Grain markets ended Friday in the green. However, for the week, prices were mostly in the red as some benign weather kept the bears in charge. Most eyes are on South America but planting is back up to the normal average now.
Corn ended practically where it started, dropping only 0.07%. Oats lost nearly 6% on the futures board while soyoil was down 1%. This contrasted canola gained 1.5% on the Winnipeg ICE futures market as the Canadian Loonie lost 0.7% for the week. Soybeans gained 0.5% but Chicago soft red winter wheat dropped 0.95%.
Minneapolis’ spring wheat saw the March contract drop 1.4% to close the week at $6.50 USD / bushel. Other than oats, Kansas City hard red winter wheat was the biggest loser with the March contract dropping 2.3%.
Cash wheat prices in both Canada and the U.S. have improved, however, as markets pull off the harvest lows. In the Great White North, basis has improved compared to where it was a month ago, mainly thanks to a weaker Loonie. In the U.S., the stronger basis is making the front month futures contract and those at later dates start to converge. Translation: farmers who have not be able to capture the premiums for deferred delivery are losing their window of opportunity.
New crop (or 2018/19 crop) has seen some decent prices. Informa came out this week with its estimate for 2018/19 American winter wheat acreage, as the seeding campaign is practically complete. Informa is estimating 31.92 million acres of winter wheat was seeded this fall. Their total U.S. wheat acreage estimate is 45.63 million acres, which suggests higher spring wheat acres compared to 2017. Informa is also expecting U.S. farmers to plant 91.42 million acres of corn and 89.63 million acres of soybeans next spring. Their previous estimate was 90.46 million acres of corn and 90.35 million acres of beans.
In Europe, Strategie Grains lowered its estimate for the EU soft wheat production by 300,000 to 142.5 million tonnes. However, this is still a 5% jump from last year’s production number. With the higher production and similar demand comes lower prices. In the United Kingdom, wheat sales are about 25% behind where they were a year ago. In fact, European soft wheat exports of just 7.63 million tonnes thus far this marketing season is also 25% lower year-over-year.
Digging deeper, there is some pretty strong export competition in Europe right now and the Black Sea is winning (like we didn’t know that eh!). FranceAgriMer is estimating that 9.9 million tonnes of French soft wheat will be exported to non-US wheat countries. This means ending stocks in the country will sit closer to 3.3 million tonnes.
The bloc has imported about 1.4 tonnes of rapeseed thus far this marketing year, with 1.1 million tonnes coming from Ukraine. It’s estimated that there’s still another 3 million tonnes to be imported. Canada is an obvious contender.
Where we are no longer a contender, it seems, is in the Indian pulse markets. The buzz is that India is not going to move from its import taxes on peas and may look to other pulses as well. This aligns with India’s goal of becoming domestically self-sufficient in pulses by 2022.
In more upbeat news, flax prices in Western Canada are on the move lately with trades happening from $12.50 CAD per bushel. It’s great to be off the harvest lows, but the question mark is China.
Russia and Kazakhstan have had some logistical challenges getting flax into China lately. This has led the Chinese government to explore how its new “Silk Road” initiative could connect the nation to exporters along the Black Sea. Though the $1.2 trillion infrastructure project is a few years away from really getting started and more than a decade away from getting finished, you must start thinking about the competitive challenges for Canadian flax producers.
According to the Canadian Grain Commission, as of last week over 82,000 metric tonnes of flax have been exported from Canadian ports this year. That’s up nearly 19% compared to the pace set last year. Producer deliveries thus far have been almost 124,000 metric tonnes, or nearly 45% higher year-over-year. As a reminder, Statistics Canada expects Canadian farmers to harvest over 500,000 tonnes of flax (that’s down 14% year-over-year and 30% lower than the five-year average).
According to Statistics Canada, there were 191,000 tonnes of flax still available in Canada at the end of July. This is 42% higher than the five-year average but 31% lower year-over-year. Should we expect to see $13 CAD/bushel like we did last year? I think we could get there but it might a few months before Chinese purchasing gets stronger. Keep in mind that stronger Chinese purchases happening is not a for sure thing. The market has moved up a good amount in the past few months and selling a block of 10% or 20% at these levels isn’t a wrong idea.
Overall, weather premium in South America is likely to be the best catalyst for any major spikes in grain prices in the short-term. Brazil looks like it will be getting much-needed rain in the next two weeks. Rain will start falling again in Argentina but only in the northern parts of Cordoba and Santa Fe. The area does account for about 15-20% of the Argentine corn/soybean belt.
Speaking more broadly, those who are looking for a La Nina weather system to make a substantial impact on crop production this year may be disappointed. The NOAA says that La Nina is underway and will likely last through the winter, but that’s about it. However, it will happen during South America’s main growing season.
The Weather Network gave perhaps one of the best analogies of what to expect if a La Nina event truly develops:
When a star player is the starting pitcher, quarterback or goalie for your favorite team, the potential for a particular outcome (a win) is much higher when that player participates versus when they are sitting on the bench. However, no two games are alike, and having a star player on your team does not guarantee the same outcome every time. There are many other factors (players) that determine the final outcome.
Although the quote above suggests that one should not expect the usual weather patterns, a typical La Nina event in North America calls for some below-average temperatures in the Northern Plains. This matches up with Western Canada, which tends to get cold temperatures but average snowfall.
Higher-than-usual precipitation tends to hit the northern states but does reach down into parts of the Corn Belt. Southern states should expect some above-average temperatures with some below-average precipitation (another way of saying: it’ll be a bit drier). Eastern Canada often sees some milder temperatures but wetter conditions.
As mentioned above, South American weather is driving grain markets. Hopefully snow falls in the areas that need it most – namely southern regions of Western Canada and the Northern Plains. Without some wet weather in those areas over the next couple months, the spring 2018 weather might be the most significant variable affecting grain prices.