Competing bulls and bears — This week in the grain markets


Grain prices were generally trending higher this week before seeing a sell-off on Friday to erase a fair amount of gains. Simply put, bears became more competitive than bulls.

Wheat and corn prices seem eternally rangebound as in the past few weeks they haven’t moved more than a quarter. Corn and soybeans were virtually unchanged since last Friday. Similarly, Kansas City hard red winter wheat moved less than a cent from where it ended last week. Chicago SRW wheat prices ended 0.3% lower while Minneapolis hard red spring wheat prices gained. Oats lost 1.05% but canola was up 0.5%. This despite the Canadian Dollar appreciating 0.5% to back up above 78 cents.

On the canola front, the January 2018 contract nearly touched highs set in July before pulling back like the rest of the complex on Friday. A rising Canadian Loonie also made it difficult for canola prices to squeak out more gains. However, there are several bullish factors that canola traders are eyeing. One is how the U.S. will adapt to decreasing soy oil imports from Indonesia and Argentina.

After placing heavy tariffs on imports, it’s expected U.S. imports will decline and domestic American demand for soy oil will increase to meet biodiesel capacity. However, there’s a debate that too much American soy oil gets exported, and there’ll be a shortfall. More specifically, Scott Irwin from the University of Illinois thinks that some of the 13.8 billion pounds of soy oil used for food, feed, and cosmetics in the U.S. could be diverted to the biodiesel sector.

Enter canola. Canadian canola oil could be used directly by American biodiesel plants, or replace soy oil in food, feed, and/or cosmetic markets. It’s not going to happen immediately, but it’s one bullish factor that we’re keeping our eye on for canola prices.

Another factor affecting canola prices may be Australia’s smaller canola crop. Currently, the USDA is forecasting the highest estimate, with 3 million tonnes of canola production in the Land Down Undaa.

The International Grains Council (IGC)) and Rabobank both dropped their estimates recently to 2.7 and 2.6 million tonnes, respectively. That’s a significant drop from last year’s 4.14 million-tonne canola harvest by Australian farmers. Currently, ABARES (the USDA equivalent in Australia), expects a 2.75-million tonne harvest. This includes 2.04 million tonnes of exports, but that would be a 43% decline in exports year-over-year.

Flipping gears, some new estimates for the U.S. corn and soybean crop came out this week ahead of the next USDA WASDE report expected for Wednesday, November 8th. In October, the USDA forecasted U.S. corn and soybean yields at 171.8 and 49.5 bushels per acre, respectively. INLT FC Stone expects an average corn yield of 173.7 bushels per acre and 49.9 for soybeans. Comparably, Informa Economics is calling for 173.4 bushels of corn per acre and 49.7 for soybean fields.

These numbers can be perceived as neutral-bearish, turning minds to South America. According to AgResource, soybean planting in Brazil should reach 44% by Friday, November 3rd. If realized, that would be a 14-point jump in one week and slightly behind the 5-year average of 47%. Last year, 52% of the soybean crop had been planted though.

There is rain in the forecast, which is incentivizing most farmers to run planters 24/7. About 1-3 inches is expected in the next week, followed by as much as 4-5 inches from November 8 to 15. Again, if realized, total August-November rainfall would be closer to the average.

Switching into corn, INTL FCStone is forecasting Brazil’s 2018 safrinha corn crop at 23.6 million tonnes, about 400,000 MT below their previous forecast. They’re blaming a late soybean planting pace for the numbers.

Brazil did ship out a record 5 million tonnes of corn in October. This would put in on track to hit the USDA’s target of 34 million tonnes of outbound shipments for 2017/18. For soybeans, Brazil shipped out 2.49 million tonnes in October. This would’ve been a record if not for October 2014/15’s number, which was just above 2.5 million tonnes.

This year’s Brazilian export pace is up 25% or more than 12.5 million tonnes than what was shipped out a year ago. This puts total Brazilian soybean exports within a few million tonnes of the USDA’s current total marketing-year forecast of 64 million tonnes. (And there are three months left to go!) There are already 1.5 million tonnes of Brazilian soybean scheduled to sail in November. Might we see the USDA update their number in next week’s November WASDE report?

Another number that could be edited in next week’s WASDE is Russia’s wheat balance sheet. As of last week, Russia had exported 15.8 million tonnes of grain thus far in the 2017/18 marketing season That’s up 27% from a year earlier. After looking at the numbers, 12.3 million tonnes of wheat have been exported. That’s up 21% year-over-year. This just reiterates our sentiments from back in September on the rise of Russian grain production and exports. Russia is likely taking the business in Asian markets since Canada, America, and Australia can’t be as price competitive.

Categories: Grain Markets / Markets

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