Nov 18 – Dividing Expectations for Pulses & Soybean Exports

Grain markets this morning are relatively quiet so today we’re looking into stronger activity for pulses, but, conversely, weak soybean exports.

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Dividing Expectations for Pulses & Soybean Exports

Grain markets this morning are relatively quiet so today we’re looking into stronger activity for pulses, but, conversely, weak soybean exports. Traders are mostly looking at weather, export data, and any update to the potential signing of Phase One of a U.S.-China trade war deal. There continues to be a lot of buzz about how close to a deal the two sides are, and negotiations did continue over the weekend, but there’s been no timetable set to do something. [1] In the meantime, the USDA released the second phase of “Trump tariff payments” to American farmer last week, totaling $3.6 Billion USD. [2]

Traders also looking for today’s crop progress report (out at 3PM CST), in which they’re expecting to see the U.S. corn harvest at 78% complete and soybeans at 90% done. For perspective, the U.S. corn harvest was at 66% a week ago and 90% of the U.S. corn crop was harvested this week a year ago (the five-year average is 92%). For soybeans, 85% of the crop was combined as of last week, and a year ago this week, 91% of soybean fields were finished (the five-year average is 95%).

On the weather front, the Weather Network is forecasting colder-than-average temperatures to hit Canada and the Northern Plains. [3] Further, the U.S. government’s Climate Prediction Center says that there’s about a 70% chance that an El Nino event will take place this winter. [4] Moving into spring / Plant 2020, the CPC estimates the chances of an El Nino of 60% – 65%. In a FarmLead Breakfast Brief last week, I described how the expectation of an El Nino event could impact growing conditions, and notably lentil prices.

The Weather Network's temperature forecast for winter 2019/2020

The Weather Network's precipitation forecast for Winter 2019/2020

International Pulses Demand Building?

Weather is already making its impact felt on pulses as there is some buzz that India and Turkey are looking for more pulses to import. [5] Specific to India, some unseasonal rains in western and central India are creating some damage on the pulses planted there, prompting prices to climb about 10% in 2 weeks. The Indian Pulses and Grains Association (IPGA), says that “as much as 50% of the urad pulses crop was damaged due to significant rain in major growing regions, including Madhya Pradesh.” [6] Since the prices for pulses in India are nearing the government minimum support price (MSP), private traders are asking the India government to expand the import quotas.

In the 2018/19 crop year, India imported 2.37 MMT of pulses but it’s expected that 2019/20 pulses imports could easily surpass this. Why? With some damaged crops, India needs to fill its annual pulses demand of roughly 26 MMT. As reported in the Western Producer, India has imported about 1.1 MMT of pulses so far in the 2019 calendar year, including 350,000 MT of lentils and 400,000 MT of yellow peas. Currently, there is a 30% import tariff on lentils, but no quota and a 50% import tariff and a 150,000 MT quota on pea imports until March 31, 2020.

It looks like Canada and the U.S. will have less competition from Ukrainian exporters of pulses as the country’s harvest was much smaller this year and trade disputes with China will likely push their production into the feed market in Europe. [7] Farmers in the Black Sea country harvested just 583,000 MT, down 25% from last years’ 775,000 MT haul, and nearly half of the 1.01 MMT combined 2 seasons ago. Conversely, APK-inform is suggesting Russia will produce about 2.6 MMT of peas (+13% year-over-year) while farmers in Kazakhstan will combine 163,000 MT.

Through Week 14 of the 2019/20 crop year, Canadian lentils exports are up 76% compared to the same week a year ago with nearly 222,000 MT sailed. Similarly, Canadian pea exports are up 54% year-over-year, as almost 950,000 shipped out. Clearly, there’s some demand from abroad for pulses and we’ve seen some healthy trading activity on our marketplaces for lentils (small red and large green) and peas (green and yellows). In fact, green pea prices are trading in the double digits (CAD per bushel) in some areas so if you have some pulses in the bin, I’d recommend to post them here and ride this recent strength before the international scramble for supply starts to slow down.

Pulses demand is improving, as indicated by average western Canada yellow pea prices through November 15, 2019

Will a Trade War Deal Boost Soybean Exports?

Soybeans did find some strength on Friday’s trading as NOPA’s report for October crush showed that 175.4 million bushels of soybeans were used (or 4.773 MMT if converting bushels into metric tonnes). This was more than 9 million bushels above the market’s expectations and is a new record for the month of October, beating the previous mark (set last year) by more than 3 million bushels.

On the international side of things, U.S. soybean export sales last week came in at the top end of expectations with 1.253 MMT contracted. Reuters recently noted that that since the U.S. soybean marketing year began, China’s buyers have committed to buying 8.04 MMT of American soybeans, of which, 3.15 MMT have sailed. [8] For context, two years ago before the trade war began, 18.65 MMT of American soybeans had been purchased by Chinese buyers, with 13.3 MMT sailed through mid-November 2017.

Traders are getting a little less bullish on the prospect that a trade war deal could boost soybean exports, as last week, speculators more than halved their net-long position soybean futures to 25,460 lots. That’s the smallest bullish position since the first week of October. It’s worth mentioning that fund managers are also increasingly bearish on corn, now sitting on a net-short position of more than 120,500 contracts. Like soybeans, this is the largest bearish position since the first week of October.

As mentioned in last Friday’s FarmLead Breakfast Brief, even with a trade war deal, Chinese soybean buyers must be cognizant of the size of the South American crop that is likely to come off, starting in 1Q2020. Overall, a trade war deal would certainly boost the prospect of increased soybean exports for the 2020/21 crop year, but I’m less optimistic that it’ll be the saving grace for the 2019 crop.

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3217 
CAD, $1 CAD = $0.7566 USD)

Mar Corn: -0.5¢ (-0.15%) to $3.803 USD or $5.026 CAD
Jan Soybeans: -1.5¢ (-0.15%) to $9.168 USD or $12.118 CAD
Jan Soybean Meal (per short ton): -$1.10 (-0.35%) to $308.10 USD or $407.22 CAD
Jan Soybean Oil (cents per lbs): +0.10¢ (+0.35%) to 30.70¢ USD or 40.58¢ CAD  
Mar Oats: +1.8¢ (+0.55%) to $3.065 USD or $4.051 CAD
Mar Wheat (Chicago): -3¢ (-0.6%) to $5.03 USD or $6.658 CAD
Mar Wheat (Kansas City): -0.8¢ (-0.2%) at $4.25 USD or $5.617 CAD 

Mar Wheat (Minneapolis): unchanged at $5.193 USD or $6.863 CAD
Jan Canola: +2.7¢ (+0.25%) to $10.517/bu / $463.70/MT CAD or $7.957/bu / $350.84/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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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