Dec 18 – Soybean, Wheat Prices Re-Adjust on Global Headlines

Grain markets are mostly in the red as the complex pulls after 4 straight days of gains, which saw wheat prices jump nearly 4%.

“When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” – Confucius (Chinese philosopher)

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Soybean, Wheat Prices Re-Adjust on Global Headlines

Grain markets are mostly in the red as the complex pulls after 4 straight days of gains, which saw wheat prices jump nearly 4%.

Before digging into some of the other headlines moving soybean and wheat prices, I wanted to note that Canadian pea and lentil exports continue to perform strongly. Through Week 18, Canadian pea exports are tracking about 50% better than this time a year ago with 1.11 MMT sailed so far. Comparably, lentil exports from the Great White North have been a bit sporadic but, with nearly 273,000 MT sailed so far, this is almost 2.5x what had been shipped out by this time a year ago.

Canada 2019/20 pea exports through Week 18 are up 50% year-over-year

Canadian 2019/20 lentil exports through Week 18 are more than 2.5 times higher than what they were a year ago

Pea prices in the U.S. are sitting at 20-year lows, below the cost of production for most growers according to Tim McGreevy, the CEO of the USA Dry Pea & Lentil Council. [1] With a 50% import tariff from India and China sitting on a 35% tariff, U.S. peas have lost about 300,000 MT of demand from their two largest buyers. While Canadian pea exports aren’t subject to exactly the same tariffs from China, more peas are certainly leaving Canadian ports. This is one of the reasons why Canadian pea stocks-to-use ratio is closer to about 13%, whereas it’s moving up towards 50% in the United States.

Soybean Prices Climb but Do Have Headwinds

Monday’s NOPA crush report showed that only 164.91M bushels of soybeans were used by its members in November (or 4.488 MMT if converting bushels into metric tonnes). This was well below the 172M bushels that the market was expecting to see, and about 6%, or 10.5M bushels below the record amount realized in October. Further, it was about 2M bushels below the volume crushed in November 2018. That said, the markets largely ignored the smaller number, instead focusing on the trade war deal (as mentioned in Monday’s FarmLead Breakfast Brief) and trading off its implications instead.

Capital Economics’ Caroline Bain says that, despite the trade war Phase One deal being principally agreed to last week, soybean prices will drop in 2020 to average of $8.50 USD/bushel. [2] The chief commodities economist for the firm says the reason behind her bearish forecast is that Chinese demand for U.S. soybeans won’t built back up overnight to pre-trade war levels. We all know that the African Swine Fever continues its spread, and that already more than half of China’s pig population was culled in 2019, but it’s been suggested that they might be turning the corner of re-building the herd. As Genesus Genetics notes though, China has “a huge shortfall of breeding pigs”, many that a quick rebuild is very unlikely and that it’ll likely take many years. [3]

That said, any headlines about Chinese purchases of U.S. soybeans will likely help catalyze speculators adding to their long positions in soybeans. However, with technical resistance levels at basically every 20¢, rallying soybean prices will certainly see some pushback. [4] If U.S. soybean export sales don’t meet pre-report expectations tomorrow, then we’ll likely see some negative reaction to soybean prices. Thinking bigger picture though, U.S. soybean prices will be watching pork production numbers closely, something I mentioned back in October.

The other major factor influencing soybean prices is South American production. Seeding for the Plant 2019 campaign in Brazil is virtually complete, and while the forecast for rain seems to be adequate, there is some disease issues roaring up, notably Asian Rust. [5] That said, Brazilian and Chinese officials are currently finalizing health standards for more Brazilian soymeal to be exported to the People’s Republic. [6] Brazil is expecting to produce more soymeal as more soybeans are crushed to meet the 15% mandatory requirement of biofuel that will be blended into diesel by 2023.

Wheat Prices Jump on International Trade

Global wheat prices have found some solid gains in recent days thanks to a flurry of headlines and traders exiting short positions once both the USMCA and Phase One trade deals were agreed to. [7] As a bit of a follow-up to last Tuesday’s December WASDE, which saw wheat production in the southern hemisphere fall, there is a bit more international opportunity up or grabs because of weaker wheat exports from Australia and Argentina. That said, total U.S. wheat exports continue to cruise, up 21% year-over-year with nearly 13 MMT sailed through Week 27. In last week’s WASDE report, the USDA did raise total U.S. wheat exports by 25M bushels to 975M bushels (or 26.54 MMT), which would only be about a 4% jump year-over-year.

U.S. 2019/20 total wheat exports through Week 27 are up 21% YoY

Wheat prices in Russia have climbed a bit thanks to some slower farmer selling and decent demand from Middle Eastern buyers. That said, Russia is looking to invest about a half billion dollars over the next 4 years to build a grain hub in a Syrian port over to help expand its Middle Eastern wheat exports business. [8]

Staying international, concerns of the start of the EU 2020 winter wheat crop is helping push up wheat prices on the other side of the Pacific. Heavy rains in western Europe has delayed sowings everywhere from the United Kingdom to France to Germany. We know British wheat millers have been buying more German 2019 wheat, “taking extra supply cover in case the delayed British crop reduces the quality of the harvest,” said one trader. [9] One speculator has been quoted that saying wheat prices could rally 40% this coming winter thanks to harsh winter weather around the world. [10] Since I don’t look at grain markets through a doomsday, I’m slightly less bullish. However, I do think wheat prices will see some seasonal gains through the end of January, albeit in the neighbourhood of 5-10% gains, not 40%.

As I mentioned in my weekly wheat market insider column for the Alberta Wheat Commission, low-protein / CPS wheat prices are following winter wheat prices on the futures board higher. More specifically, with CPS wheat prices now sitting at crop year highs across the Canadian Prairies,  this is an opportunity to make a cash sale before Christmas. If you’re doubting the move, look at the chart of average CPS wheat prices below and look at how the cash market for lower protein traded sideways this time a year ago. With CPS wheat prices providing a better return than HRS wheat prices in many areas, it’s likely that CPS will be seeded on more acres for Plant 2020, so maybe consider a 2020/21 sale as well before those premiums erode!

Average cash CPS wheat prices in Western Canada are at crop-year highs through December 13, 2019

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3149 CAD, $1 CAD = $0.7543 USD)

Mar Corn: -1¢ (-0.25%) to $3.89 USD or $5.115 CAD
Mar Soybeans: -1.3¢ (-0.15%) to $9.395 USD or $12.354 CAD
Mar Soybean Meal (per short ton): -$1.10 (-0.35%) to $305.30 USD or $401.45 CAD
Mar Soybean Oil (cents per lbs): -0.26¢ (-0.75%) to 33.84¢ USD or 44.50¢ CAD  
Mar Oats: -2.8¢ (-0.9%) to $3.038 USD or $3.994 CAD
Mar Wheat (Chicago): -6.3¢ (-1.1%) to $5.50 USD or $7.232 CAD
Mar Wheat (Kansas City): -4.3¢ (-0.9%) at $4.628 USD or $6.085 CAD 
Mar Wheat (Minneapolis): -1.5¢ (-0.3%) to $5.373 USD or $7.064 CAD
Mar Canola: -2.5¢ (-0.25%) to $10.75/bu / $474/MT CAD or $8.175/bu / $360.48/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.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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