Grain markets are mostly lower on increased U.S.-China trade tensions, while wheat prices are pulling back after being the best performer in the last week of trading for May.
“What the statesman is most anxious to produce is a certain moral character in his fellow citizens, namely a disposition to virtue and the performance of virtuous actions.” – Aristotle (Ancient Greek philosopher)
Where Wheat Prices Go After May’s Terrible Performance
Grain markets are mostly lower on increased U.S.-China trade tensions, while wheat prices are pulling back after being the best performer in the last week of trading for May. For the month of May though, Chicago SRW wheat prices had the worst performance, losing more than 40¢ USD/bushel, compared to where it ended the month of April. Conversely, oats prices were the contrarian of the futures grain markets, as demand for the food staple remains strong. We also continue to see strong sales of both old and new crop oats on our free cash grain Combyne Marketplace.
Outside markets are starting the month of June a bit on edge as race protests and subsequent riots/looting is rocking cities across the United States. While the protests are for the right reasons (minority issues, policing issues, etc.), the looting and rioting is not, with many extremists, from both the far-left and far-right, just out to cause chaos and confusion. 
For example, last night, talking with my amazing friend, Dayna Frank (she owns/runs the famous First Avenue theatre in Minneapolis where Prince’s “Purple Rain” was shot), she noted that the people who are protesting are largely not the individuals behind the rioting/looting. Further, the areas being burnt down in Minneapolis are mostly in minority and impoverished areas, which does not correlate at all with the agenda of the protest.  The other main issue that she noted was a lack of coordinated leadership from the city and municipal leaders to deal with the rioters while allowing for the protesters to be heard. However, my friend Dayna is an incredible leader in her own right, literally trying to be a voice of stability when local leaders have failed to show up. 
It’s not all bad though as more police officers in communities across the U.S, including NYC and Flint, MI, are standing side-by-side with protesters, linking arms, supporting, and respecting their voices.  However, when the U.S. is trying to support democracy in another part of the world (Hong Kong), the aesthetics of riots/looting doesn’t look to good to its enemies, especially the Chinese.  Of course, the key difference here is that you still have the right to a voice and to protest in a democratic country like the United States of Canada; no loud, large-scale dissent is tolerated in communist China (or else you are silenced or disappear!). 
Normal Grain Markets Amidst the Chaos?
With so much volatility in the markets – be it COVID-19-related lockdowns and economic impact, said protests, or trade war deals – it’s mind-numbing how many different factors are pushing the markets right now. So, what does this mean for grain prices? Well, at first look, not a lot as it doesn’t really impact supply and demand. However, moving up to the macro level, U.S. customs data shows that China bought just $3.35 Billion of American agricultural products in 1Q2020.  While this differs from Chinese customs data that shows $5.1 Billion in imports from the United States, the U.S. customs number is the lowest amount on record since 2007. It’s also less than one-tenth of the $36.5 Billion of U.S. ag products that the Chinese agreed to buy in the Phase One trade deal signed back in January.
The counterpoint here is that, with commodity prices so cheap, a lot can be bought and not get close to that number. Further, the fall in Brazil’s currency has made purchasing already-cheap commodities even cheaper if buying from Brazil. What’s more, Bloomberg is reporting that “Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods, including soybeans, as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong.” 
While this sort of weaker trade news is inherently bearish, some hot, rainy weather is expected to hit parts of the Midwest this week, which will likely lead to some flooding. However, for most areas, the warmer weather will help jumpstart the crop, but in the Southern Plains, it could be the final dagger for a winter wheat crop that’s dealt with an early spring, subsequent frosts, and limited moisture since the crop emerged from winter dormancy. 
Wheat Prices Poised for Big June?
On that note, and as mentioned in last Friday’s Breakfast Brief, while soybean and corn prices are largely reflecting expectations for a big crop and weaker demand fundamentals, wheat prices are dealing with stronger demand but many supply questions. As mentioned, wheat prices found some healthy gains last week, which helped ease the poor showing for the month of May.
Wheat prices were helped last week by the bullish forecast of hot, dry weather for major winter wheat areas in the U.S. Northern Plains, but also some short-covering. That said, managed money’s net-short position in Chicago SRW wheat futures fell by nearly 60% last week to 8,475 lots, while the net-short position in KC HRW wheat futures of nearly 25,700 contracts is largest since the middle of November 2019!
Conversely, in the Minneapolis wheat market, the discrepancy between managed money getting more bearish and commercial traders getting more increasingly long, Minneapolis HRS wheat prices have potentially the best setting for a rally if there are production problems.  As I mentioned last week in my Wheat Market Insider column for the Alberta Wheat Commission, it’s important to be diligent in watching new crop wheat prices, as we’re entering a period in the calendar where they peak, and then fall back significantly
Rounding the grain markets out, hedge fund managers are getting more bearish in corn and soybeans, showing a net-short position of just over 245,000 contracts in corn (up about 34,000 week-over-week) and a net-long of just over 12,000 contracts in soybeans (albeit that’s a drop of nearly 20,000 longs positions in one week).
These positions are also reflective of the large global crop that’s anticipated. For example, we still know that the world wheat harvest could be quite large this year, with the International Grains Council raising its estimate to 766 MMT, slightly above the previous record, set last year at 762 MMT.  This, combined with a record global corn crop of 1.17 Billion MT, and the worldwide soybean harvest up 8% year-over-year to 363 MMT, means global grain production of all types should reach a new record of 2.23 billion MT.
Available Wheat Exports in Question
Other than the U.S. Southern Plains, where crop forecasts are being downgraded are largely in Europe and the Black Sea. In the latter, while some recent rains have helped a few areas, IKAR recently cut its estimate of the Russian wheat crop to 76 MMT. Compare this to the 77 MMT that the USDA estimated in the May WASDE or the 73 MMT forecast from the Russian Grain Union. Despite the downgrades, SovEcon still believes that Russia’s wheat exports in 2020/21 will still be quite high, calling for 36.8 MMT, where as the USDA is at 35 MMT (2019/20’s final tally is expected to be around 33.5 MMT).
A similarly smaller wheat harvest is expected in the Ukraine, as weaker soil moisture reserves continues to limit yield potential. As Ukraine’s production of winter crops is estimated to fall to 26.3 MMT from the record 31.9 MMT haul last year, winter wheat production should fall by 16% year-over-year to 23.3 MMT, according to government estimates. Grain markets analyst APK-Inform believes total wheat production (both winter and spring) will come in somewhere around 24 – 25 MMT, down a healthy amount from last year’s 28.3 MMT total wheat harvest.
Due to the fears of smaller crops, wheat prices in Ukraine have been increase, thus creating more rumours of export limitations. Since the Ukraine is a major wheat exporter, a reduction in their exportable volumes would increase demand from other major wheat exporters, thus supporting higher prices from those regions (which will likely be a pick of the U.S., Canada, Australia, or Europe).
That said, in E.U., the European Commission lowered its estimated of the bloc’s 2020 soft wheat harvest by 4.3 MMT to 121.5 MMT, which, if realized, would be a 7% decline from the 2019 haul of 130.8 MMT. And since EU wheat exports are tracking two-thirds higher than this time a year ago, a smaller incoming wheat crop already could tighten inventories there even further. In fact, the USDA’s May WASDE estimated that wheat stocks amongst the world’s top 8 wheat exporters would be slightly higher than last year, which was a six-year low. 
Ultimately, today we flip the U.S. wheat crop year to 2020/21, which means the start to a new wheat exports campaign. However, there’s still one week left to report in the 2019/20 crop year, but total U.S. wheat exports have slowed in recent weeks to mirror the final shipment volumes of the 2018/19 crop year. More specifically, through Week 51, U.S. wheat exports are tracking just 1% above 2018/19, totalling 23.72 MMT (or 871.6M bushels if converting metric tonnes into bushels).
On the flipside, Canadian 2019/20 wheat exports (non-durum) have improved in recent weeks, tracking just 8% behind the same week in the 2018/19 crop year, with 13.6 MMT now sailed. The recent strength of the Canadian Loonie could put a headwind on this trend of stronger Canadian wheat exports of late, but, given all the different factors influencing markets these days, a lot can happen in the next 9 weeks. This why I shared in a video posted Friday afternoon on Twitter that, at this time of year, it’s important to stay on top of any targets you have in mind and be sharing these with your current buyers. 
Of course, the easiest way to do this is by Listing your new or old crop just once on Combyne so that all your buyers automatically get notified of your pricing indications. Of you could call around to them one-by-one. The Combyne way is faster though and, in keeping with our mission of making cash grain trade easier, it is completely free to use.
@Combyne or @FarmLead on Twitter
At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3726 CAD, $1 CAD = $0.7286 USD)
July Corn: -6¢ (-1.85%) at $3.198 USD or $4.389 CAD
July Soybeans: -5.5¢ (-0.65%) at $8.353 USD or $11.465 CAD
July Soybean Meal (per short ton): -60¢ (-0.2%) to $282.60 USD or $387.89 CAD
July Soybean Oil (cents per lbs): -0.22¢ (-0.8%) to 27.16¢ USD or 37.28¢ CAD
July Oats: -0.3¢ (-0.8%) at $3.24 USD or $4.447 CAD
July Wheat (Chicago): -7¢ (-1.35%) to $5.138 USD or $7.052 CAD
July Wheat (Kansas City): -10¢ (-2.15%) at $4.605 USD or $6.321 CAD
July Wheat (Minneapolis): -7.3¢ (-1.4%) to $5.178 USD or $7.107 CAD
July Canola: +3.2¢ (+0.3%) to $10.489/bu / $462.50/MT CAD or $7.642/bu / $336.95/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.