Grain markets this morning are mostly green ahead of tomorrow’s WASDE report, largely led by soybeans demand, and fund buying.
“The hardest thing to do is to be true to yourself, especially when everybody is watching.” – Dave Chappelle (American comedian)
Eyeing a WASDE Report, Soybean Demand, & Canola Prices
Grain markets this morning are mostly green ahead of tomorrow’s WASDE report, largely led by soybeans demand, and fund buying. On this last point, fund managers are the most bullish they ever been since September 2012.  For reference, back then, corn prices were setting records with $8 handles, but were starting to retreat as it was largely understand just how much impact that year’s drought had on production. Obviously though, this rally and fund-buying has much more to do with demand than it does supply.
On Friday last week, the USDA released its 10-year baseline report, which included acreage estimates for Plant 2021.  For corn, the USDA estimated that 90M acres of American soil will be planted with the coarse grain, about 1M below this past year, while wheat acres are expected to climb by 1.7M year-over-year to 46M. The bigger surprise was for soybeans, in which the USDA is projecting that American farmers will plant 89M acres, up nearly 6M acres from last year. It is worth noting that this number is actually higher than most private estimates, but it’s likely that this forecast changes before planters start rolling in 6 months, largely due to what sort of crop Brazil and Argentina are able to produce. More on this in a bit.
President-Elect Biden & Agriculture
Although President Trump has yet to concede defeat & has many legal challenges in several key states pending, former Vice-President Joe Biden has been named the President-Elect of the United States by pretty much everyone. Accordingly, he has started outlining his plans once he takes office in January, including a national mask mandate, re-joining the Paris Climate agreement, as well as the World Health Organization.  For that last group, it will be interesting to see how President-Elect Biden engages, notably whether or not he pushes for Taiwan to join the WHO, given their impressive handling of COVID-19.  For those who aren’t aware, China continues to lay claim to Taiwan (a la Hong Kong) and accordingly, doesn’t recognize them as a country or their democratic sovereignty.
Coming back to North America, because the election results are pending said legal challenges, the government agency entrusted with a transition from one administration to the next, the General Services Administration, has also not yet recognized Mr. Biden’s victory. This means he cannot access government funds and/or communicate with federal agencies as they look to put new personnel in place. One area that the agriculture industry will be watching closely is how the Renewable Fuel Standard is addressed, namely COVID-19 waivers, small refinery exemptions, and setting a 2021 blending volume. 
The other main area that agriculture will be watching is how the Biden administration addresses trade relations with China. Chinese state media is reporting that Beijing will aim to re-negotiate the Phase One trade deal, which would have obvious impacts on the agriculture and technology sectors.  Interestingly enough though, Russia and China are basically the only countries in the world yet to publicly acknowledge Biden being named President-Elect.  Ultimately, whichever way you lean politically, comedian Dave Chappelle probably had the best, most prescient way of describing Biden’s victory in his Saturday Night Live monologue this past weekend.
Tomorrow’s WASDE Report? Meh.
Tomorrow at 11AM CST, the USDA will give us another monthly installment of their world agricultural supply and demand estimates, AKA the WASDE report. Historically, the November WASDE report doesn’t see a lot of changes, but we can all agree that this year hasn’t really been a good one to compare against others! Going into the WASDE report though, grain markets are mostly watching for demand updates from China and supply updates from South America, namely Brazil’s soybeans and Argentina’s wheat.
Digging into demand, China’s soybean imports in October climbed 41% year-over-year to 8.7 MMT, highlighting the reality that China will likely carry soybeans higher or push them back down.  Put another way, categorizing the next few months as likely bullish or bearish for soybean prices is likely going to be a coin-flip by China.  If the trade deal does get re-negotiated, it’s likely bearish, but if the soybean crop doesn’t measure up in Brazil, it’s likely bullish!
Staying in demand, the smaller harvest in Ukraine this year continues to plague both wheat and corn exports, with total grain exports tracking 17% behind last year’s pace.  For wheat, Ukrainian shipments are tracking 10% behind last year with 11 MMT sailed, while corn exports have totaled just 2.9 MMT, down about 43% year-over-year. This means that more Asian buyers are buying more American again, after opting for cheaper Black Sea options in 2019/20 thanks to the record corn harvest in Ukraine. 
Soybean, Canola Prices & Tight Oilseed Stocks
Despite the slow start for the Brazilian soybean planting campaign, data through this weekend suggests that, across the country, the number of acres planted in on pace with the seasonal average with over half the crop now in the ground.  What’s more, Datagro raised its estimate of the size of the crop from 131.7 MMT to 134.4 MMT, which is also above the current USDA estimate of 133 MMT from the October WASDE report. Finally, what’s probably the most statistically-significant datapoint for me is how forward-sold Brazilian farmers are, as Safras e Mercado is estimating 55% of the crop has already been contracted!  That’s 20 points more that last year and well above the seasonal average of 30% for this time of year! This sets up some question marks about “available supply” but, arguably, it means that arbitrage skills by companies who own these forward-contracted inventories will ultimately win the day.
For canola prices, Strategie Grains lowered its estimate of rapeseed imports by 400,000 MT, down to 5.9 MMT, due to greater domestic supplies.  Basically, since Australian and Canadian canola prices haven’t been as high as European rapeseed prices, there’s less international demand for it. Further, due to COVID-19 lockdown measures in Europe, there’s an inherently smaller amount of demand for rapeseed from the biodiesel sector. This does put a bit of a damper on the bullish sentiment we’ve seen, but it doesn’t necessarily equate to weaker Canadian canola exports to the E.U..
That said, through ¼ of the 2020/21 crop year, Canadian canola exports are tracking 48% higher with 3.13 MMT sailed (or 1 MMT more than what had sailed at this time a year ago!), which is obviously part of the reason behind these. The simple math here would suggest that, if this 3 MMT per quarter volume of canola exports were maintained, then total 2020/21 shipments should top a new record of 12 MMT. However, the International Grains Council notes that tighter supplies of canola/rapeseed and sunflower seed could result in greater demand (read: substitution) for soybeans. 
Back on October 26th, I made the call that canola prices were feeling top-heavy and the highs from that week haven’t been eclipsed since. That said, the November 2021 canola contract (AKA new crop canola) is trying to test the highs of $523 CAD/MT made in mid-September. With canola prices on the cash market playing around $11.75 – $12 CAD/bushel in most areas across the Canadian Prairies, and spring wheat values still under $7, canola acres for Plant 2021 might be a bearish surprise like what the USDA is already forecasting for soybeans! Worth mentioning that the Canadian Dollar up above 77 cents USD is keeping a lid on further gains in canola prices.
That said, I have seen some HRS wheat trades above $7 on the Combyne Agricultural Trading Network, but farmers consistently selling feed wheat, CPS, and other low protein wheat prices consistently above $6 CAD/bushel, perhaps these later cereal options also buy more acres in Plant 2021?
Note: In observation of Veterans Day in the U.S. and Remembrance Day in Canada, there will be no FarmLead Breakfast Brief on Wednesday, November 11th. Instead, I encourage you read my LinkedIn article from a year ago: ”Showing respect where respect is due”.
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.294 CAD, $1 CAD = $0.7728 USD)
Dec Corn: unchanged at $4.068 USD or $5.263 CAD
Jan Soybeans: +8.3¢ (+0.75%) to $11.098 USD or $14.36 CAD
Dec Soybean Meal (per short ton): +$4.30 (+1.2%) to $386.70 USD or $500.39 CAD
Dec Soybean Oil (cents per lbs): +0.70¢ (+2%) to 36.04¢ USD or 46.64¢ CAD
Dec Oats: +0.8¢ (+0.25%) to $3.013 USD or $3.898 CAD
Dec Wheat (Chicago): -0.5¢ (-0.1%) to $6.015 USD or $7.783 CAD
Dec Wheat (Kansas City): +1¢ (+0.2%) to $5.56 USD or $7.198 CAD
Dec Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.568 USD or $7.204 CAD
Jan Canola: +5.9¢ (+0.5%) to $12.44/bu / $548.50/MT CAD or $9.613/bu / $423.88/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.