Grain markets are being led higher this morning by wheat prices and soybean prices, as dryness concerns are helping recover from Friday’s profit-taking.
“The mark of higher education isn’t the knowledge you accumulate in your head. It’s the skills you gain about how to learn.” – Adam Grants (US author)
Grain markets this morning are all higher as the market tries to rebound from Friday’s sell-off.
Soybean prices saw some profits taken off the table on Friday, which limited its gain for the week to a little under 1%. This made a call on last Wednesday to sell old and new crop soybeans the right (and profitable) move. This is especially true if you considered taking the basis play recommendation in beans or canola, the latter call being made a few weeks ago now.
Granted, soybean prices are seeing double-digit gains this morning, aided by production concerns out of Argentina thanks to limited precipitation (basically, new day, same headline!).
Corn prices gained more than 1% for the week thanks to the weaker U.S. Dollar and some decent US export sales. Dryness in Argentina was also a factor.
A Reuters poll for 2018 palm oil production expectations suggests that new highs will be set in both Malaysia and Indonesia as those countries fully recover from the El Nino event that dissipated about this time a year ago. More specifically, Malaysia’s palm oil production is expected to hit 20.5 million tonnes while Indonesia’s output is forecasted at 37.8m tonnes.
This has led analysts to have an average guesstimate of palm oil prices falling by 7% in 2018 compared to 2017.
Read all of our analysis on how vegetable oil substitution is affecting canola prices.
Free Trade Deals
This week I’m heading to Edmonton, AB for the annual FarmTech Conference. While the conference is always great to discuss new technology, tools, or agronomy practices, I’m guessing that this year there will be a lot of trade banter.
Last week we saw Canada agree to the terms of the newest version of the Trans-Pacific Partnership. The deal is lauded by many as an opportunity for Canada to expand market share outside of North America. Conversely, U.S. President Donald Trump pulled out of TPP this time a year ago and has gone about trade policy in a very different fashion.
The apparent focus right now is NAFTA though, as the sixth round of negotiations just wrapped up in Montreal.
Food for thought: 60% of Mexico’s wheat comes from Canada and the U.S., with Mexico being the #1 market for US wheat exports.  Last week and over the weekend, we saw public letters from wheat organizations in all three countries talk about the importance of NAFTA for wheat trade.
In our weekly GrainCents digest emails sent out over the weekend to subscribers, we peeked at how Canadian grain exports might expand because of new preferential treatment with TPP trading partners.
We also reviewed how US winter wheat exports are going to be impacted by not being a part of the TPP deal, versus how Canadian spring wheat exports are likely to fare moving forward.
Consensus in Wheat Prices?
As Garrett recapped on Friday in the regular Grain Markets Today column, wheat prices had a solid performance to end the week.
Hard red spring wheat prices from the Minneapolis Grains Exchange improved by 1%. Soft red winter wheat prices in Chicago gained 4.6% for the week, while hard red winter wheat prices on the futures board in Kansas City gained 3.6%. Of note, July 2018 KC wheat prices are now hovering near ten-week highs (as indicated in the chart below).
The catalyst for the strong improvement in wheat prices was multi-fold: short-covering, spillover support from corn prices rallying 1.05% for the week, a weaker US Dollar, and dryness concerns.
There has been an increasing consensus that dry conditions will last through the end of April for U.S. winter wheat producing areas. As such, with the crop breaking winter dormancy in the next couple weeks, weather forecasts in the U.S. southern plains will quickly become a major headline-grabber. It’ll likely start with the next USDA crop condition report, which will show any impact of the cold snap we saw earlier this month.
While a lot of discussions these days has centered around possible winterkill for the US winter wheat crop, we continue to look at the impact on spring wheat prices and durum wheat prices in GrainCents. More specifically for durum, on Friday I recapped some of the durum buyer sentiment in the market right now.
Conversely, there’s no consensus on whether or not US spring wheat areas will receive some critical rains or not.
Finally, the consensus seems to be that the lows are in for US winter wheat prices. This intuitively begs the question of whether the spread between winter and spring wheat prices remains, or the gap starts to narrow.
Two final data points to consider.
First, U.S. winter wheat sales thus far are 76% of the total marketing year forecast by the USDA. The average is 83% by this time of year. 
Second, Informa updated their U.S. wheat area forecast for the 2018/19 crop, pegging total wheat acres at 46.1 million acres, up 100,000 from 2017’s number. This number includes 32.6 million acres of winter wheat (pretty much in line with the USDA’s forecast), and 11.25 million acres, which is up 300,000 acres from last year.
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At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2349 CAD, $1 CAD = $0.8098 USD)
Mar Corn: +2.5¢ (+0.7%) to $3.59 USD or $4.433 CAD
Mar Soybeans: +11.3¢ (+1.15%) to $9.968 USD or $12.309 CAD
Mar Soybean Meal (per short ton): +$3.60 (+1.05%) to $339.30 USD or $418.99 CAD
Mar Soybean Oil (cents per lbs): +0.12¢ (+0.35%) to 32.91¢ USD or 40.64¢ CAD
Mar Oats: +3.3¢ (+1.2%) to $2.693 USD or $3.325 CAD
Mar Wheat (Chicago): +6.8¢ (+1.55%) to $4.478 USD or $5.529 CAD
Mar Wheat (Kansas City): +7.8¢ (+1.75%) to $4.508 USD or $5.566 CAD
Mar Wheat (Minneapolis): +5¢ (+0.8%) to $6.195 USD or $7.65 CAD
Mar Canola: +10.9¢/bu / +$2.70/MT (+0.55%) to $11.258/bu / $496.40/MT CAD or $9.117/bu / $401.99/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.