Grain markets this morning are mostly green as StatsCan shared some bullish production estimates with us, but supply concerns are also building for corn & soybeans due to weather issues.
“A fact is a simple statement that everyone believes. It is innocent, unless found guilty. A hypothesis is a novel suggestion that no one wants to believe. It is guilty, until found effective.” – Edward Teller (American-Hungarian theoretical physicist)
StatsCan Suggests Big Durum, Smaller Canola Harvest
Grain markets this morning are mostly green as StatsCan shared some bullish production estimates with us, but supply concerns are also building for corn & soybeans due to weather issues. BAM Weather notes that in the southwestern areas of the Corn Belt (southern IA, northern Missouri, & western IL), August was one of the driest months on record, with many areas receiving little to no moisture whatsoever.  Ultimately, with traders expecting declines in both corn and soybean crop conditions in this afternoon’s crop progress report from the USDA, as well as ongoing hot, dry weather, grain markets are moving higher this morning.
StatsCan Shows Mostly Bigger Crops (Except for Oilseeds)
This morning, StatsCan gave us their first production estimates of how Harvest 2020 is going to turn out for Canadian farmers and except for oilseeds, it looks like this year’s crop is looking above average.  Going into the report, grain markets were expecting to see some big numbers anyways but average estimates were surprisingly a healthy departure from what StatsCan ultimately showed us. 
For wheat (all types), pre-report estimates were for something between 34 and 38.4 MMT, and StatsCan printed a crop of 35.7 MMT, good for a 10% bump over Harvest 2019 and 17% more than the five-year average. Most of the increase, however, was attributed to the durum harvest, which, at 6.93 MMT, came in well above pre-report estimates of 6.14 MMT. Oats production of 4.5 MMT came in a little below the range of 4.6 – 5.4 MMT that the market was ballparking, while at 10.55 MMT, the barley harvest came in below the 11 MMT mark that most were expecting
For pulses, the bearish number came in via peas as, at 5 MMT, that’s a healthy bump from the 4.8 MMT that the market was expecting to see. Comparably, lentils production in Canada was estimated by StatsCan this morning at 2.8 MMT, well withing the range of pre-report estimates. Canadian chickpeas farmers, meanwhile, are expected to take off 205,000 MT, one-fifth lower than last year’s crop but still 62% more than the five-year average.
Finally, StatsCan said that just 19.4 MMT of canola will be harvest in Canada this year, slightly down from last year and the five-year average, but also below the average pre-report guesstimate from analysts of 19.9 MMT. As a reminder, however, this is 500,000 MT more than what AAFC estimated last week in their monthly supply and demand update, which suggests that their 2020/21 canola ending stocks estimate of 1.68 MMT is going to more closer to 2 MMT. While that’s intuitively bearish for the balance sheet, I still maintain my timestamped call from last Monday’s Breakfast Brief that there’s a bullish set-up here for canola prices over the next 6 months or so. As you can tell in the below cash canola prices chart, the move higher at this time of year is very unusual.
While I tend to take this first estimate from StatsCan with a grain of salt, it does set the goalposts a bit for grain markets, or at least until we get their satellite imagery/data-based estimates towards the middle of September. As a final reminder, we’ll get a stocks report from StatsCan on Friday, September 4th, where we’ll get an update on what inventories looked like at the end of the 2019/20 crop year (or, as of July 31st).
Barley Exports to Offset Price Decline?
We’ve been seeing feed grain prices – notably feed wheat and feed barley prices – begin their seasonal decline as new crop supplies start coming to market with harvest speeding up.  Last week, in their updated estimates of supply and demand, AAFC said that the 2020 Canadian barley harvest would total 10.3 MMT, up 470,000 MT from their previous estimate. Obviously, with StatsCan saying this morning that the barley harvest will be a larger than that, there’s more supplies to go around for both domestic and international buyers.
As a heads up, we have over 100 credit-verified barley buyers on the Combyne Marketplace looking to fill both domestic and international demand. Thus, list your feed or malt barley publicly on Combyne so not only your current trading partners know about the deals you’re looking to do, but also potentially some new ones!
On that note, we learned from StatsCan and the USDA last week that the combined U.S. and Canadian herd as of July 1 totaled 115.24M head in June, up by about 40,000 animals from the previous June.  However, there appears to be a bit of a trend in Canada that the numbers are getting smaller, with the Canadian herd size falling by 0.5% year-over-year, and now 27.5% in the last 15 years.  Comparably, the USDA and StatsCan said that the hog/pig herd in June was up about 4% year-over-year to 93.5M head, but with the majority of the increase being attributed to the American herd.
While the smaller herd size might not be all that great for demand of Canadian feed grains, because China has practically closed its door on Australian barley, the People’s Republic is likely to buy more Canadian in 2020/21.  In fact, in the first 3 weeks of the 2020/21 crop year, Canadian barley exports are tracking nearly 3x what they were at this time a year ago.
While this hardly spells a trend, there is some competition from Argentina, as it’s expected that the South American country will help make up for Australia being shut out of the Chinese market.  While Argentina isn’t a huge barley producer (roughly 3.5 MMT a year), most of the malt barley stays in South America while feed barley gets shipped out to the Middle East, namely Saudi Arabia. Since about 70% of Australia’s malt barley crop goes to China, and now won’t, there’s a serious game of malt barley musical chairs that we’ll see in 2020/21, something I talked about in a Breakfast Brief nearly 3 months ago in early June.
At 8:30 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3057 CAD, $1 CAD = $0.7659 USD)
Dec Corn: +4¢ (+1.1%) to $3.633 USD or $4.743 CAD
Nov Soybeans: +12¢ (+1.25%) to $9.625 USD or $12.568 CAD
Oct Soybean Meal (per short ton): +$2.80 (+0.9%) to $306.90 USD or $400.73 CAD
Oct Soybean Oil (cents per lbs): +0.73¢ (+2.2%) to 33.83¢ USD or 44.17¢ CAD
Dec Oats: +7.8¢ (+2.9%) to $2.76 USD or $3.604 CAD
Dec Wheat (Chicago): +10.3¢ (+1.85%) to $5.59 USD or $7.299 CAD
Dec Wheat (Kansas City): +10.5¢ (+2.2%) to $4.828 USD or $6.303 CAD
Dec Wheat (Minneapolis): +7.8¢ (+1.45%) to $5.47 USD or $7.142 CAD
Nov Canola: +7.3¢ (+0.65%) at $11.392/bu / $502.30/MT CAD or $8.725/bu / $384.69/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.