Grain markets this morning are mostly in the red as estimates for the likes of the corn, soybean, and wheat harvest are starting to turn to reality.
“I’m reflective only in the sense that I learn to move forward. I reflect with a purpose.” – Kobe Bryant (late NBA legend)
Wheat Harvest Picking Up Reflects Price Pullback
Grain markets this morning are mostly in the red as estimates for the likes of the corn, soybean, and wheat harvest are starting to turn to reality. Put another way, there’s some decent-looking crops out there and grain markets are starting to reflect that. Of course, it’s not all coming up daisies as a smaller EU wheat harvest may create some interesting dynamics for the 2020/21 wheat exports campaign.
Outside grain markets, the spotlight from mainstream media continues to be on COVID-19 policies (i.e. schools re-opening this fall), economic concerns (especially as government aid starts to trickle), and trade tensions between the U.S. and China build. For this last factor, yesterday, the U.S. government announced the “Clean Network”, which is a new program to “guard citizens’ privacy and companies’ most sensitive intrusions by malign actors, such as the Chinese Communist Party.” 
On the macroeconomic side of things, the U.S. stock market continues to climb higher, despite the obvious economic storms buzzing. Technically-speaking though, the way that stock market indices are set up, technology companies tend to overweight, and because they’re doing really well, the stock market is doing well.  Of course though, there are some stocks in industries like travel, hospitality, and leisure that have been pounded into the pavement because of COVID-19, but those stocks don’t contribute much to the overall stock market indices like technology companies do.  One big concern that’s mounting at the consumer level though is a recent survey that shows more than 50% of U.S. consumers with credit card debt will need more government aid to make even the minimum payments over the next 3 months. 
Wheat Harvest Looms but Demand Remains Strong
Brazil is expected to produce 5.15 MMT of wheat in their 2019/20 crop year, and 5.6 MMT in 2020/21, according to the USDA’s office there.  Adverse weather in 2 of Brazil’s larger wheat-producing states have experienced some tough weather, hence the smaller 2019/20 wheat harvest. However, stronger demand for simple foodstuffs like bread during COVID-19 lockdowns means that Brazil will be importing more wheat this year, with the USDA’s attaché estimating 7.4 MMT in 2019/20 and 7 MMT in 2020/21. If the former is realized, it would be a new record wheat harvest in Brazil, easily surpassing the previous record set in 1987 of 6.13 MMT. 
At these levels, Brazil is actually the world’s third-largest wheat importer in the world! Brazil gets most of its wheat from Argentina (about 85% of total imports), while 7% comes from Paraguay, and the U.S. and Canadian shipments owning 4.5% and 2%, respectively. In their 2019/20 crop year though, U.S. wheat exports to Brazil have increased to own nearly 7% of Brazil’s wheat imports, thanks to a duty-free quota for 750,000 MT from countries other than the Merocsul group (which is comprised of Brazil, Argentina, Paraguay, Uruguay, and Venezuela).
That said, the size of this year’s Argentina wheat harvest continues to be thrown into question. According to the USDA’s office there, they’re expecting a 20 MMT wheat harvest, 1 MMT lower than the official USDA’s estimate from the July WASDE report (reminder: we get next WASDE report this coming Wednesday, August 12th).  In that report from the USDA, I’m expecting to see some significant updates to the wheat harvest in the EU, Argentina, Russia, and possibly Australia, as weather and some combines already rolling has helped give a better perspective of what the total haul will be.
More specifically, in Europe, the size of the wheat harvest there continues to fall.  In France, combines are rolling and it looks like the country’s soft wheat harvest will drop by as much as 25% year-over-year to 29.2 MMT. Blame for the poorer yields is mainly because of the wet fall (which limited plantings) and then a dry spring (which limited crop development). However, because of the drier conditions, the quality of France’s wheat harvest is looking pretty good.
Elsewhere in Europe, the UK’s wheat harvest is expected to fall to about 10 MMT, down about a third, thanks to the same wet fall / dry spring weather combo that France received. Comparably, Ukraine and Romania’s wheat harvest are expected to fall because of just the drier growing season conditions, but, according to the most recent update from the EU’s MARS crop monitoring division, the wheat harvest in Germany, Russia, and Poland look to be similar to last year or the average of the last few years, thanks to timely rains. 
North America Wheat Harvest to Benefit?
What this all adds up to is likely less wheat exports coming out of the EU, as bloc countries look to first solve for increased domestic demand related to COVID-19. This intuitively means more wheat exports competition from the other major players like Australia, Russia, Argentina, Canada, and the U.S. That said, as we just flipped the calendar on the 2019/20 Canadian wheat crop year, the CGC’s updated dataset from this morning suggest total wheat exports (including durum) of 23.33 MMT, or 2.5% more than last year’s volumes through Week 52.
For the U.S. wheat exports, through Week 9 of the 2020/21 crop year, 4.53 MMT has sailed (or 166.5M bushels if converting metric tonnes into bushels). As a lot of the U.S. wheat harvest is of the winter wheat type, it’s more likely to capture some market share from the EU. However, given trade tensions continue to grow with China, currency effects, and COVID-19-related trade disruptions, this increased shipping expectation is far from certain.
For wheat prices, we know that we’re getting into the time of year where values are almost always the worst of the year.  That said, if you are selling wheat right now, it should only really be because you’re filling contracts that you made a few months ago, or you have really big yields and don’t have the storage capacity. Put another way, every single year, wheat prices at wheat harvest time aren’t great so why consider selling at that time? Sure, there are some anomalies to the seasonality of wheat prices but, if you’re playing the law of averages, now is not the time to be selling! That said, I have seen a few good old crop wheat trades on Combyne these past few days, so if there’s something still in the bin, get it listed on Combyne! (or you can keep waiting for someone to randomly call you with a special bid…)
Have a great weekend!
At 8:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3328 CAD, $1 CAD = $0.7503 USD)
Sept Corn: unchanged at $3.113 USD or $4.148 CAD
Sept Soybeans: -0.5¢ (-0.05%) to $8.743 USD or $11.652 CAD
Sept Soybean Meal (per short ton): +$0.40 (+0.15%) to $283.60 USD or $377.98 CAD
Sept Soybean Oil (cents per lbs): -0.21¢ (-0.65%) to 31.01¢ USD or 41.33¢ CAD
Sept Oats: +2.8¢ (+1%) to $2.773 USD or $3.695 CAD
Sept Wheat (Chicago): -1.8¢ (-0.35%) to $4.995 USD or $6.657 CAD
Sept Wheat (Kansas City):-0.8¢ (-0.2%) at $4.165 USD or $5.551 CAD
Sept Wheat (Minneapolis): unchanged at $4.96 USD or $6.611 CAD
Nov Canola: +0.40¢ (+0.1%) at $11.118/bu / $490.10/MT CAD or $8.341/bu / $367.80/MT USD
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