Grain markets are almost all in the red, alongside all other broader markets, as heavy supplies burden wheat prices while a resurgence of COVID-19 cases is weighing on corn & soybean demand again.
“There is always a heavy demand for fresh mediocrity. In every generation the least cultivated taste has the largest appetite.” – Paul Gauguin (French artist)
Is the Wheat Harvest Not as Heavy as Currently Thought?
Grain markets are almost all in the red, alongside all other broader markets, as heavy supplies burden wheat prices while a resurgence of COVID-19 cases is weighing on corn & soybean demand again. With the June WASDE out of the way, the attention of grain markets will turn mostly to weather and whatever demand headline that surfaces. Also, we’re two weeks away from the USDA’s next Stocks and Acreage report, released on June 30th, so expect some discussion about it leading up to that date.
With the increase in outdoor, communal activity around the world, we’re seeing more COVID-19 cases pop back up, including in China, where this time around, the government of the People’s Republic are trying to be very transparent. A resurgence of COVID-19 cases tied to a major Beijing food market has isolation measures being re-introduced there.  Similarly, Arizona, Texas, and Florida all saw their highest number of COVID-19 cases yet, and in 19 other states, the number of cases was also climbing. 
In today’s USDA crop progress report, grain markets are expecting to see slightly better crop ratings for corn and soybeans (were 75% and 72% good-to-excellent last week, respectively) and the Plant 2020 campaign virtually complete. Also today, we’ll get the NOPA crush report for May, which market participants are guesstimating will show just over 173M bushels of soybeans were processed last month (or 4.71 MMT if converting bushels into metric tonnes). If realized, this would be about a 1% improvement over April’s soybean crush, but a significant 12% bump over the 154.8M bushels used in May 2019.
COVID-19 Re-Writing Food Demand, Processing
As COVID-19 lockdowns and quarantines have challenged how we live, sleep, and breathe, how people are getting their calories and consuming food has also been tested. The food commodities that have benefited the most from the intrusion of COVID-19 has been oats, wheat, and rice. In fact, rice prices have been pushed to a new 9-year high as demand for simple foodstuffs made rice a high-value target in the grocery store aisles. Also helping rice prices climb nearly 50% in the last two weeks has been lower supply, as U.S. production in 2019 tumbled 17% compared to the year prior.  With the new crop harvest still a few months away, it’s likely that rice prices will stay elevated for another month or so.
On the flipside, more people who’ve been stuck at home because of COVID-19 have tried their hand at baking, which is why the price of white bread in May fell by the largest amount since the end of World War II.  This isn’t to say that this is bad for wheat prices, but it’s certainly means that flour is in higher demand, and various flour companies are working way overtime to meet the surge in new demand. 
This is mind, COVID-19 has put a lot of pressure on processors and manufacturers to ensure they have a reliable supply chain of ingredients coming in, but this has been way easier said than done.  This has pushed food companies to diversify their countries and regions that they buy from, and all at a speed that would normally take years, but has been done in a matter of weeks and/or months. Therein, because most food players have existed for the last number of years on a just-in-time model, this meant that they don’t have a lot of excess supply of inventories to fall back on. As a result, companies are stocking up on the base commodities like the aforementioned oats, wheat, and rice to ensure they’re not caught with empty warehouses. 
Wheat Prices to be Buoyed by Weather?
Last week’s WASDE report showed us that the USDA expects the world to have a record amount of wheat (316.1 MMT to be exact) still available by the end of the 2020/21 crop year. This weighed pretty heavily on wheat prices last week and the sea of red on the futures board has extended into this trading week. But, the wheat harvest is far from in the bin and I want to look into why there are some bullish undertones to the complex today.
As I mentioned in last Friday’s Breakfast Brief, more than half of the world’s 2020/21 wheat ending stocks would be held by China. On the flipside, the world’s major wheat exporters – i.e. the U.S., Ukraine, Russia, EU, Canada, Australia, and Argentina – will only have 60.6 MMT. This means that only 19% of the world’s available stocks, by the end of the 2020/21 crop year, will be held by those countries who are most able to ship it somewhere.
This is important as drier conditions in the MENA region – Middle East / North Africa – means that their crops are looking a lot smaller, and as a result, will have to import more.  Specific to North Africa, limited precipitation means that countries like Algeria, Tunisia, and Morocco will collectively make up the largest amount of wheat imports this year at 29.7 MMT. Morocco has already taken the rare step of exempting wheat import taxes through the end of the 2020 calendar year as they need to buy at least 5.8 MMT.
For Tunisia, wheat imports are likely to climb by one-third to 2.5 MMT while Algeria and Libya are in a bit of a bind, as weaker oil prices means less revenues to bring in foodstuffs like durum or soft wheat. The bottom line is that we’re going to need to see more of this weather-related demand to help buoy wheat prices through the usual downturn of the growing season. While the U.S. wheat crop year just flipped to 2020/21, the charts are pretty empty, but Canadian durum and non-durum wheat exports continue to see a lift in movement, which isn’t usually the case for this time of year.
What Else Are Wheat Prices Watching?
The USDA said last week that Argentina will have 1.75 MMT in wheat stocks that will carryover at the end of the 2020/21 crop year. This number, however, is based on the USDA’s expectation that farmers there will harvest 21 MMT. However, since they started planting their wheat crop last month, northern and western areas have had a scant supply of rain, meaning initial plans for the record of 17M acres of wheat to be planted could be kyboshed.
Conversely, decent rains and record wheat prices in southern Brazil, means acreage plans are up.  CONAB (Brazilian version of the USDA) estimates that Brazilian farmers will plant nearly 7% more wheat this crop year than 2019/20, and will the wheat harvest will be 10% bigger, or 5.7 MMT of total production.
Better-than-expected weather in Russia has led to SovEcon increasing their forecast of the wheat harvest to 82.7 MMT, up 1.5 MMT from their previous estimate. For perspective, the USDA kept their estimate of the Russian 2020/21 wheat harvest unchanged at 77 MMT. With the bigger wheat harvest expectations though, IKAR lifted its estimate of Russian 2020/21 wheat exports by 1 MMT to 35 MMT. Comparably, the USDA also raised their estimate of Russian wheat exports for the new crop by 1 MMT, but to 36 MMT.
The French wheat crop is looking pretty up in the air with 56% of the crop rated in good-to-very-good shape as of last week. While that’s unchanged from the week before, it is the lowest rating for the French wheat crop in nine years, leaving many to worry about downgrades to the country’s wheat harvest. This comes at a time when French wheat exports are set to make a new record of 13.45 MMT, as estimated by FranceAgriMer. Put another way, available French wheat supplies will be tighter after the end of the 2019/20 crop year and, combined with the 2020/21 wheat harvest also looking smaller, this is a bit bullish.
Finally, in Ukraine, APK Inform is reporting that wheat prices there have jumped about $7 USD/MT since the start of June due to weaker wheat harvest results.  While the Ukrainian government says that the 2020 wheat harvest could fall to 23 MMT – down about 20% from last year’s 28.3 MMT – based on preliminary combining, this number could drop lower. As a reminder, in last Thursday’s June WASDE report, the USDA said that Ukrainian farmers would take off 26.5 MMT, which was lowered from their May WASDE of 28 MMT.
Ultimately, we know general demand for wheat continues to be healthy (especially when compared to some of the other crops) and I’m not saying that wheat prices are going to touch 2008, 2012, or 2016 levels. However, this is a year where a downgrade to the wheat harvest – be it Ukraine or Canada – could have an amplified effect on the market, because of said demand. Thus, I’d encourage you to think about what realistic price target you’re looking for on that next old or new crop wheat sale, and share that expectation just once on Combyne by Listing it here (versus repeating yourself over and over again on multiple prospecting phonecalls).
@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 = $1.3648 CAD, $1 CAD = $0.7327 USD)
Sept Corn: -1.8¢ (-0.5%) at $3.328 USD or $4.54 CAD
Aug Soybeans: -4.8¢ (-0.55%) at $8.678 USD or $11.843 CAD
Aug Soybean Meal (per short ton): -$1.40 (-0.5%) to $290 USD or $395.80 CAD
Aug Soybean Oil (cents per lbs): -0.43¢ (-1.55%) to 27.27¢ USD or 37.22¢ CAD
Sept Oats: -3.3¢ (-1.15%) at $2.84 USD or $3.876 CAD
Sept Wheat (Chicago): -1.8¢ (-0.35%) to $5.06 USD or $6.906 CAD
Sept Wheat (Kansas City): -2.8¢ (-0.6%) at $4.543 USD or $6.20 CAD
Sept Wheat (Minneapolis): +0.8¢ (+0.15%) to $5.26 USD or $7.179 CAD
Nov Canola: -0.2¢ (-0.02%) to $10.725/bu / $472.90/MT CAD or $7.858/bu / $346.49/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.