Grain markets this morning are mixed, with the complex weighing notably weak soybean exports (and other crops) against the possibility of a trade war deal getting done with China.
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Soybean Exports Have Pivotal Moment with China
Grain markets this morning are mixed, with the complex weighing notably weak soybean exports (and for other crops) against the possibility of a trade war deal getting done with China. Yesterday’s export sales report from the USDA showed soybean exports coming in below expectations, while corn and wheat exports numbers were at the bottom end of the range of expectations.
While the Trump administration is trying to get a trade war deal with China done, they continue to have to do battle on the ethanol / biofuel policy front.  Further, more farm groups have banded together to challenge the EPA’s on the blending exemptions for 31 refineries in 2018 from complying with the ethanol mandate or buying ethanol credits (aka RINs).  To be honest, these issues of ethanol blending requirements and exemptions have been going on since the RFS was introduced over a decade ago, so I doubt these headlines will disappear anytime soon.
That said, and as mentioned in Wednesday’s FarmLead Breakfast Brief, corn prices could certainly benefit from some stronger ethanol numbers than what we’ve seen of late. However, we are seeing corn prices perform a little bit better recently (relative to historical patterns), despite some weaker domestic and international demand.  Accordingly, corn basis levels in many areas is looking pretty strong and it shouldn’t be ignored from a grain marketing standpoint.  Translation: you might want to consider locking in a bit more of both 2019/20 and even 2020/21 corn sales.
Finally, looking into the weekend weather and how it impacts the ongoing slog that is Harvest 2019, it looks like it’s going to be cool and wet in areas across the Delta and eastern Corn Belt. On the other side of the country, in the Southern Plains, colder weather is expected over the next few days.  The fact is that there are a lot of immature crops that are getting hit by frost and so it’s likely that we’re going to see yields come down a bit in the USDA’s next WASDE report, out on Friday, November 8th.  Needless to say, the U.S. corn and soybean harvest, as well as the Canadian wheat harvest, is being watched more closely by grain markets the closer we get to November (and even December!).
Will Soybean Exports Take Off Soon?
Last week I put forward the idea that the trade war between the U.S. and China could be close to ending. Yesterday we got some reports that China is willing to buy at least $20 Billion USD worth of American agricultural goods in year one, should they find a trade war deal with the U.S. soon.  However, the Chinese are looking for more U.S. tariff cancellations in order for them to commit to buying more American soybean exports and other products.
President Trump has only agreed, so far, to cancel the increase in tariffs on $250 Billion of Chinese goods that was set to come into effect on October 15th. China is supposedly looking for the U.S. to walk back on two major items: first, the September 1st tariffs on $125 Billion of Chinese products, and, second, the planned tariffs on an additional $156 Billion of Chinese goods set to go into motion on December 15th.  In order to put pen to paper, it’s expected that more face-to-face discussions will take place the first week of November in China, before Presidents Trump and Xi would officially sign something in Chile at the APEC summit later next month. 
All this in mind, more American soybean exports have been picked up by China as of late, including another 264,000 MT yesterday. However, that was more than half of all soybean export sales from last week, as the 475,200 MT contracted came in well below the market’s expectations of at least 700,000 MT in sales. Conversely, there are some rumours that China bought another 10 boats of Brazilians soybean exports for Feb-July 2020 delivery, which would continue to suggest that dollars and cents are guiding current purchasing by Chinese players right now. 
From an actual shipment standpoint, U.S. soybean exports are currently tracking 3% higher than last year with 6.37 MMT sailed through Week 7 of the 2019/20 crop year. It’s worth mentioning that Canadian soybean exports are performing well compared to years past, with nearly 553,000 MT shipped out through Week 11 of its crop year. That’s good for a 44% jump compared to the same time a year ago.
In last Friday’s FarmLead Breakfast Brief, I talked about how canola exports to Europe could be a catalyst to higher canola prices. However, canola prices are battling against weaker demand from China and that’s what is keeping them sort of rangebound. In fact, one of Viterra’s analysts suggests that, if canola exports don’t perform well this year, 2019/20 canola ending stocks could possibly see a carryout of 6 -7 MMT!  As mentioned on Wednesday, Agriculture Canada is currently expecting a 2019/20 canola carryout of 4.7 MMT. That said, we should continue to expect Canadian canola crush volumes to remain elevated as crush margins of about $100 CAD / MT are double what they were at this time a year ago.  Canola prices are also battling against the recent strength of the Canadian Loonie.
U.S. Wheat Exports on Impressive Pace
While U.S. soybean exports are doing okay (at least, relative to last year, but not anything before the trade war with China), U.S. wheat exports are tracking very well. Through week 20 of its 2019/20 crop year, total American wheat exports (of all types) has totaled 9.93 MMT, good for a 26% bump over this same week a year ago.
On the flipside, Canadian non-durum wheat exports are tracking 15% lower year-over-year with 3.4 MMT shipped out. Some of this weaker pace might be attributed to the slower harvest, as well as the quality of the wheat coming off the combine. Knowing a few factors like falling number and any disease issues will go a long way in helping you negotiate a deal, be it for the milling (Plan A) or feed market (Plan B).  If you do have these specs, get that wheat posted on the FarmLead Marketplace today and find a little cashflow before the year’s over.
Coming back to wheat exports, there are more firms expecting less to come out of Australia in 2019/20. The International Grains Council just lowered its global wheat production to 762 MMT (USDA is currently at 765 MMT), with the 2 MMT decline from their previous estimate almost wholly attributed to the Land Down Undaa. The IGC believes that Australian farmers will produce 17 MMT of wheat in their 2019/20 crop year, which is somewhat in the middle of the range of estimates.
On the other side of the world, dry weather this fall in the Ukraine and Russia is negatively impacting how much area of winter crops are actually getting seeded.  Russia has gotten some better weather as of late, but drier conditions have persisted in Ukraine, slowing the pacing of sowing winter wheat, barley, and rapeseed.
Overall, this week in grain markets has had a lot of moving parts: harvest challenges, trade war talks, and looking at planting and harvest pace in major grain-producing regions around the world. A trade war resolution would certainly help prices improve
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3063 CAD, $1 CAD = $0.7655 USD)
Dec Corn: -0.3¢ (-0.05%) to $3.865 USD or $5.049 CAD
Jan Soybeans: -1.8¢ (-0.2%) to $9.453 USD or $12.348 CAD
Dec Soybean Meal (per short ton): +$0.70 (+0.25%) to $306.30 USD or $400.13 CAD
Dec Soybean Oil (cents per lbs): -0.24¢ (-0.75%) to 31.10¢ USD or 40.63¢ CAD
Dec Oats: -2¢ (-0.65%) to $3.003 USD or $3.922 CAD
Dec Wheat (Chicago): +1.3¢ (+0.25%) to $5.173 USD or $6.757 CAD
Dec Wheat (Kansas City): +0.5¢ (+0.1%) to $4.20 USD or $5.487 CAD
Dec Wheat (Minneapolis): unchanged at $5.40 USD or $7.054 CAD
Jan Canola: -4.3¢ (-0.4%) to $10.476/bu / $461.90/MT CAD or $8.019/bu / $353.58/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.