Batter up — This week in the grain markets

Grain markets this week generally trended lower as rains in the Southern Hemisphere and harvest progress in North America hung over prices. Bulls continue to take a bat at headlines but rallies continue to face resistance from the size of global grain supplies.

Oats and canola were the only winners for the week, with the former up 0.65% and the later edging 0.5% higher from last Friday. Canola rose mainly because soybean oil finished 1.15% higher and the Canadian Dollar lost 1.15% in the past week to close at 79.25 cents USD. That’s the Loonie’s lowest close in nearly 2 months.

Kansas City hard red winter wheat futures were the biggest loser this week, losing 3.1%. Corn was the second-worst performer, down 2.4% as the December 2017 futures contract can seem to break $3.50 USD/bushel on the Chicago Board of Trade. Soybeans lost 1.15 since last Friday while Chicago soft red winter wheat was 2.2% lower. Hard red spring wheat traded in Minneapolis was slightly lower this week, down 0.6%.

Generally speaking, wheat prices continue to trade sideways as the unknowns of Australia and Argentina are being outpaced by surprising harvests in the northern hemisphere. The Russian wheat crop was recently upgraded again by IKAR, this time to 83.7 million tonnes. Comparably, the USDA’s current forecast sits at 82 million tonnes.

Australia is finally getting some rains, which the market is interpreting as bearish. The weather should help the summer crop, but it is slowing the pace of the winter crop harvest. The National Australia Bank still thinks that there will only be 18.7 million tonnes of wheat produced in the Land Down Undaa in 2017/18. This figure would be a 10-year low and just half of the monster crop produced last year. The USDA’s attaché there just dropped its forecast to 20 million tonnes.

In Argentina, Lanworth raised its forecast for the 2017/18 wheat harvest to 16.8 million tonnes. Lanworth’s number is still below some other forecasts, but given the rains there, we have a lot of unknowns when it comes to Argentinian wheat production (and quality) at this point. New estimates out from the USDA’s attaché office in Buenos Aires suggest that anywhere from 12-25 million acres of cropland are flooded or severely damaged due to extensive rains.

In Brazil, the latest estimates put 22% of the Brazilian soybeans crop as planted. That is in line with the five-year average. However, it lags behind last year’s pace of 28%. Regionally, central and northern states are slightly behind average pace whereas southern areas are ahead of normal planting progress. Rains are in the forecast for final weeks of October. The wet weather should help alleviate dryness concerns of farmers looking to seed their fields. The market will be watching closely though to see if those rains materialize or not. If they don’t, we should expect more weather premium to build into soybean prices.

Informa came out with some acreage estimates this week for the 2018/19 crop year. For corn, the firm thinks that there will be 90.5 million acres planted in the U.S. That would be about 1.4 million tonnes lower than what the USDA is saying the 2017 crop will end up at. Informa took those 1.4 million corn acres and flipped them into soybeans. They think that there will be 90.3 million acres of soybeans seeded across America in 2018. That’s 1.3 million acres higher than the 2016/17 crop, as per the USDA’s estimate.

Demand for Canadian pulses continues to be slow. This is namely thanks to slower sales to India. The Indian government is considering putting an import tax on yellow peas to prop up domestic demand. Prices in the second-most populated country in the world are dramatically lower, thanks to record production last year and likely the second-largest crop ever this year.

Further, Black Sea competition is getting pretty serious. Peas from the likes of Ukraine and Russia are being sold and delivered to India as much as CAD $50 per metric tonne cheaper than Canadian product can get there. And that doesn’t include the new cost of fumigating at the point of origin, since India hasn’t extended the fumigation exemption for Canadian pulses.

Every analyst and their mother expects Canadian inventories of pulses to grow. This trend is not bullish for pulse prices. We started advocating for yellow pea sales back in September. There still is some action happening on those, as well as all colours of lentils.

Overall, the market continues to monitor harvest activity in North America and weather maps in South America. For the latter, La Nina continues to be on the mind of many as multiple agencies put the likelihood that we see an event at roughly 60%.

The National Weather Service recently called for above-average temperatures across most of the U.S. through January. Coupled with the recent rains, conditions are looking pretty decent heading into the 2018/19 crop year in most of America (more on this later). Of course, we’re hoping for a lot of moisture in the U.S. Northern Plains and southern regions of Western Canada. Without it, the market might get a little more bullish on crop prospects in 2018/19.

This time a year ago, cash grain prices started to tick up as the market got a little spooked with planting concerns in South America. It’s the same sort of weather premium that gets built into the market in May and June when we’re seeding our fields here in Canada. Canola is starting to gain some strength, pushing back above $500 CAD/metric tonne on the Winnipeg ICE futures board. For reference purposes, last year, it peaked around $530 near the end of November.

FocusEconomics tracks analysts’ global expectations for primary agricultural commodities. Analysts have shown an increase in bullish sentiment for corn. For futures values, the fourth quarter of 2018 corn prices are pegged at an average of $4.25 USD/bushel, according to their insight. Currently, the December 2018 corn contract sits around $3.93 per bushel. This means analysts anticipate corn prices to increase by a little more than 8%.

For soybeans prices, average forecasts come in at $10.00 for late 2018 contracts. This is in line with the current value for November 2018 soybeans futures contracts. For Chicago soft red winter wheat, the average analysts’ estimate is for $4.80 per bushel. That’s about 35 cents/bushel lower than the current value of the SRW December 2018 contract at CBOT.

Many, including yours truly, wish that these prices were available for movement tomorrow. They’re not. But deferred delivery of 2017/18 and even new crop 2018/19 pricing is attractive and should be considered. It may be worthwhile to manage some risk and take a swing at some of these prices.

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