Grain markets trekked through the middle of November fairly mixed as for the week with soybeans making strong gains, but corn and canola losing ground. Similarly, Minneapolis HRS wheat and Kansas City HRW wheat ended the week lower, but SRW wheat and oats futures in Chicago actually made some healthy gains. Most of the week was focused on the trade war potentially ending, a new record for U.S. soybeans crush, and outlook on both North American and South American weather.
Before we dig into trade war hopes, the NOAA came out with a fresh 3-month weather forecast, but, not much has changed from the previous outlook. Expectations are for above-average temperatures in the Western Corn Belt and Northern Plains, while the southern half of America should see above-average precipitation.
In Canada, Drew Lerner says that average to above-average precipitation could be seen in parts of Western Canada to start the winter, but things could warm up for most areas across the Prairies through January and February. This might be a welcome reprieve from some of the cold Januarys that we’ve seen the past few years (which is not fun at all when you’re running across the Canadian Prairies to the various tradeshows).
Getting back to the markets, we are seeing more headlines that suggest China and America are figuring out how to fix their respective trade issues with one another ahead of the G20 Summit in Argentina at the end of the month. Most recently, China wrote out specific demands for wide-ranging trade reforms and send them to the White House, but it’s unclear if this should be viewed as positive or negative.
Should that be the case, what are the likely ramifications?
One player impacted will be Canadian barley exports, which started out slow, but through Week 15 of their 2018/19 crop year, they’re now tracking more than 11% higher than the pace a year ago. Cumulatively, nearly 529,000 MT of Canadian barley has been shipped out. This in mind, Agriculture Canada’s most recent crops outlook kept the full crop year barley export forecast at 2.4 MMT, which is a drop of 17% compared to last year’s record of 2.88 MMT.
On the FarmLead Marketplace, we’re seeing the feed marketplace getting a bit oversupplied as cereals that have damage or are a bit wet, they’re just being sold into the market as is. For context, back in 2016, when we saw similar late harvest conditions, feed grain prices dipped after November and didn’t see similar values until 7 months later in June 2017. Sure, there’s a tighter Canadian barley carryout this year than in all years past, there’s way more substitutable other feed grains and American corn that’s moving into the market.
This in mind, we know that China is very interested in Canadian barley. If we’re being honest though, Chinese importers are interested in any feedstuff that’s not soybeans coming directly from America.
The EU and Argentina are re-routing some tradeflows as these countries have been counting on more soybeans from the U.S., with Brazil basically only having focused on shipments to China these last few months. On that note, 10% of Argentina’s soybean crop and 36% of their corn crop has been seeded thus far, but central areas of the country are seeing some heavy rains.
Across the border in Brazil, customs data shows that soybean exports for 2017/18 are up 17% year-over-year at 74.6 MMT (local analysts are suggesting a full crop-year total of 80 MMT!), while corn exports are tracking 27% lower at 15.9 MMT.
Quite simply, corn exports from Brazil have slowed as soybean exports have taken over. With the focus on soybean shipments out of Brazil, many port positions are a bit on edge about maintaining their bet. For, if Beijing and Washington are able to figure things out, there’ll be a slowdown in Brazilian soybean exports and likely more interest in shipping out corn.
Conversely, through Week 10 of the 2018/19 crop year, U.S. corn exports are now tracking 91% higher year-over-year, up from 85% pacing seen through Week 9.
Conversely, soybean exports are pacing nearly 42% below total shipments from this time a year ago.
Should the trade war end though, the shipments of wheat and corn out of the Pacific Northwest ports will likely be completely replaced with soybeans as U.S. exporters try to recapture the Chinese market. After all, it’s estimated by AgriCensus that China still needs to buy up to 5 MMT for December and January, but Brazil can only supply about 2 MMT before they have to wait for new crop supplies.
While the buzz around trade war ending is healthy, soybeans gained nearly 2% on January, March, and May contracts this past week thanks to a NOPA crush report which showed us that 172.35 million bushels of soybeans had been used by U.S. processors in the month of August.
Expectations going into the report from grain markets was for just over 170 million bushels, so this is a bit bullish in that sense. It’s also bullish because it’s a new monthly record, eclipsing the previous record set back in March 2018, which saw 171.9 million bushels of soybeans used.
We’ve seen U.S. soymeal sales flying high though as crush volumes in Argentina – the world’s largest exporter of the feedstuff – have slowed considerably thanks to poor crush margins. Instead of Argentine soybeans going into the crush market, the international demand is helping exporters pay a premium. Further, taxes on exports of soybeans and soybean byproducts (i.e. soymeal) are now the same, so there’s no tax advantage to crush versus exporting.
Ultimately, with the above factors considered, tery clearly, there’s a domestic U.S. demand function that is in the driver’s seat right now. Should the trade war between Beijing and Washington politicians end, things could get very bullish for soybeans. If anything, one could argue that at $9 USD / bushel on the Chicago futures board, it’s really the domestic crush function that’s keeping prices elevated. Without a 25% import tax from China, $11, maybe even $12 doesn’t seem that far away.