Grain markets are mostly higher this morning as the wet nature of the corn and soybean harvest is helping make bullish believers out of more players.
“True friendship is a plant of slow growth, and must undergo and withstand the shocks of adversity, before it is entitled to the appellation.” – George Washington (1st President of the United States)
Wet, Slow Corn, Soybean Harvest Helping Markets
Grain markets are mostly higher this morning as the wet nature of the corn and soybean harvest is helping make bullish believers out of more players. Two weeks ago, fund managers pushed into a net long position in soybeans for the first time in over a year, and this past week, that managed money position grew to nearly 48,000 contracts. This is the biggest net long position that funds have held in soybeans since the beginning of June 2018! They also reduced their net short position in corn by about 32,000 contracts to now sit at 64,750 lots. Here’s how front-month contracts in the grain markets performed last week.
This change in grain markets sentiment is mainly a function of the wet weather hitting the Midwest, which is intuitively slowing down the pace of the American corn and soybean harvest. More rain is in the forecast early this week for Minnesota, South Dakota, Iowa, and Nebraska, in addition to some snow in a few areas, including North Dakota and Manitoba. For Manitoba, there were still over a million acres of the soybean harvest left before they got hit with a blizzard during the Canadian Thanksgiving weekend! 
Going into today’s crop progress report, traders are expecting to see the American soybean harvest at 38%, which would be up from 26% completed last week. However, this is still way behind last year’s soybean harvest pace of 51%, and the five-year average of 64%. For the U.S. corn harvest, crop progress expectations from the market are 33% complete, up from 22% last week, but still well behind 48% a year ago, and the five-year average of 42%. The behind-the-average pace is also similar for the Canadian Prairies harvest.
Soybean Harvest 2019 and 2020
Last week, I talked about the theoretical ending to the trade war between the U.S. and China but the main question was the $40 – $50 Billion in U.S. agricultural purchases by China. Ironically, as the debate over those numbers were ongoing, China went ahead and bought about 480,000 MT worth of Brazilian soybeans.  The timing of the purchases is a bit odd, given both the trade war negotiations, but also the time of the year that is the U.S. soybean harvest. Obviously, given the delay to this year’s American soybean harvest, the Chinese might just be hedging their soybean origination.
Last week I also talked about pork prices in China jumping nearly 70% in September. Combined with China’s hog herd down more than 55% in the past year, suppliers are in a tizzy trying to provide the people of the People’s Republic with pork products. This means that China is importing more, but also feeding the remaining animals more. Last week, China purchased a weekly record of 152,600 MT of American pork, eclipsing the previous record set just the week before!  On the flipside, feeding profit margins of Chinese pork producers are estimated to be tracking around $400/head. 
Intuitively, this should help any major soybean or soymeal providers to China. However, we know that this year’s American soybean harvest is tracking behind last year, in addition to being much smaller. Therein, with the smaller yields of this year’s U.S. soybean harvest, but a trade deal and Chinse pork producers’ profit margins suggesting more soybean demand, there’s a school of thought that Plant 2020 in America will see more soybeans seeded than Plant 2019.  Deviating slightly, if you’re looking for more info on where the Canadian pork market is going, RealAgriculture has a solid recap from analyst Kevin Grier. 
Flipping hemispheres, it seems like Brazilian farmers have gotten back on track for their Plant 2019, after a bit of slow start due to the lack of moisture. More specifically, largest-producing state, Mato Grosso is seeing it’s soybean planting pace at 42%, which is slightly ahead of the seasonal average of 38%, but a bit behind last year’s 52%. Across the country, the soybean planting campaign is tracking near those averages, with 23% aggregately seeded. That said, only the far southern Brazilian state of Rio Grande du Sul has seen average rainfall so far this year so producers continue to look for some across the country.  Currently, the USDA is estimating the 2019/20 Brazilian soybean harvest at 123 MMT, up more than 5% and topping the record of 122 MMT set 2 years ago.
Wheat Exports Becoming an Interesting Topic
While last Friday’s FarmLead Breakfast Brief looked into the wheat harvest in Europe and subsequent durum and canola exports to the bloc, more generally, wheat exports are becoming more talked about lately. Chicago wheat prices made fresh three-month highs last week as concerns started to build on production concerns in the southern hemisphere. Dry conditions in Argentina means that the 14.5 MMT of wheat exports in 2019/20 that the USDA currently estimating, are in question. The country’s domestic demand in 2019/20 is expected to be about 6 MMT and with only 1.83 MMT carryover from 2018/19, it’s unlikely that Argentina will meet the market’s expectations for its wheat exports.
Also mentioned last Friday was the NAB suggesting the Australian wheat harvest will only come in at 15.5 MMT, well below the current estimates of 18 – 19 MMT from the USDA and other private analysts. If realized, this would be the smallest harvest in the Land Down Undaa since 2007/08. While the USDA and its attaché in Australia are currently estimating Aussie wheat exports of 9 – 9.5 MMT in 2019/20, if the NAB’s production number is realized, that number likely falls to 7 or 8 MMT. Further, with the drought conditions, higher domestic prices will likely make it even more difficult to be competitive on the international market.
Some of those Australian customers who likely will look to other suppliers are in southeast Asia. One such country is Vietnam, who recently asked Russia to temporarily suspend wheat exports to them for phytosanitary reasons. The USDA is currently estimating that Vietnam will import 3.7 MMT of wheat this year, up from 3.1 MMT in 2018/19. With Russia out of the picture though and Australia and Argentina unlikely to be competitive, Ukraine, America, or Canada are best poised to fill the gap. In this week’s Alberta Wheat Commission’s Wheat Market Insider, I look into the history of what’s happened historically to Canadian and American wheat exports when Australian production suffers.
However, Ukraine’s wheat exports campaign is likely slowing down after they’ve shipped out almost 10 MMT – or about 50% of their 2019/20 forecast – in just 4 months. Worth mentioning though is that Agriculture Canada recently dropped non-durum wheat exports by 200,000 MT from last month’s estimate to now sit at 19 MMT. Keep in mind that this is still about 7%, or 1.235 MMT, above the five-year average but nearly 4% behind 2018/19’s 19.8 MMT shipped out.
One last datapoint about wheat exports: Egypt says that it currently has enough wheat until February 2020.  With Egypt – the world’s largest wheat buyer – looking to purchase less, there could be even more competition in the global wheat exports game in the next few months.
At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3102 CAD, $1 CAD = $0.7633 USD)
Dec Corn: +0.8¢ (+0.2%) to $3.918 USD or $5.133 CAD
Jan Soybeans: +4.3¢ (+0.45%) to $9.518 USD or $12.47 CAD
Dec Soybean Meal (per short ton): +$2.30 (+0.75%) to $313.50 USD or $410.74 CAD
Dec Soybean Oil (cents per lbs): -0.03¢ (-0.1%) to 30.33¢ USD or 39.74¢ CAD
Dec Oats: -3¢ (-0.6%) to $2.925 USD or $3.832 CAD
Dec Wheat (Chicago): +1¢ (+0.2%) to $5.333 USD or $6.987 CAD
Dec Wheat (Kansas City): +1.5¢ (+0.35%) to $4.353 USD or $5.703 CAD
Dec Wheat (Minneapolis): -0.3¢ (-0.05%) to $5.443 USD or $7.131 CAD
Jan Canola: +0.5¢ (+0.05%) to $10.478/bu / $462/MT CAD or $7.997/bu / $352.62/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.