Apr 29 – Will Weather Help an Uber-Important Plant 2020?

Grain prices are mixed this morning as good weather/seeding conditions and demand questions have put the bears in control the past two days.

“I have seen many storms in my life. Most storms have caught me by surprise, so I had to learn very quickly to look further and understand that I am not capable of controlling the weather, to exercise the art of patience and to respect the fury of nature.” – Paulo Coelho (Brazilian novelist)

Will Weather Help an Uber-Important Plant 2020?

Grain prices are mixed this morning as good weather/seeding conditions and demand questions have put the bears in control the past two days.

As provinces, states, and whole countries start to emerge from COVID-19 lockdowns, there are more questions about who gets held accountable for the economic slaughter that has taken place. Yesterday, U.S. President Trump accused China of first ignoring and then trying to sweep COVID-19 under the rug, which obviously led to the global pandemic that you’re seeing today. [1] More specifically, he said, “We believe it could have been stopped at the source. It could have been stopped quickly and it wouldn’t have spread all over the world. We’re doing very serious investigations.  We are not happy with China.  There are a lot of ways you can hold them accountable.” The question now that I am wondering is what other major countries will actually walk the talk with the U.S.?

Speaking of walking the talk, broader markets will be closely watching for further stimulus clues from the most recent meeting of the U.S. Federal Reserve. While U.S. interest rates are already at zero and no more cuts expected, the market is looking for some guidance on what the Fed will do for bond purchases and if negative interest rates are even a possibility. The bottom line is that the Federal Reserve, given its extremely loose monetary policy, is the backbone of an idling American economy and the market will want to hear that the Fed is going to use all of its tools to make sure it doesn’t fail. [2] Another question I’m asking is, with all this money printing going on, but no actual economic growth (especially in worker’s wages), what tools will central banks use to stave off deflation? [3]

Meat Market Must Remain Open

Using the Defense Production Act, President Trump has ordered U.S. meat-processing plants around the country to stay open in order to protect the food supply chain. [4] As part of the push from the White House, meat processing plants will receive additional PPE gear in order to reduce the risk of contagion for COVID-19 amongst workers who stand side-by-side all day long. Within the past 2 months, roughly 25% of America’s pork processing capacity has been idled, while beef plant closures have led to about 10% of capacity going offline. It can be argued that not all of the blame of these meat plants closures can be put on COVID-19, but the actual meat processors themselves because of all the consolidation that’s happen in recent years. [5]

But getting this meat plants to open back up now is probably too late for many farmers. Already, 100,000s of animals have been culled as farmers can’t take on the financial payload of keeping the animals fed. This number could actually be in the millions if you account for the unborn calves and/or piglets that have been euthanized. To put into perspective, missing one day of taking the animals to market would put many hog operations back one week in the process/schedule. Right now, it’s estimated by the National Pork Producers Council that, because of COVID-19 and plant closures, hog farmers in the U.S. will lose $37/head for the rest of the year. [6]

This is compounded by the fact that, with no ethanol plants churning out DDGs these days, feedstuffs are hard to come by. [7] Conversely, the opening up of meat plants would intuitively mean more demand for livestock feedstuffs as animals bulk up before going to market. This situation amplifies the need for an open, free tool like Combyne, our cash grain marketplace, to list and search for deals without any obstacles whatsoever. Said differently, given all the volatility in the markets right now, shopping around for the right cash grain deal is an uphill battle, but with Combyne, you can make this chore a heck of a lot easier for yourself.

That said, my team just completed an incredibly impressive and large update of features to the Combyne website and iOS and Android mobile apps, including adding a hay/straw marketplace function. Do you know anyone struggling to move hay right now?

The Combyne marketplace helps you buy or sell hay and straw with ease

A Run on the Food Supply Chain?

While food supply chains continue to be a focus of organization for western governments, it’s a lost cause in developing nations that don’t have the infrastructure or monetary capabilities to keep things in check. This has been further augmented by the strength of the U.S. Dollar (thanks to the Federal Reserve’s position of backing basically the entire economy), which has thus devalued currencies elsewhere. For example, in Lebanon, supermarkets aren’t even putting price tags on food items anymore because their currency, the Pound, is dropping so quickly. [8]

Similarly, in Argentina, COVID-19 has created an economic crisis within an economic crisis. Businesses and citizens are pulling out their money from local banks as the peso loses value seemingly by the hour. The only option to try to maintain the value of your money is to try and exchange it for U.S. Dollars. [9] What’s more incredible is that, in Argentina, the central bank has set deposit interest rates at 26.6% (meaning you earn a quarter of your money in interest every year) but, that savings benefit is nullified when inflation is clocking along at 48%!

Intuitively, this is creating a challenge for the food supply chain there. On one hand, domestic grain prices are climbing in Argentina thanks to their currency depreciating and so farmers want to sell. However, because of the export issues thanks to the dry Parana River, farmers are instead having to buy up a record amount of grain/silo bags to store the crop that is currently in the process of coming off. [10]

Good Weather Opens Plant 2020 Season

Compounding this for farmers in Argentina is some wet weather. Heavy rains in Argentina have stopped the corn and soybean harvest there, but that same moisture should help boost the soil profile for the wheat Plant 2020 campaign that’s starting in a few weeks. [11] Keep in mind that a lot of Argentina didn’t see any wet weather in April, which is one of the reasons that their main river for export markets, the Parana, is super dry. More specifically, government data suggests that the Parana River’s water levels at the port of Rosario is about half a meter, down significantly from the average in April of 4 meters! [12] Accordingly, ocean-bound vessels are only able to load up to about 75% of what they normally would, or else they’d get stuck (which has happened, 2 years ago to be exact).

A window has opened for a lot of producers across North America to hit the fields to start Plant 2020. In Monday’s crop progress report from the USDA, 27% of expected American corn acres had been planned, a healthy bump from the 5-year average of 20%. [13] For soybeans, 8% of the crop was in the ground, matching the seasonal average. Put simply, last week and part of this week has been a dream when it comes to seeding conditions, especially when comparing it to last year and the record amount of Prevent Plant acres. [14]

It’s a different situation for spring wheat though, as just 14% of expected American acres were in the ground through this past Sunday, which is less than half of the 5-year average and well below the market’s expectation of 18% complete. [15] Keep in mind that just 11% of the crop was planted at this time a year ago, and the same soggy conditions seen then are rearing its head again.

For the winter wheat crop, extensive freeze damage is getting reported after the frosty temperatures seen earlier in April. [16] Accordingly, the USDA’s good-to-excellent rating on the U.S. winter wheat crop was lowered by 3 points from last week to 54%. Over the next week or so, areas that are going hard right now for Plant 2020 could see some wet and even snowy weather. More long term, U.S. Farm Report meteorologist Mike Hoffman says that northern areas (including Western Canada) could see below average temperatures AND precipitation. [17]

Wet weather might slow Plant 2020 but May's forecast looks solid

30-day weather forecast for May 2020 shows decent planting conditions

Speaking of wheat’s Plant 2020, according to USDA’s attaché in the Land Down Undaa, Australia’s wheat crop this coming growing seasons should rebound by about 50% compared to last year. Thanks to some wet (but appreciated) weather earlier on in the calendar year, wheat acres are expected to climb by about 20% to 29.9M. And thanks to the much need moisture after 3 years of drought, yields should climb significantly to help product a crop that totals 23 MMT. More broadly, wheat prices are lowing this morning as the complex digests benign global wheat crop conditions.

Unfortunately, Statistics Canada has no idea when it’s going to put out its acreage or stocks report because it doesn’t think it would be credible. [18] Quite literally, amidst the COVID-19 reshuffling of resources to home offices, Statistics Canada could only collected about half of its usually input for said reports. Granted, while government reports are somewhat hard to believe to begin with (be it the USDA or Statistics Canada), they do tend to set the goalposts for the market.

We should remain optimistic that lockdowns will end, the economy will slowly start to regain its legs, and demand for commodities will return. [19] That said, while there is a record amount of grain still available in the world, 60% of it is held by countries that don’t actually export it and have inadequate storage facilities. [20] Further, there’s a real risk that those exporters whose own food supply chain is a bit more on edge (i.e. countries in the Black Sea) will limit how much they sell abroad.

Put another way, we should all be hoping for good weather and production from Plant 2020 as, without it, food supply chain concerns today look pale compared to what a poor crop this year would mean for consumers around the world.

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
help@combyne.ag
@Combyne or FarmLead on Twitter

At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4058 CAD, $1 CAD = $0.7114 USD)

July Corn: +1.8¢ (+0.55%) at $3.138 USD or $4.377 CAD
July Soybeans: +3.3¢ (+0.4%) to $8.353 USD or $11.652 CAD
July Soybean Meal (per short ton): -$0.40 (-0.15%) to $288 USD or $401.79 CAD
July Soybean Oil (cents per lbs): +0.27¢ (+1.05%) to 26.04¢ USD or 36.33¢ CAD
July Oats: +1¢ (+0.35%) to $2.838 USD or $3.959 CAD
July Wheat (Chicago): -5.5¢ (-1.05%) to $5.205 USD or $7.261 CAD
July Wheat (Kansas City): -1.3¢ (-0.25%) at $4.825 USD or $6.731 CAD
July Wheat (Minneapolis): -3.3¢ (-0.65%) to $5.108 USD or $7.125 CAD
July Canola: +6.4¢ (+0.6%) to $10.535/bu / $464.50/MT CAD or $7.551/bu / $332.95/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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