This week, grain markets say “meh” to plant '18


So, how about that late start to the #plant18 campaign? Recent crop reports suggest it doesn’t really exist. In the U.S., planting caught up to the long-term averages in corn and soybeans, but American spring and durum wheat seeding campaigns are certainly running behind schedule, which has helped prices a bit.

According to the latest Saskatchewan Agriculture crop progress report, roughly 35% of all fields have been seeded as of Monday, May 14. This is slightly ahead of the five-year average of 32% complete and a good distance from the 30% seeded by this time a year ago. This despite, the province experiencing one of the driest seeding campaigns in the last 70 years!

Moisture continues to be a concern in a few places in Western Canada. This is especially true for Manitoba, as per the most recent crop report. In Alberta, the Wild Rose province has experienced the warmest first half of May in more than 55 years. That being said, nearly 38% of Alberta fields have now being seeded, but that’s well behind the five-year average of 60%.

NOPA’s crush report showed us that a little more than 161 million bushels of U.S. soybeans were crushed in April 2018. This the largest amount ever used in the month of April and is 16% higher year-over-year. The bearish part of the report (and that has the largest impact on canola prices) is that soy oil stocks increases to more than 2.09 billion pounds. That’s the largest amount of reserves in the past five years and puts a bearish weight on canola prices because of substitution effects.

This in mind, soybean prices dropped about 1% this week, or down about a dime to below US$10/bushel on the front-month contracts. Limited progress on trade talks between the U.S. and China was the main reason for the decline, but the speed of #plant18 also played a role.

Cargill has publicly said that they don’t agree with the tactics that the U.S. is employing in their negotiations with China. “History has shown that the use of tariffs is unsuccessful in achieving lasting solutions – the current challenges between the United States and China are no different,” wrote Devry Boughner Vorwerk, Cargill’s vice president of global corporate affairs.

FocusEconomics says that, while the uncertainty around trade between the U.S. and China is up in the air, soybean prices look attractive in the long term. In 2018’s fourth quarter, their average guesstimate for soybean prices is US$10.38/bu on the Chicago futures board. For late 2019/2020 soybean prices, they see an average forecast of $10.95.

On the acreage front, Informa increased its estimate of U.S. soybean acres by 400,000 to 89.4 million acres. They also raised U.S. corn area to 89 million acres, putting them 1 million above the USDA’s forecast of 88 million acres.

On the other side of the world, China will likely grow less rice and corn this year. The country’s farmers will instead plant more soybeans in order to help reduce the gap in the country’s potential crop deficit. Local agricultural agencies have pegged soybean acres in the People’s Republic at 21 million acres for 2018/19. That would be an increase of 1.65 million acres from the previous number.

The Buenos Aires Grain Exchange (BAGE) reported that 71% of the soybean crop in Argentina has been harvested. That’s a four-point jump from the previous week. The BAGE’s estimate of the Argentine soybean crop is now sitting at 36 MMT, or three million below the USDA’s current estimate.

In Brazil, Mato Grosso’s soybean acreage is expected to climb yet again to 23.7 million acres in 2018/19. Soybean area in the largest soybean-producing state in Brazil is now up 13.5% in 5 years! It’s hard not to think about expanding your acres if you’re a Brazilian farmer when your local soybean prices in Reals (their currency) are at record levels. This is thanks to the Real being down more than 20% against the U.S. Dollar so far this year!

However, the expansion is slowing as costs of land are making things a bit more difficult. Instead of buying more land, more farmers are looking at the option of irrigation to improve their yields. Further, having artificial rain clouds on their farms might increase the possibility of growing three crops a year, instead of the two that they’re currently able to manage.

Staying in Brazil, there’s some moisture being seen in a few places through the weekend that will provide some temporary relief, but then it’s expected that dry conditions will return after that. AgResource offices in South America are positing that both the USDA and CONAB and overstating Brazilian corn production by 7-10 million tonnes. This would suggest a crop closer to about 80 million tonnes, and expectations are that we’ll see those reductions in June and/or July WASDE reports.

For corn prices, FocusEconomics thinks that strong ethanol use and exports will support better values in the future. The average price forecasted in late 2018 is US$4.24/bu. A year later, in late 2019, the average value forecasted for corn prices is $4.39. For perspective, December 2018 corn prices in Chicago closed this week down 1.5¢ to US$4.13. December 2019 corn prices ended the week at $4.18.

Spring wheat prices had a strong week though, thanks to delayed planting and some stronger export values. Old crop contracts gained nearly a quarter to close near US$6.30/bu in Minneapolis. The new crop December contract locked in a 3% gain for the week, up 18¢ to finish the week up near $6.42, while the March 2019 contract closed at $6.50.

For wheat prices in general though, the grain market has struggled to find any fresh bullish news to help push things higher. What’s clear, though, is that the quality and size of the U.S. winter wheat crop is less than what it was last year. This in mind, the average forecast from FocusEconomics for winter wheat futures values in Chicago is for US$5.08/bu for Chicago soft red winter wheat prices in 2018’s fourth quarter and $5.60 for the same period in 2019.

APK Inform says that Russia has doubled its grain exports over the past five years and will hit nearly 56 MMT in 2018/19. This is about 5 MMT more than the current 2018/19 estimate. This includes 43.4 MMT of wheat, 6.5 MMT of barley and 6 MMT of corn. The Middle East is expected to be the main destination of their exports, continuing the trend of the past 2 years: 30% of 2016/17’s Russian exports went to the region but it has 72% thus far in 2017/18.

Currently, the Russia’s Ag Ministry says that total grain exports have now reached 46.6 MMT, up 45% year-over-year. This includes 36.2 MMT of wheat (+46% year-over-year), 5.2 MMT of barley (double year-over-year) and 4.9 MMT of corn (+10% year-over-year).

In related news, Russia and Australia are trending a bit drier, and it’s clear that the market is starting to pay attention to that. While it’s extremely unlikely to see a 2008-like drought year (and corresponding prices), the usual weather premium is certainly on the mind of the market.

Given some of the volatility this week though, it’s not enough of a concern, and that’s why grain prices, for the most part, were just “meh.” The next few weeks of activity and precipitation (or perhaps, the lack thereof) should provide some clearer direction.

Categories: Grain Markets / Markets

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