July 23 – Weather Becoming a Hot Topic Again

Good Morning!

Grain markets this morning are almost all in the green, led by hard red spring wheat prices, as the weather is helping fuel some fresh bullish optimism.

“There is no such thing as bad weather, only different kinds of good weather.” – John Ruskin (English Philanthropist)

graincents-trial

Weather Becoming a Hot Topic Again

Grain markets this morning are all in the green, led by Minneapolis hard red spring wheat prices, as the weather is helping fuel some fresh bullish optimism.

A recent weather forecast update from the NOAA shows that most of the Corn Belt will have decent weather through to October or through the rest of the growing/harvest season. El Nino is increasingly becoming a hot topic amongst meteorologists and grain markets analysts. It – the weather – is also something we touched on last week in a FarmLead Insights article as a potential driver of corn prices and soybean prices in the 2018/19 crop year.

Wheat Crops Smaller Everywhere but Argentina?

Current dry conditions in Australia, Europe, and the Black Sea are all being noted for their crop-damaging weather as well. Over the next two weeks, this heat isn’t expected to cool off.

weather-europe-temperature-Wheat-prices

The heat across the continent has been relentless over the last month. And it’s been cooking the crop and accelerating declines in yield and production expectations. For example, this week, the USDA said that warm weather has affected the Bulgarian wheat crop.  Wheat yields are well below last year’s record levels. The latest harvest data shows yields at 67.5 bushels per acre, down 9% compared to last year. Total production is for 2018/19 is pegged at 5.7 MMT, a decline of almost 10% from the 6.3 MMT in 2017/18.

Also, USDA reported that total wheat production in Ukraine for the 2018/19 would come in at 25.7 MMT. That figure would be down 1.24 MMT or 5% compared to last year. This downturn is a significant drop year-over-year for a country that is traditionally a grain powerhouse.

On Friday, Agritel reduced its estimate of the French soft wheat crop to 34.2 MMT. That’s a 6.6% decline from last year’s crop. Agritel blamed its downgrade on some of the driest/hottest weather on record in France, as well as heavy rain closer to harvest negatively impacting quality.

As such, the December 2018 wheat contract on the Euronext commodities exchange (11% protein) hit €192.50/MT ($225.80 USD/MT or $6.15 USD and $8.08 CAD per bushel). This is the best price seen in Europe since 2015!

Conversely, it looks like Argentina might harvest a record wheat crop this year.

The Rosario Grains Exchange is now estimating a record 20 MMT wheat harvest in the South American nation, topping the previous record of 18.2 MMT set in 2016/17 by a sizeable margin.  Planting is set to finish by the end next month, with area seeded expected to be up 7% year-over-year 15.1 million acres.

While most analysts won’t consider it, sometimes the weather on the other side of the globe is far more important than the mercury dial in your backyard.

Trade Risk, Freight Costs Continue to Rise

Last week, the World Trade Organization offered a glaring report on the state of global trade. For the largest 20 economies in the world (the G20), the number of restrictions on trade between them has doubled from October 2017 to May 2018. 

That was only a six-month period, and it was primarily driven by the United States. 

The World Trade Organization says that 39 new trade restrictions were applied by G20 economies during that period. This includes tariff hikes, stricter customs rules, or the slapping of taxes or export duties on products. 

However, it’s important to note that there were a lot of measures aimed at improving trade. A total of 47 measures intended to cut tariffs, improve import processes, or reduce taxes were introduced. That was also higher than normal.

The former number is troubling, but the second one points to the realignment we are witnessing in the global markets. For example, China dropped tariffs for five nearby nations to bolster its soybean imports.

This comes as the price of global shipments is also on the rise. The Baltic Dry Index is now up 50% since the last week of May. At a time where global freight companies are facing higher fuel costs, some had projected that this Index would see a decline in the wake of global tariffs. But trade remains robust. 

2018-07-18-baltic-dry-index

For reference, the London-based Baltic Exchange compiles the Baltic Dry Index from a list of weighted price averages for transported cargo such as coal, grain, and iron ore. The Baltic Exchange conducts this daily survey with shipping agents in countries all around the world. This is viewed as one of the most important indicators of the global economy’s health.

This index faced a long downtrend between 2008 and 2016. Since late 2016, we’ve seen a healthy increase, the result – mainly – of a robust global economy and healthy demand for raw materials.

Now that tariffs are coming into place, it’s possible that we’ll see this Index retreat. But the recent rise has seen trade pick up. The market’s attention to this Index speaks to the ongoing shakeup in the global markets thanks to the acceleration of the battle over trade.

The point here is not ignoring the outlier issues like currency and freight factors when topics like weather become the main headlines in the news. Stay diligent; remain a risk manager.

To growth,

Brennan Turner

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

 

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3136 
CAD, $1 CAD = $0.7613 USD)

Sept Corn: 1.3¢ (0.35%) to $3.565 USD or $4.683 CAD
Aug Soybeans: 0.8¢ (0.09%) to $8.505 USD or $11.172 CAD
Aug Soybean Meal (per short ton): $0.40 (0.12%) to $327.30 USD or $429.93 CAD
Aug Soybean Oil (cents per lbs): -0.50¢ (-0.18%) at 28.17¢ USD or 37.00¢ CAD  
Sept Oats: -1.8¢ (-0.77%) to $2.315 USD or $3.041 CAD
Sept Wheat (Chicago): 1.3¢ (0.25%) to $5.173 USD or $6.795 CAD
Sept Wheat (Kansas City): 2.5¢ (0.49%) to $5.110 USD or $6.712 CAD

Sept Wheat (Minneapolis): 9.0¢ (1.62%) to $5.643 USD or $7.412 CAD
Nov Canola: $1.50 (0.31%) to $11.15/bu / $491.80/MT CAD or $8.491/bu / $374.40/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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