Competitive for acres, exports — This week in the grain markets

Photo ©Deere & Company.

Grain prices this week ended mixed as speculative players took profits off the table amidst growing weather and geopolitical risk.

Delays in U.S. corn plantings and concerns about Chinese trade dominated the headlines. It’s still early, but just 3% of the U.S. corn crop was planted as of Sunday. Conditions this week weren’t great in many areas, including the snowy western Corn Belt. That being said, the five-year average for U.S. corn planted through the 3rd weekend of April is 13%. It was 17% for that week a year ago.

Despite the somewhat bullish view of the U.S. corn plating pace, corn prices dropped by nearly a dime this week, down 2.3% on the July 2018 to $3.855 USD / bushel, while the new crop December 2018 contract lost 2%, closing at $4.025.

The question is whether we’ll see a weather premium start to build in the markets over the next few weeks. Today isn’t a time to worry about the crop. But we’re three weeks away from really having to look at the progress in the fields to determine what sort of foundation we could have for a big (or maybe small) U.S. corn crop.

Soybean planting progress will be published next week, but going into the report, the market continues to be pretty volatile. This week, soybean prices on the Chicago Board of Trade lost 2.4%, or a full quarter, to close at $10.40 USD / bushel on the July 2018 contract. For new crop off the November contract, soybean futures fell 14.5% to $10.35

This week we got the monthly NOPA crush report, which indicated that a whopping 171.86 million bushels were used in March. That’s a new monthly record, in addition to being 12 higher than the February report and more than 12% higher than the figure from the March 2017 report. It’s good to see this sort of volume being used up domestically as the export market is certainly a question mark.

Currently U.S. soybean prices at the port are about $0.30 USD / bushel cheaper than Brazilian port prices. What’s more interesting though is that Argentina is importing soybeans for the first time in about three decades. With the U.S. and Brazil both vying for business from Argentina, we also have to remember that the likes of Paraguay and Chile can offer something up!

So can Canada though!

We’ve seen a lot of speculation around more Canadian canola heading to China as they look to potentially replace U.S. soybeans with another feedstuff. That being said, on Thursday this past week, canola prices jumped nearly $10 CAD / metric tonne on the Winnipeg ICE futures board! The reason for the one-day pop was continued decent domestic demand, the Canadian Loonie dropping back below $0.79 USD, and speculative short-covering.

The latter has been catalyzed by the possibility of a strike by CP railroad workers, as well as concerns over a late start to planting.

Farm groups asking Ottawa to intervene in looming rail strike

Despite Old Man Winter overstaying its welcome, much of the industry expects to see a record canola acreage number in next Friday’s estimate from StatsCan. Last year, Canadian farmers seeded a then-record 23 million acres. The current forecast from Agriculture Canada is for 24 million acres but my estimate is sitting closer to 23.7 million. At that level though, the point is that it’s still a record acreage number and intuitively paints the picture of another record Canadian canola crop.

One of the crops that, like canola, could see less-than-expected acreage is spring wheat. The markets are curious whether or not farmers in the U.S. Northern Plains will begin to scrap plans for spring wheat and turn to soybeans in as a way to salvage a potentially shorter growing season and some profits. That being said, we usually see about 23% of the U.S. spring wheat crop planted. Last Monday, the USDA told us that just 3% had been planted. Considering the wintery weather seen this week in major spring wheat-producing areas, it’s a safe bet that the five-year average won’t be met.

Despite some of this bearishness, again some profit-taking occurred later in the week and spring wheat prices drop 7.5¢ this week to $6.193 USD / bushel on the Minneapolis. For new crop December 2018, the contract lost about 1.1% or 7¢ to close at $6.33.

Kansas HRW wheat prices were very volatile this week but ended up closing more than a dime lower. Specifically, KC winter wheat prices lost $0.13 USD / bushel on the July 2018 contract to close at $5.02 and was down by a similar amount on the December 2018 contract to close just under $5.47. For Chicago SRW wheat prices, the July 2018 contract lost 2.5% or $0.12 to close at $4.773 while the December 2018 contract closed at $5.20 USD / bushel, down $0.113 or 2.1%.

We saw these winter wheat prices drop as moisture moved across the U.S. Southern Plains, providing a much-needed drink for the crop. That being said, it was also the 12th straight week that drought conditions contracted across the country. The big kicker for winter wheat prices was the announcement that Russian wheat exports are now tracking 40% ahead of last year’s pace with 31.8 million tonnes of wheat now shipped out of country.

For the year, the USDA is expecting Russia’s exports for wheat will hit 38.5 MMT. That’s a big number… until you see the bigger number out of IKAR that was released this week, The Russian agency projects that Russia will export 39.5 MMT. Let’s put a number that size into perspective. If Russia is going to hit this record export figure, they will need to export roughly 855,000 tonnes per week through the last two months of the 2017/18 season. Don’t count them out. Improving conditions in the Black Sea region, proximity to high-demand markets, and weaker currency conditions will make Russia’s wheat exports very competitive.

 

Brennan Turner

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, he spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available for iOS & Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email ([email protected]) or phone (1-855-332-7653). @FarmLead

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