Sept 18 – Can StatsCan Take Eyes Off Grain Trade Tensions?

Good Morning!

Grain markets are mixed this morning ahead of tomorrow’s StatsCan report, with soybean prices again lower thanks to more trade tension.

“A true champion is one who sweats from exhaustion when no one is watching.” – Bas Rutten (Dutch Mixed-martial Artist)

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Can StatsCan Take Eyes Off Grain Trade Tensions?

Grain markets are mixed this morning ahead of tomorrow’s StatsCan report, with soybean prices again lower thanks to an amplified battle between Washington and Beijing.

Frost in Western Australia is supporting wheat prices this morning, as it’s been suggested that a total of 1 million metric tonnes (MMT) of winter crops in the region (including wheat) could be lost. This after last week’s major production downgrade by ABARES.

For our GrainCents readers of lentils, peas, chickpeas, canola, spring wheat, winter wheat, oats, and barley, each of them got a detailed look this past Sunday in their Weekly Digest email at how production was felled for these specific crops in the Land Down Undaa, some very significantly.

As Garrett mentioned in yesterday’s Grain Markets Today column, grain prices are also moving off yesterday’s crop progress report which showed some healthy harvest progress. Here’s a quick look at the major U.S. crop progress factors we’re watching:

  • Corn Mature: 54% this week versus 35% last week and the 5-year average of 36%;
  • Corn Harvested: 9% versus 5% and 6%;
  • Corn Condition: 68% good-to-excellent (G/E), the same as last week and +7 points year-over-year;
  • Soybeans Dropping Leaves: 53% versus 31% last week and the 5-year average of 36%;
  • Soybeans Harvested: 6% versus nothing last week and 3%;
  • Soybean Condition: 67% G/E, down 1 point week-over-week but still 8 points better than last year; and
  • Winter Wheat Planted: 13% versus 5% last week and the 5-year average of 14%.

Most traders are digesting the big news of the U.S. slapping another $200 Billion in tariffs on goods on China. Beijing is vowing to retaliate. [1] If China retaliates, President Trump says there’s another $267 Billion in additional tariffs ready to go.

The White House says that the 10% tax on will take effect on Sept. 24 and could rise to 25% by the end of the year. While there have been plenty of tariffs these past few months, this is the first set that will affect the broader American population as thousands of goods ranging from luggage to seafood are affected.

Unlimited Downside for Soybean Prices?

With a retaliation likely, soybean prices fell to their lowest level yesterday in a decade while corn prices dropped to three-month lows.

The fundamentals of the market do not support current U.S. soybean prices, but rather, they are a reflection of the 25% import tax. Some could argue that there is less demand from China.

Last week, the USDA’s attaché said that China would import 94 MMT of soybeans in 2018/19, the same as 2017/18. That figure was a 1 MMT cut from the previous month. But it’s about 8 MMT more than the numbers we hear out of China from analysts, crushers, and traders as the nation faces two key challenges.

How these trade negations go will have a significant impact on U.S. prices. Apart from the record soybean yields reported in last week’s WASDE report, the USDA lowered its new-crop China import estimate from 95 to 94 million tonnes. That is now unchanged with the old crop.

The Chinese government has claimed its imports will decline to 83.7 MMT this year. If the Chinese are successful in cutting imports by 10 MMT, we will anticipate the lost demand would come off the U.S. balance sheet, and the ending stocks number will easily swell over 1 billion bushels and be very bearish to soybean prices.

First, the ongoing trade spat for the United States has pushed prices higher in South America, thus reducing demand. And second, the country’s livestock industry is facing a serious swine fever that has moved quickly through its herd.

The one positive development for China is that its crush margins from the U.S. are about to start turning positive since the nation slapped 25% duties on American imports.

That said, the USDA did cut Chinese crush expectations from 95 MMT to 93.5 MMT.

At the moment, U.S. soybean exports to China for the 2017/18 year are pegged at 28 MMT, down sharply from the 36.8 MMT that the nation reported in the previous calendar year. The agency said that it would be challenging to forecast new crop figures, which is especially true given the uncertainty around just how much soybeans the nation of China has in inventory and how much they will seek regarding alternatives like canola.

The USDA did note that China expects to increase rapeseed imports in 2018/19 by 750,000 MT from the previous year to 5.4 MMT. That’s just one source of substitution for its feed industry. Canada will likely be able to absorb most of this increased demand.

Expectations for StatsCan Satellite Estimates

Speaking of which, tomorrow morning at 8:30 AM EST, we’ll see StatsCan’s satellite-based production estimates.

As mentioned in yesterday’s FarmLead Breakfast Brieffor those watching spring wheat prices, in the last three years that this sort of report has come out, the Canadian spring wheat crop has been increased by an average of 656,300 MT from what StatsCan estimated in August.

As it relates to those watching canola prices, the Canadian crop has been increased by an average of 1.279 MMT from StatsCan’s August 31st canola production estimate. This would mean that StatsCan would have to increase average yields by 2.5 bushels from the August estimate to 40 bushels per acre.

StatsCan Satellite Production Estimate

Ultimately, we might see a small revision to the upside in Canadian crop yields tomorrow morning, but it’s unlikely that we could see a crop get this much bigger.

As usual, for our GrainCents readers, we’ll be putting out individual crop recaps of the StatsCan crop production estimates tomorrow morning, complete with charts like the one above, deeper analysis, and future price expectations.

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:20 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3028 
CAD, $1 CAD = $0.7676 USD)

Dec Corn: -0.8¢ (-0.23%) to $3.473 USD or $4.525 CAD
Nov Soybeans: -3.3¢ (-0.39%) to $8.340 USD or $10.865 CAD
Dec Soybean Meal (per short ton): -$1.30 (-0.43%) to $304.40 USD or $396.57 CAD
Dec Soybean Oil (cents per lbs): -0.25¢ (-0.90%) at 27.45¢ USD or 35.76¢ CAD  
Dec Oats: 1.3¢ (0.53%) to $2.443 USD or $3.183 CAD
Dec Wheat (Chicago): 4.8¢ (0.95%) to $5.110 USD or $6.657 CAD
Dec Wheat (Kansas City): 3.8¢ (0.74%) to $5.165 USD or $6.729 CAD
Dec Wheat (Minneapolis): 2.0¢ (0.35%) to $5.773 USD or $7.521 CAD
Nov Canola: -$1.10 (-0.23%) to $11.061/bu / $487.70/MT CAD or $8.490/bu / $374.35/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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