Sideways or boom? — This week in the grain markets

Grain markets this week were fairly muted due to a shortened trading week at the Chicago Board of Trade.

While Americans were crushing turkey and NFL football, Chinese import data was published, showing that they bought over 480,000 tonnes of vegetable oils in October — that’s a 78% increase year-over-year. Palm oil prices popped as they continued to try and recover from the bearish news of India’s import tax on vegetable oils announced earlier this week. Canola, meanwhile, ended the week down 1.7%, as the Canadian Loonie appreciated 0.4% against the U.S. Dollar.

The Canadian oilseed was the worst performer, with soybean oil just behind at 1.05%. Soybeans squeaked out a 0.2% gain, while oats recovered 3.4% for the week. Wheat performed worse, as Chicago soft red winter wheat lost 2%; Kansas hard red winter wheat lost 1.7%; and Minneapolis hard red spring wheat was down 1.8%. Corn managed to gain 3.35%, but, that’s just a few cents per bushel as the market continues to move sideways.

JP Morgan is telling its institutional investors not to have a buy and hold strategy for commodities in 2018, but rather “take advantage of price swings.” They do note though that they are bullish on Kansas hard red winter wheat prices. They also believe corn prices could improve as crop production prospects heading into 2018 are a bit smaller.

Rabobank also thinks corn prices could head higher. In fact, the Dutch bank stated that Chicago corn prices in the 2018/19 marketing year are “likely to spend considerably more time above $4.00 USD / bushel” than the last couple of years. However, at least one grain trader says that right now, the “corn market is as close to death as I’ve seen a market since 1985.”

Can it push lower? Even a bearish November WASDE report couldn’t do i,t so it seems like the logical direction to go is higher.

Considering the short position that managed money is holding in both corn and wheat, we might see a short-covering rally before the end of the year. We’ve seen grain prices on the futures board traded practically sideways for the past few months. Perhaps its time for those bears in the short positions to take their wins (or losses) and cover their positions before Christmas (must pay for presents under the tree somehow).

Then again, my grandfather, a lifelong farmer, used to say, “always expected the expected.” There is still some possibility that the market will go lower, but there are more indicators that prices will improve.

Like corn, soybeans continue to remain rangebound with the front-month contracts testing $10 USD / bushel on the Chicago Board of Trade. Traders are taking profits and running (like you see when store doors open for a Black Friday sale). If soybean prices can push outside their range, then it’s likely corn prices will go with them.

Through mid-November, American corn exports are down about 44% from a year ago, tracking near 2015 pace. U.S. soybean exports to date are at 19.2 million tonnes. That’s 12.5% below what had been shipped out by this time a year ago. However, U.S. port soybean prices are cheaper than Brazilian ports right now, which is keeping buyers fairly interested in “buying American.”

Soybean Freight on Board (FOB) prices out of Brazilian southern ports Paranagua and Santos are sitting at $10.50 and $10.60 USD per bushel, respectively. Comparably, soybean prices out of U.S. ports in the Pacific Northwest and the Gulf of Mexico are at $9.25 and $10.40 USD per bushel, respectively. Last week the U.S. shipped out 2.11 million tonnes of soybeans compared to Brazil’s 450,000. However, this is high-season for American exports, where there’s only 10 weeks left in Brazil’s crop marketing year.

To date, a record 65.4 million tonnes of soybeans have been shipped out of Brazil. That’s up 28% year-over-year. The USDA’s full-year target is 65.64 million tonnes.

In Canada, wheat trade is tracking a bit better than last year. In Canada, total wheat exports (including durum) are sitting at 6.78 million tonnes. That’s technically up only 2.5% year-over-year. However, if you just look at wheat exports not including durum, the 5.7 million tonnes shipped out thus far are tracking about 9% above last year. Digging deeper, only 1.08 million tonnes of durum wheat have left Canada this year. That’s down 21% year-over-year.

Comparably, thus far this marketing year, the U.S. has shipped out almost 12 million tonnes of wheat. That’s tracking about 7% below last year’s pace.  Comparing things even further, Russia has exported 14.8 million tonnes of wheat so far. That’s 28% higher than last year’s pace.

Let’s consider where port prices are at:

  • Canada (W. Coast) for 12% protein:                  $6.65 CAD or $5.25 USD per bushel
  • USA (Gulf of Mexico) for 12% protein:               $6.05 CAD or $4.78 USD per bushel
  • Russia (Black Sea) for 12.5% protein:                $6.60 CAD or $5.20 USD per bushel
  • Argentina (Rosario) for 12% protein:                   $6.05 CAD or $4.78 USD per bushel
  • France (Rouen) for 11.5% protein:                      $6.65 CAD or $5.25 USD per bushel
  • Australia (W. Coast) for 10.5% protein:               $7.80 CAD or $6.10 USD per bushel
  • Canada (W. Coast) for 13.5% protein:                $9.95 CAD or $7.85 USD per bushel
  • USA (W. Coast) for 14% protein:                         $9.55 CAD or $7.50 USD per bushel

As you can tell, other than Argentina, Canada is competitively priced today. So why isn’t more wheat being exported?

These are FOB prices, meaning they don’t account for freight. For Russia, the Middle Eastern and North African markets are next door. As such, wheat exports are booming.

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