Grain markets this morning are slightly lower as the complex is looking for any bullish headlines – be it a trade war deal signing or grain demand – to get things moving higher.
“It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” – Mark Twain (American author)
Doubting a Trade War Deal & South American Harvests
Grain markets this morning are slightly lower as the complex is looking for any bullish headlines – be it a trade war deal signing or grain demand – to get things moving higher. However, the only thing that seems to be strengthening is basis levels for North American corn and soybean markets. That said, I’m seeing more recommendations from grain marketing consultants to increase 2019 corn sales using basis and wait to lock futures at a later date. Many analysts believe corn and soybeans are now oversold and, as they near technical levels of support, a rebound to the upside is more than likely now. The question now is whether farmers will sell something or not? 
On the demand front, yesterday’s weekly ethanol production number shows things are running nearly 5% behind last year’s pace. In last week’s November WASDE report, the USDA reduced its estimate of 2019/20 corn used for ethanol production to 5.375 Billion bushels, 1 million bushels below 2018/19’s production total. With ethanol production tracking behind last year’s pace for the last few weeks now, it’s likely that the USDA will have to lower the corn-for-ethanol number again in the December WASDE.
While there is potential for a stronger market in Mexico for ethanol exports, there are some doubts if China will buy American ethanol exports once their own RFS policy goes into place next year.  Worth remembering though, and as Gro intelligence points out, there’s already a record amount of ethanol being produced. 
Later today we’ll get the NOPA crush report, and grain markets are expecting to see a print that U.S. soybean processors used 166.8M bushels of soybeans (or 4.54 MMT if converting bushels to metric tonnes) in October. After a bit of a miss in the September NOPA report (-5% YoY), traders are looking for a stronger number today.
Is the Trade War Deal Dead?
China recently ended a five-year ban on American poultry products, which re-opens the door for what some are estimating to be a $1 Billion USD / year market.  There are also rumours that China is buying as much meat from Australia, Argentina, and Brazil as they can, making it clear that the People’s Republic is looking for protein to ease food price inflation. ADM came out this week, saying the impact of African Swine Fever is more severe than once thought, and as pork prices rise, margins for feedstuffs production like soymeal are also increasing. 
While China scrounges around for protein, they and American trade negotiations are again having a tough time nailing down final trade terms for a trade war deal.  There is certainly some optimism of a trade war deal getting done thanks to the opening up of U.S. poultry exports to China, but the subject of tariffs is still in the way. China seems to be a bit hesitant to agree to a specific dollar amount of American agricultural products that they’re willing to buy. Conversely though, they want a firm commitment that the U.S. will relax tariffs on their goods being shipped across the Pacific to America.
One may posit that China is just biding their time as they watch how the impeachment hearings in Washington play out. Regardless, President Trump, speaking at the Economic Club of New York this week, said that the U.S. would raise tariffs “very substantially” on Chinese goods if a trade war deal isn’t signed soon. 
Big South America Crops or Not?
In South America, the Brazilian state agency CONAB raised their estimate of the country’s 2019/20 soybean harvest by 460,000 MT to 120.86 MMT. This is still below the USDA’s forecast of 123 MMT, which, if realized, would be a new soybean production record for the country. The soybean planting pace is catching up but is still a bit behind the seasonal average, which is creating some concerns over how this might impact the safrinha corn crop, which gets planted after soybeans are harvested.  With a trade war ongoing through for the U.S. and China, Brazil will continue to benefit as they export more agricultural products west to the People’s Republic.
Next door in Argentina, the Buenos Aires Grains Exchange reduced its estimate of the country’s 2019/20 wheat harvest by 300,000 MT to 18.8 MMT. While the USDA’s estimate for the Argentine wheat crop is still 20 MMT, the BAGE is blaming fungus issues (from a lot of rain) and dryness in other areas. As mentioned in my Wheat Market Insider column for the Alberta Wheat Commission this week, 11% of the wheat harvest was completed as of last week.
That said, Bolsa de Cereleas says only 15% of the wheat is considered to be in good condition (down 5 points on the week), and none is categorized as excellent. Further, none of the crop remains categorized as ‘’excellent”. For context, a year ago, when Argentine farmers produced 19.5 MMT, 35% of Argentina’s wheat crop was rated good with another 9% ranking as excellent. My gut says that the size of the Argentine wheat crop will continue to fall, and quality be very much in question, opening up the door to capture export market share that they can’t deliver to.
Have a great weekend!
Due to some technical issues this morning, the FarmLead Breakfast Brief was delivered later than desired, as well as there are now futures grain prices but you can view them here.
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