Grain markets this week were almost all higher! (Man, it feels good to say that.)
With some production concerns in South America and short-covering in the futures market, we see markets head higher. For the week on the front-month contracts, soymeal was the big winner on the futures board, gaining 4.35%. This was mainly due to soybean production concerns in Argentina, the largest exporter of the feedstuff. Oats was next in line, gaining 3.4% since last Friday’s close. Corn and canola also impressed, both improving 1.8% week-over-week, while soybeans weren’t far behind, up 1.5%.
The wheat complex this week traded sideways after Friday’s bearish January World Agricultural Supply and Demand Estimates (WASDE) report. Soft red winter wheat traded in Chicago with a jump of 0.65% while Kansas-City’s hard red winter wheat rebounded about 0.3% (or about cent!). Conversely, hard red spring prices fell nearly a nickel, down 0.7% for the week.
Durum acres were also estimated at 2.4 million, up 5% year-over-year. The reason for the increase was a recent survey of almost 1,000 U.S. farmers suggesting they will plant 7% more spring wheat acres in 2018, compared to last year. This would mean 11.8 million acres this spring.
The USDA’s winter wheat acres of 32.6 million surprised many last week. Corn and soybean acres were seen equal at 90.1 million acres. As a reminder, we have more than two months before the USDA puts out its Planting Intentions, on March 30th.
Between then and now, most of the markets’ eyes are on South America, and, more specifically, Argentina. No “good” rains are in the forecast for Argentina until next weekend. In the meantime, spotty showssr are expected. Looking further, the below-average precipitation trend is expected to continue into early February.
In Brazil, temperatures above 90 degrees Fahrenheit will be spreading across the country through the weekend. The soybean harvest in Brazil has started, albeit a little slower than the usual pace at this time of year. Rains have been the major factor to blame, but we’re not worried today, as it’s still early. The implications will likely be most felt in safrinha /second-corn crop production though. A delayed soybean planting campaign in Brazil intuitively means a slightly later harvest. This means second-crop Brazilian corn seeding schedule that’s potentially outside the ideal planting window.
Thanks to the weather and delayed planting in both countries, production concerns are climbing. Private analyst Bolsa recently dropped its Argentina 2017/18 corn production estimate to 39 million tonnes. Comparably, the USDA didn’t change its estimate of the 2017/19 Argentine corn crop last Friday in January’s WASDE, keeping output at 42 million tonnes. The market was expecting something closer to 41.5 million tonnes.
On the soybean front, most private estimates of the 2017/18 Argentine crop are now sitting between 52 and 53 million tonnes. The USDA did drop their forecast by 1 million tonnes in the January WASDE to 56 million tonnes, but that’s still bigger than the private world. Conversely, next door in Brazil, the soybean crop looks bigger than once thought, but farmers haven’t forward contracted as much of it as usual. Specifically, in the Mato Grosso state, farmers are about 50% sold their new crop beans, down about 8 points from where their sales were a year ago.
Coming back to North America, NOPA’s crush report for December showed a little less than 165.4 million bushels of soybeans. That’s about 1 million bushels more than what the market was expecting and 3.3% better than December 2016’s soybean crush volumes. So far in 2017/18, U.S. soybean crush has totalled 631 million bushels.
This crush pace — a little more than 2% above 2016/17’s pace at this time a year ago — is in line with the USDA’s expectations of 1.95 billion bushels. Comparably, in Canada, 4.26 million tonnes of canola and 870,000 tonnes of soybeans have been crushed so far in 2017/18. Those numbers are tracking 1.6% and 6.3% behind 2016/17’s pace at this time. That being said, Canadian crush capacity utilization has been at 85% for canola thus far, and just 58% for soybeans.
Canola prices were helped this week by a ruling by the European Union Parliament that the EU will cap crop-based biofuels at consumption levels seen in 2017. Further, it was voted that no more than 7% off all transport fuels will come from crop-based biofuels until 2030. Palm oil is taking the biggest hit out of this, which intuitively opens the door potentially for more Canadian canola exports to the EU.
Getting into politics a bit, it’s been almost a year since U.S. President Donald Trump pulled up stakes, saying the country was not going to be involved in the Trans Pacific Partnership (TPP). Between this, spats with China, and the NAFTA renegotiations, some are wondering if Trump has America’s back on trade? Nowhere is probably most evident than in wheat trade, especially with Japan.
The Land of the Rising Sun is in the process of liberalizing its rice industry, opening the door for more wheat demand. U.S. wheat exports to Japan are flat compared to a year ago, but there is more 2017/18 spring wheat being shipped there, whereas winter wheat exports are lower. Not being part of the TPP could make American wheat sales less competitive in blossoming Japanese wheat market.
Conversely, Canadian spring wheat or Australian wheat would hold a distinct advantage for wheat trade. As we noted in GrainCents this week, just because you sign a free trade deal, you should not expect business to show up! Many talking pundits now see Canadian Prime Minister Justin Trudeau as the biggest obstacle to TPP closing but I’m optimistic that bureaucrats in Ottawa and Tokyo can put egos aside and get something done.