Grain markets gain on trade talks — This week in the grain markets

Grain markets crossed the mid-point of August on the good news that the United States government has set meetings with China to discuss concessions and ways to mitigate the ongoing trade problems that have hammered grain prices.

We have to be rational with our expectations, but there is some optimism that geopolitical banter will be for the better.

According to reports, the two nations are working on a framework ahead of meetings between the Trump administration and Chinese leader Xi Jinping at summits in November. We’re expecting the markets’ anticipation of a breakthrough, and behaviour says if we see a significant amount of said optimism, — we might find a rally that we’ve been waiting months for.

That being said, corn finished the week up nearly two per cent, or US$.07/bushel in Chicago to close at a touch under US$3.80. Canola prices gained more than one per cent for the week, with the November contract now sitting back at nearly $511/MT, and the January 2019 just below $517.

This sort of echoed what we saw in soybeans, which rallied more than US$.31/bu in Chicago, or about 3.6 per cent, to close at $8.93 on the November contract and $9.05 on the January contract.

To start the week, China reported that soybean imports in July topped eight MMT. This was an eight per cent decrease from June and 20 per cent lower than the July 2017’s soybean imports by the People’s Republic.

A few factors are at play here: China’s stocks of soybeans and meal are sitting at record highs at its ports. Demand for animal feed remains sluggish. And, of course, the 25 per cent tariffs on U.S. beans are driving up prices of the crop in South America, where demand remains high.

AgResource is reporting that Brazilian 2017/18 soybean export sales are now at 90 per cent of the 74.1 MMT projected by the USDA last Friday. This is about 5.3 MMT above last year’s record pace. Also, based on current ship lineup, it looks like Brazil will ship out about 8.2 MMT of soybeans in August.

Going into the Brazilian 2018/19 soybean planting campaign (which starts in a month from now), farmers there may rethink their rotations, depending on trade talks and the possibility of glyphosate being banned in brazil.

Right now, most analysts are pegging a four to five per cent increase in Brazilian soybean acres for the 2018/19 campaign compared to last year.

Coming back to the demand side, China’s National Grain and Oil Information Centre says the country will import 92.8 MMT for the marketing year. The USDA left its 2018/19 Chinese import figure unchanged at 95 MMT.

For winter wheat prices in Kansas City, values were up seven to nine cents with the December contract closing at US$5.92/bu while the March 2019 closed at $6.15. Comparably, in Chicago, soft red winter wheat prices gained nearly two per cent, or up US$.10/bu to $5.80 on the December contract.

The March 2019 Chicago contract closed just above $6.01. Spring wheat prices were mostly unchanged in Minneapolis for the week, with the December 2018 contract closing at US$6.25/bu.

The USDA didn’t make any changes to its wheat production, export, or stocks estimates in the Land Down Undaa last Friday in the August WASDE report. The agency says total wheat production in Australia for the 2018/19 crop year would come in at 22 MMT. The agency added it expects total wheat exports to settle at 16 MMT.

That figure is one MMT higher than the export projections issued by the nation’s agricultural ministry. Australia is expected to see increased demand from its feed industry, which fueled a five per cent cut by the ministry to 15 MMT in exports.

The Wall Street Journal is reporting “a region more than twice the size of Texas is in the grip of a drought that’s lasted six years and shows no signs of abating.” Specifically, the eastern states of New South Wales (NSW) and Queensland are seeing record low rainfall.

The situation is especially dire in NSW where the winter harvest will likely be the worst in a decade, while still deteriorating.

This in mind, smaller rapeseed crops in the Black Sea region and Australia should create additional demand for Canadian canola in Europe’s biodiesel market. Further, with less soymeal/soybean demand coming from China, canola demand prospects should be good in 2018-19.

We need to emphasize that back in July, Agriculture Canada projected 2018/19 canola exports at 11.5 MMT. This would be up 6.5 per cent year-over-year and 23 per cent higher than the five-year average of 9.4 MMT.

This in mind, combines are rolling across North America on everything from soybeans in the
southeastern corners of the US to peas and barley in Alberta. As usual, the earliest harvest crops in all areas are looking pretty good, but heat-stress is a major concern for the later-planted crops, especially the more north you go.

This is mainly because of the advanced crop development that we’ve seen in the 2018 growing season (harvest is starting as much as two weeks early in many parts of the Northern Hemisphere, from Spain to Saskatchewan).

That being said, the forecast for Harvest 2018 is looking fairly ideal, and frost is less of an issue because of the speed of the crop’s development. This also means that next week’s ProFarmer Crop Tour across the US Midwest will likely easier to predict, since the crop is further along in maturity.

Ultimately, just as the combines start to gain some ground, we come back to the optimism that China and the US will figure out their differences.

At this time of year — it’s not just in the field that there is a lot to be gained.

 

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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