Grain markets this morning are mostly green as currency effects and higher oil prices have supported more wheat exports and slightly stronger corn demand
“We keep moving forward, opening new doors, and doing new things, because we’re curious and curiosity keeps leading us down new paths.” – Walt Disney (American entrepreneur & animator)
Wheat Exports Musical Chairs & Identifying Corn Demand
Grain markets this morning are mostly green as currency effects and higher oil prices have supported more wheat exports and slightly stronger corn demand. As mentioned in Friday’s Breakfast Brief, the weaker U.S. Dollar has also made U.S. soybeans more financially attractive than those from Brazil. The USDA also reported on Friday that China and unknown destinations bought nearly 1.03 MMT of U.S. soybean exports last week (we’ll get those official numbers this Thursday in the usual weekly USDA grain exports report).
However, the U.S. Dollar did appreciate on Friday, which led to some profit-taking and grain markets erasing some of their gains made earlier in the week. Pressuring wheat prices has been the start of the wheat harvest in the U.S. as well as Europe and the Black Sea. For corn prices, the attention of the market continues to be on weather and corn demand prospects.
That said, some tropical storms developing out of the Gulf of Mexico, combined with the start of hurricane season out of the Atlantic Ocean means that the Corn Belt could get some good moisture over the next few weeks.  The Midwest is also expected to get more hot weather, so the rains will be needed to help get the crop growing. Some traders are interpreting the weather forecast as bullish, which coincides with their expectations of higher corn demand thanks to more ethanol needed to meet the start of summer vacation gasoline demand (although, this demand is definitely down compared a year ago).
Wheat Exports: Potential Winners & Losers
Through the last week of May, Russia had shipped out 31.6 MMT so far in the 2019/20 crop year. Considering that their Ag Ministry stated that they had done 31 MMT of wheat exports through the end of April, this means that just 600,000 MT of wheat sailed from Russian ports in May. It may seem incredible on paper, but this is what happens when countries put limits on exports.
The main reason behind the wheat exports limits is that domestic wheat prices in Russia are sitting near record highs, but due to currency factors, Russian wheat is still one of the cheapest sources in the international market.  That said, wheat prices in Russia stabilized for a bit but have started to increase again as concerns over the size of this year’s wheat harvest are omnipresent thanks to Interfax estimating production could fall by as much as 40% in the important southern region of Stavropol.  From my perspective, the yield losses are being a bit sensationalized and Russia’s wheat harvest will still be pretty decent, we could see Russian again implement restrictions on its wheat exports later in the crop year.
Conversely, Canadian wheat exports continue to improve with another 450,000 MT sailed last week, for a total of 14.1 MMT (down about 7.5% year-over-year). However, Canadian wheat exports have been quite strong as 3 out of the last 4 weeks have been some of the largest weekly sailings for the entire crop year. While some technical issues have restricted us from updating the Canadian wheat exports chart for Week 43, here’s how weekly shipments look through Week 42.
The reasons for the uptick in Canadian wheat exports have been the aforementioned restrictions by other countries, a weaker Canadian Loonie, and above-average demand due to COVID-19.  Also, there’s less movement on rail of other goods (i.e. oil) and there’s no protests impeding railroad traffic in Canada (not the case a few months ago), which has allowed railroads to move record levels of grain.  Of note, Canadian grain exports through Thunder Bay are up 30% year-over-year. 
Going forward, we know that Ukrainian and European Union wheat harvests are going to smaller, although they are getting some good rains late in the growing season.  Regardless, it’s expected that wheat exports from these major players will be much less in 2020/21 than they were in 2019/20. For example, Ukraine is expected to end their 2019/20 crop year (which ends June 30th) with 20.5 MMT of wheat exports, off a total 2019/20 harvest of 28.3 MMT. For 2020/21, the Ag Ministry there is expecting Ukrainian wheat production will fall by nearly a fifth to 23.2 MMT and wheat exports will drop by more than 25% to 14.9 MMT.  Given the smaller wheat harvest, there’s a pretty high chance that we could see Ukraine put restrictions on its wheat exports again in 2020/21.
One country whose wheat exports are likely to start improving is Australia, as good rains and expanded acreage is setting things up for a big crop and export campaign. Rabobank is currently estimating that the Australian wheat harvest will be 22.5 MMT but with further good weather, it could top 26 MMT. Further, Rabobank is pegging Australian 2020/21 wheat exports at 17.5 MMT, which, if realized this would be more than double the volume of 2019/20 Australian wheat exports. Lending support to this idea is that spreads between old crop and new crop wheat prices in Australia are starting to narrow. Also playing a factor is weaker demand from the livestock sector as the good rains have improved pasture conditions, thus reducing the need for feed grains like wheat.
Corn Demand: Will Someone Please Stand Up
The increase in oil prices over the last few weeks has corn prices feeling a bit more chipper as the hope is stronger oil demand will translate to stronger ethanol demand, which obviously translates to higher corn demand. Regardless, managed money continued to be bearish on corn prices, increasing their net short position by more than 9,000 lots to sit on their most bearish position in almost a month. Point being, even with increased ethanol demand, there’s still a lot of corn available in the world.
In fact, the UN’s FAO says that the main reason for a record global grains harvest that’s forecasted for 2020/21 is because of record production potential in the U.S. and Ukraine, and near-record crops in Argentina and Brazil. That said, because of some of the aforementioned weakness in the U.S. Dollar, U.S. corn exports have seen some healthy strength in the last few weeks, but shipments are still tracking below last year by about 27% with just over 29 MMT sailed (or 1.142 billion bushels if converting metric tonnes into bushels).
While this is a positive, the bottom line is that, while corn demand from ethanol usually accounts for about one-third of total consumption, but it’s nowhere near normal. Through the end of May, U.S. gasoline consumption is tracking roughly 1/3 below what it was a year ago, but with appetite to go on summer vacation when there’s all these COVID-19 restrictions, there are more than a few people who continue to be doldrum about corn demand prospects, namely from ethanol. Ultimately, corn prices have some tough headwinds that it’s facing and so any rallies should be considered as selling opportunities (unless you can afford to wait and see what happens to corn demand over the summer months).
@Combyne or @FarmLead on Twitter
Due to some technical issues, today’s futures grain markets data is not included in the Breakfast Brief, but you can review them here at your convenience.
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