line is that with higher prices for pork and other protein options in China, the world’s largest consumer base is clearly interested in eating meat. And their demand is signaling to the market and its supply players that they need to fill the gap in the market. That said, I’m more optimistic than Rabobank’s estimate that there’s a 75% chance that soybean prices will stay below $9.60 USD/bushel over the next decade.
Ultimately, the market will determine what soybean prices should be in the equilibrium between supply and demand. If demand improves – in the form of more animals to feed which means more demand for feedstuffs – then soybean prices should climb. That is unless, of course, farmers from around the world all start chasing those higher soybean prices at the same time, which would result in more soybean production and that price-curve to shift back down.
This also has an impact on other feedstuffs for Canadian farmers like canola, barley, and peas. We do know that China continues to buy Canadian peas and that, through Week 11, Canadian pea exports are tracking nearly 80% higher than what they were at this point a year ago with a little more than 775,000 MT shipped out through Week 11.
That said, green pea prices are finding bigger gains that yellow peas, with the latter seeing a dip of about 7.5% compared to the same time a year ago. In this Friday’s FarmLead Breakfast Brief, I’ll dig a little further into pulses and what will move the market over the next few months.
At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3089 CAD, $1 CAD = $0.764 USD)
Dec Corn: unchanged at $3.863 USD or $5.056 CAD
Jan Soybeans: +1¢ (+0.1%) to $9.345 USD or $12.232 CAD
Dec Soybean Meal (per short ton): -$0.20 (-0.05%) to $302.80 USD or $396.34 CAD
Dec Soybean Oil (cents per lbs): +0.22¢ (+0.7%) to 31.22¢ USD or 40.86¢ CAD
Dec Oats: -0.5¢ (-0.15%) to $3.00 USD or $3.927 CAD
Dec Wheat (Chicago): -3.8¢ (-0.75%) to $5.078 USD or $6.646 CAD
Dec Wheat (Kansas City): -1.8¢ (-0.4%) to $4.173 USD or $5.461 CAD
Dec Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.245 USD or $6.865 CAD
Jan Canola: +3.6¢ (+0.35%) to $10.485/bu / $462.30/MT CAD or $8.01/bu / $353.20/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.