Christmas in July — This week in the grain market

Grain prices this week had a positive week for the first time in nearly 2 months. Almost feels like Christmas!

Usually weather premiums are added to the market in late May through to June. However, this year, that seasonal pattern was idled thanks to an excellent start to the 2018 growing season in North America and trade war talk. Grain prices are starting to finally catch a weather break.

It’s unlikely that the central Midwest will get much rainfall through to next week, i. Comparably, next weekend (not this one but the last one of July), central Iowa and Illinois could see some rain and temperatures looking cooler across most major growing regions in the US. However, thereafter, much of the Corn Belt is expected to stay pretty dry for the next 10 -15 days.

With that sort of forecast, corn prices closed more than 4 percent or 14 cents/bushel higher this week, to close at US$3.69/bushel in Chicago on the December 2018 contract. However, this came as the most recent CFTC data shows that managed money continue to increase its bearish position in corn futures. With their short position now sitting at a net short position of nearly 130,000 contracts, it’s clear that there’s a lot off bearish sentiment still in the market.

Soybeans pulled out of the gutter this week, closing up 3.6%, or 30 cents/bushel better for a finish of US$8.65/bushel at the Chicago Board of Trade. However, like corn, fund managers increased their bearish angst towards the oilseed, with their net short position now at 58,400 contracts.

Canola prices road the coattails of soybeans a bit this week, but dryness concerns in Western Canada were the mainly catalyst to help the oilseed have a positive gain for the week. Specifically, November 2018 canola prices gained more than $5, or 1.1% to close at $490.30 CAD / metric tonne. It would’ve been more had it not have been for the contract losing $3 on Friday alone!

Like the rest of the complex, Chicago soft red winter wheat and Kansas City hard red winter wheat prices both had a better week. For SRW wheat in the Windy City, the December 2018 contract gained 4%, or nearly 21 cents to close at US$5.33/bushel. For KC HRW wheat prices, the December 2018 finished the week at $5.33 as well, up 3.4%, or a little more than 17 cents. The December 2018 spring wheat contract gained 22 cents to finish 4% higher than Friday at US$5.71.

It’s frustrating to read but a wildfire in Oregon has scorched nearly 80 square miles of wheat and pasture since igniting on Tuesday. This is especially frustrating since the crop was about 2 weeks away from getting combined. The region is home to mainly soft white wheat, which usually heads to Japan or South Korea and other Asian markets.

Meanwhile, Japan lifted its ban on importing Canadian wheat on Friday. With the announcement they said they’re looking for 63,000 MT of 13.5% protein spring wheat. We had previously suggested that it could take up to 3 months before Japan ended its break-up with Canadian wheat.

Two countries seemingly less-open for trade than ever before: China and America. What we can all agree on right now is that China and the U.S. will feel the negative impacts of a trade war.  U.S. Ag Secretary Sonny Perdue continues to align with the White House, saying “it’s really up to China.” That being said, Perdue also acknowledges that $1 out of every $7 in U.S. farm exports is at risk, and has some (yet-to-be-shared) plans on some subsidies or aid.

With less demand likely for U.S. soybeans, it’s hard not to expect South American soybean acres to pick up for their Plant 2018 campaign, which starts in a few months. Further, it might be fair to expect U.S. corn acres to increase again for the Plant 2019 campaign. Intuitively, this means that fertilizer demand in American might increase again.

As Chinese soybean buyers start to try and switch over to Brazilian soybeans, the demand isn’t going unnoticed. Cash soybean prices in Brazil are the best they’ve been in years but government intervention is creating a situation where farmers aren’t to reap the financial gains.

Here’s a snippet of this coming week’s GrainCents Soybean Digest explaining why:

“Farmers from all across the country are rushing to get their beans to the ports to capture that high price. There’s just one problem: Brazil’s infrastructure problems continue to plague farmers in the center and southeastern portions of the country. At a time that every farmer should be jumping for joy, too many have not been able to capture those steep premiums. That’s because the Brazilian government-imposed rule changes in late May that jacked up freight costs by up to 150%. Imagine having one of the best-selling opportunities of your lifetime… and then having the government halt them due to erroneous policy…”

Now that the gameplan for China has started, the next focus for the White House is likely North America. There are tariffs that Canada and Mexico have both put on the U.S. already, mainly as retaliation to the steel tariffs implemented back in June. That being said, President Trump has suggested that a bilateral trade deal may happen with Mexico before it does with Canada.

This comes after the quite-nationalistic Lopez Obrador was recently elected Mexican President. However, this new official is rumoured to not be a very big fan of the United States (and NAFTA) either.

It’s worth noting the fact that USDA export data shows that Mexico has been buying more U.S. soybeans, as have Egypt and Pakistan. It’s hard not to want to buy when there are bargain prices on the table (relative to just two months ago, soybean prices are a bargain!) More than 1 million tonnes of 2018/19 American beans have been bought thus far. That’s almost triple what was bought by this time a year ago!

Ultimately, it’s becoming very clear that the musical chairs game that is global trade is certainly in motion. The demand structure technically isn’t changing too much – a certain amount of protein (i.e. soybeans) is needed in certain areas. Those looking for a seat can certainly benefit if they grab one. Put another way, a gift has been given to soybean exporters not based in the United States.  It’s up to them now to grab a chair and hold on for the next round of music.

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