Grain markets are mixed with pulses and wheat prices the positive players while others in the complex are being dragged down this morning by oil prices.
“When you’re finished changing, you’re finished.” – Benjamin Franklin (Founding Father of the United States)
Pulses, Wheat Maintain Strong Demand…For Now
Grain markets are mixed with pulses and wheat prices the positive players while others in the complex are being dragged down this morning by oil prices. Last week, grain markets ended the week in the red as traders booked profits and farmers made sales. Also complicating things last week was the ongoing idling of many livestock process plants across North America, which obviously backs up everyone else in the supply chain.
The big headline to start this week is that, overnight, oil prices tanked to a 21-year low of less than $15 USD/barrel as terrible demand concerns continue to hang heavy over the industry that has way too much production going on.  Incredibly, Western Canadian Select oil prices literally traded in negative numbers overnight.  Yes, you read that right: producers of one of North America’s largest heavy crude oil streams technically have to pay people to take their oil. With all this production, most of It is going into storage. In Cushing, OK, the main delivery and storage point for a lot of U.S. oil, inventories have risen by 50% since the start of March. With all this oil, but no place for it to go because of demand weakness, of course prices must drop. At these oil prices, the cost-savings (relative to where we were a year ago), would likely pay for a few more fuel tanks on your farm. 
Exporting vs Hoarding
While last Friday I talked about soybean crush, canola crush, and ethanol challenges, I also discussed the increasing price competition for corn exports between the U.S. and Brazil. As mentioned, the weakness in the U.S. Dollar has helped U.S. corn demand abroad as, in the past 3 weeks, we’ve seen the largest one-week shipments all crop year, and by a long-shot. That said, through Week 32 of the 2019/20 crop year, U.S. corn exports are now tracking 33% behind last year with 20.82 MMT shipped out through Week 32 (or nearly 820M bushels if converting metric tonnes into bushels).
This is an age-old reality: as trade environments change, so do trade flows. With the U.S. Dollar so strong, it’s weakened the currencies of countries not named America, which, in turn, helps lift domestic prices for grain and other commodities in said countries. However, in these times of COVID-19, as the demand from abroad for these food supplies increase, there becomes more concern about being able to supply the domestic market.
For example, we already know that Russia’s wheat exports quota will run out a few weeks before new crop supplies start coming to market, which then pushes the price higher for other countries.  More explicitly, wheat prices on the Paris commodities exchange are back above €200/MT as it’s expected that Black Sea wheat supplies are getting tight with these new export limits. One bright spot though comes from Romania, who lifted all their wheat exports restrictions last week. 
That said, as we get into these periods of food security concerns being amplified, the U.S. Wheat Associates reminded us last week that it’s important to remember the U.S. grain embargoes in 1980 and the impact on the market then.  That said, it’s nearly impossible to, in this COVID-19 world, to ask governments to be less stringent and probably nowhere is this more important than India. For example, India has invoked the “peace clause” on its MSP levels (minimum support prices), basically notifying the WTO that its subsidized prices for rice and wheat are beyond the limits imposed by the WTO. 
What this basically translates to is that, grain stocks are built up significantly and then, when they have too much and because storage facilities are inadequate in India, they dump the excess into the world market at a drastically lower price than what the rest of the world is trading.
Higher Pulses Production in India?
Speaking of India, the government has relaxed some of its lockdown restriction, with most of the new rules affect those involved in farming or businesses that support it.  Considering that more than 50% of Indians work in some element of the agricultural industry, this is a positive development as the country looks to get its rabi winter harvest off and to market. That said, one of our own developers here at FarmLead who originally hails from a northwestern area of India, said that his parents, still there, are seeing way less lentils and other pulses being offered in the market.
This explains the timing of the new rules from the government, but also the increase in prices for pulses here in North America. For example, last week on the Combyne cash grain marketplace, we saw yellow peas routinely trade above $8 CAD/bushel in Saskatchewan (example yellow peas bid here) and Alberta (example yellow peas bid here). Across Western Canada, you can tell yellow pea prices are significantly better than a year ago and are performing unseasonably well. I don’t expect this strength in pea prices to last (more on this in a few sentences).
In terms of lentil prices, last week we saw small red lentil prices trade on the Combyne cash grain marketplace between 28¢ and 30¢ for old crop and 24¢ and 26¢ for 2020 new crop small red lentil prices (example in Alberta here). For perspective, small red lentil prices for spot movement traded in Mumbai, India at 38¢/lbs last week. As a reminder, even if you don’t have these crops to sell today, if you will in the future, you should be hitting the “Connect” button on these buyers so you don’t miss out on future deals. Further, they’ll get notified of your pricing expectations when you post your new Listings on Combyne cash grain marketplace.
Looking forward, late last week, the India government shared their agricultural production estimates for the 2020/21 crop year.  In it, they’re forecasting that, with a normal monsoon season, India will produce a record 298.3 MMT of grain, oilseeds, and pulses next year, up about 6.5 MMT from the record forecasted for the 2019/20 crop year. The 2020/21 estimate includes 117.5 MMT of rice (matching the expected production in 2019/20), 106.5 MMT of wheat (+300,000 MT), 25.6 MMT of pulses (+2.6 MMT or +11% YoY), and 36.64 MMT of oilseeds (+2.5 MMT or +7.2% YoY).
The bottom line is that India – the largest producer and consumer of pulses – continues its pursuit of being self-sufficient. The reality, however, is that they’re not self-sufficient today and, at the beginning of the year, was expected to import at least 3 MMT of pulses in 2020. That said, I expect demand from them and other places where food security is critical to remain strong for maybe another few weeks until coverage is adequate.
Historically, we tend to see a little bit of a bump in exports of pulses towards the tail end of the marketing year, but those shipments are being bought now (which is a little earlier than usually because of the COVID-19 dynamic.). Worth noting is that Canadian pea and lentil exports are tracking 31% and 167% higher year-over-year through Week 36 of the 2019/20 crop year.
Make your week an effective one!
At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4122 CAD, $1 CAD = $0.7081 USD)
July Corn: -3.5¢ (-1.05%) at $3.258 USD or $4.60 CAD
July Soybeans: -5.8¢ (-0.7%) to $8.365 USD or $11.813 CAD
July Soybean Meal (per short ton): -$1 (-0.35%) to $292.10 USD or $412.51 CAD
July Soybean Oil (cents per lbs): -0.31¢ (-1.15%) to 26.36¢ USD or 37.23¢ CAD
July Oats: +1.3¢ (+0.45%) to $2.733 USD or $3.859 CAD.
July Wheat (Chicago): +14.8¢ (+2.75%) to $5.485 USD or $7.746 CAD
July Wheat (Kansas City): +14.8¢ (+3.05%) at $5.00 USD or $7.061 CAD
July Wheat (Minneapolis): +13.3¢ (+2.55%) to $5.328 USD or $7.524 CAD
July Canola: -1.6¢ (-0.15%) to $10.498/bu / $462.90/MT CAD or $7.434/bu / $327.78/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.