Grain markets this week traded sideways again, with weather and some decent trade data outweighing harvest pressures. Corn prices lost 1.55% since last Friday whereas soybeans gained 0.5%. Winter wheat markets were lower as Chicago soft red winter wheat lost 1.05% and Kansas City hard red winter wheat lost 1.3%. The Canadian Dollar lost 0.5% this week, which helped canola prices move up by 0.9%. Oats and Minneapolis hard red spring wheat ended this week exactly where they ended last week.

One negative headline out there is that Indian officials didn’t extend the fumigation exemption for Canadian pulse crops. This matter likely adds about $15 CAD/metric tonne in inspection fees, which would make Canadian pulses relatively uncompetitive in the Indian market. It’s worth noting that France and America continue to enjoy an exemption, though theirs will expire at the end of 2017.

The Brazilian government recently said that the country shipped out 4.3 million tonnes of soybeans in September. That’s another monthly export record and slightly above what the private shipping data had indicated. Ag Resource says that there are 2.7 million tonnes of Brazilian soybean scheduled to be shipped out in October. They are speculating, however, that this number could come in above 3 million tonnes, given the trend of final numbers surpassing expectations the last few months.

The wet season in Brazil continues to be slow to appear. 50% of the soybean production areas — the three states of Mato Grosso, Mato Grosso du Sul, and Goias — are expected to be dry through to mid-October. Ag Resource says that first-half-October rainfall totals will likely come in at just 2%. That’s just 30% of October’s usual precipitation. Compounding this is that temperatures are supposed to be high next week (into the 90s Fahrenheit). There are a lot of memories coming back from a year ago when a drought drastically reduced the safrinha/second crop corn crop.

The National Association of Grain Exporters says that 60% of grain/oilseed transportation is handled via road. Railways only account for 30%!  Waterways (i.e. river barge traffic) account for the other 10%. Where things are certainly getting interesting is in the north. Brazilian soybean exports out of northern ports have nearly doubled in the past five years to more than 11 million tonnes. Might this accelerate? What we do know is that there have been some significant investments by the likes of Cargill, ADM, and Bunge in the northern river and port systems.

Today, four main unfinished infrastructure projects in Brazil should help alleviate the bottlenecks that they’re seeing. The big one is the paving the rest of main grain-hauling highway, BR-163. There are just under 60 miles to go, and it should be done before soybeans are coming off in February.The other three projects are railroads, with the most important being the Ferrograo Rail, which will run parallel to the BR-163. Once completed, it’s expected to handle 42 million tonnes of grain movement every year.

It’s worth mentioning that 75% of Brazil’s exported soybeans this year have gone to China. This means that China is more important to Brazil than it is to America. With a record crop getting shipped out at a record pace, the carryout numbers that are currently being estimated may be on the high side. Conversely, despite shipping out a lot of corn, there’s likely to be a record amount of corn left over in Brazil by the end of the 2017/18 crop year. This is keeping farmers more interested in planting more soybeans.  Simply put, China is the reason we think there will be more soybeans planted in Brazil AND the U.S.

They’re also one of the reasons that soy oil would be able to bounce up a little bit. Palm oil production improving in 2017 was one of the main bearish catalysts that we pointed out back in the beginning of the year. However, we’ve moved past and are we poised to see vegetable oils break out from here?

Since canola tracks soy oil and palm oil very closely, it’s important to note that we’re looking eerily like we did a year ago. Soy oil saw its 2016 fall lows seen in mid-September before rallying up above 38 cents per pound by early December. Canola prices were similar, with the market rallying up above $530 CAD/MT on the Winnipeg ICE futures last fall.

Strategie Grains says that rapeseed acreage in Europe will fall in 2018 to 16.4 million acres. This would be a three-year low but still not that far behind 2010 record of 17.3 million acres. The reason for the decline is some challenging conditions to plant into in southeastern Europe and Germany. Specifically, for the latter, rains have made it difficult to plant the fall-seeded rapeseed crop. This story is notable as Germany is the second-largest producer of rapeseed.

The United Nations has joined the cognizant camp of winter wheat seeding being behind schedule in the Northern Hemisphere. U.S. winter wheat planting is behind schedule because of some intermittent rains. Dryness in the Black Sea is causing some concern for the germination of recently seeded crops there. In wheat trade, Russia won another Egypt trade tender, this time for 180,000 metric tonnes. The delivered price for November movement was about $5.80 USD or $7.20 CAD for 12.5% protein wheat.

the U.S. Wheat Associates came out with numbers of their assessment of the U.S. wheat harvest. For hard red spring wheat in America, average protein is 14.6%, up a bit from 2016’s 14.2% average. Falling number is lower though in 2017 at 397 versus 2016’s 413. Test weight is similar year-over-year at 61.2 pounds per bushel this year versus 61.3 pounds per bushel a year ago. Finally, vitreous kernels (measured as HVK in Canada and DHV in America) is sitting at 76% in 2017. A year ago, the average was 79%.

Digging into the Small Grains Report again from Friday, September 29th, we know that there’s certainly less crop coming out American fields this year. Harvested acres are down across the board except for durum. In fact, U.S. durum harvested acres are forecasted to be 17.5% higher than their 5-year average. Regardless, durum wheat production in the U.S. is supposed to fall 28% from that 5-year average and 47% from 2016’s record crop to 1.494 million tonnes. For the U.S. hard red spring wheat crop, production is pegged at little under 10.5 million tonnes, or 1/5th lower than last year’s crop and 26% below the 5-year average.

While the data-points on the Canadian crop still come in, we know the American spring wheat crop quality is certainly like last year’s. What’s clearly the big difference is the size of the crop. Here in Canada, we’re hearing through the pipeline that grain elevators are not paying any premiums out for top grades and quality. This is mainly because there’s a lot of supply still out there and this year’s crop quality in Western Canada was really good, despite it being smaller.

It’s still early in the game and there’s a bit of a “who’s going to blink first”. It does feel like last year though in terms where prices are sitting for a lot of crops. Maybe it’s worthwhile remembering what price expectations you had a year ago, and how they’ve changed over 365 days.

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