Grain prices are in the red this morning as the sell-off in the complex that started late yesterday afternoon continues.
“Carry on, my wayward son. For there’ll be peace when you are done.”– Kansas (Rock Band)
Crop Progress, Trump Crush Bullish Run
Grain prices are almost all in the red this morning as the sell-off in the complex that started late yesterday afternoon continues. Yesterday’s US Crop Progress report showed the market that the start of the 2018 growing season is looking pretty good. Also, Western Canada, especially Manitoba, is getting some heavy rains, that should alleviate some drought concerns. 
About 3,000 engineers and conductors who work for Canadian Pacific Railway went on strike Tuesday night, and it isn’t a positive factor for Canadian grain movement. Canadian Prime Minister Justin Trudeau said the government wouldn’t be “very quick” to push out a back-to-work order, as he doesn’t want to legislate against unions. 
Ironically, this “don’t involve government in private industry matters” attitude doesn’t apply to oil markets. Yesterday, the Canadian federal government, on the backs of the Canadian taxpayer, paid $4.5 billion CAD to buy the beleaguered Trans-Mountain pipeline from Kinder Morgan. 
Since the Justin Trudeau’s Liberals are not the Saudi Royal Family and their expertise in building pipelines is non-existent, I view this as bearish for the Canadian economy. From this economist’s perspective, this is a bit ridiculous. From an investor standpoint (because as a Canadian taxpayer, I am now an investor in the Trans Mountain pipeline), this is a very risky investment.
Coming back to grain prices, all but canola prices fell yesterday as the market sold-off on US President Trump saying that he’s still going to put 25% tariffs on about $50 Billion worth of Chinese goods. 
The move shocked the market as it was just ten days ago that US Treasury Secretary Steve Munchin said the trade war was on hold. US Commerce Secretary Wilbur Ross landed in Beijing yesterday to start discussing the broad outline of a future deal between China and the USA. No one is sure where the puck drops now.
P.S. Game 2 of Stanley Cup Finals tonight.
US Crop Progress Report Shows Healthy Start
Thanks to the US Memorial Day long weekend, the USDA’s crop progress report was released yesterday afternoon (instead of the usual Monday update). What it did show is that the crop is enjoying a pretty good start to the growing season. By no means is the crop made (despite some sarcastic comments on Twitter and the ag forums!) Here’s a breakdown of the US crop progress report:
• Winter wheat crop ratings: 38% good-to-excellent (G/E); last week it was 36% and 5-year average is 44%,
• Spring wheat planting: 91% complete; 95% last year; 89% 5-year average,
• Soybeans planting: 77% complete; 65% last year; 62% 5-year average, and
• Corn crop ratings: 79% G/E; 65% a year ago; 70% 3-year average
Value or Volume More Important for Grain Prices?
When we talk about the direction of grain prices, I usually look at the supply and demand structure of the market to help determine what price makes sense. In the headlines, especially when it comes to trade talk, we continue to see and read headlines about the value of the grain trade.
This is irrelevant.
That’s because the value of total exports to Country A or Country B is a terrible indicator of the structure of the market. Further, the value of the trade will change every year if the price of said commodity changes over the course of that year!
For example, what do you think is a stronger market structure in the example below?
• 1 million tonnes of grain exports worth $300 million (or $300 /tonne)
• 1.5 million tonnes of grain exports worth $400 million (or $267 /tonne)
For me, the answer is #2 because it means that means that there is more supply that is being moved through the pipeline. This, more simply, means that there is pretty strong demand. Yes, the price is lower, but when in a state of the market where gluttony of grain that still exists, more movement is better as it works through more of that supply.
Of course, this is the simplest way to showcase that supply and demand is more important than the value when talking about the structure of a market, but it should provide the foundation for some thinking on your part.
International trade is no easy game to understand but when the majority of your grain trade is based on export. That is the case for most of our Breakfast Brief readers, who the majority are from North America, South America, and the Black Sea. More concretely, thinking about grain trade regarding supply and demand structure, instead of just value, is critical.