Ignoring a disputed election — This week in the grain markets

Opinion

Grain markets were able to find some fresh gains for the first week of November, one which was very much overshadowed by the U.S. election. While Friday saw some selling in the grain markets, it was a still a relative positive week, but it was one that history will likely remember for the controversial words and actions of the 2020 U.S. Presidential election. Ongoing healthy volumes of fresh demand reports, weather concerns, and currency fluctuations have all been trying `

What’s more, this week will likely hang heavy over the institution that is democracy in the United States of America for a lengthy period of time. On Tuesday, November 3rd, Americans went to the polls and votes started getting counted, but at the time of writing this post, it looks like it’s going to be up to the U.S. judicial system to decide. Put another way, both sides will need to show actual, physical evidence in the courts of many states that corroborate with their accusations (most of which are coming from the camp of President Trump).

Regardless, the world will continue to turn, and soybeans took the show this week, pushing up above $11 USD/bushel on the futures board in Chicago for the first time since July 2016, on expectations that the balance sheet is tightening up. Part of the reason for the push up above the psychologically important level is the U.S. Dollar will continue be weak, relative to other currencies, as long as there’s uncertainty in terms of who’s going to be in the White House for the next 4 years. Keep in mind that this currency uncertainty is applicable to all grain markets, not just soybean prices.

Also supporting soybean prices though is that data from the U.S. Census Bureau suggests that U.S. soybean exports to China hit 7.8 MMT in September, which is 1.3 MMT more than what the USDA’s export data is suggesting. This is certainly bullish news on top of bullish news, as soybean exports to China have already set new records for the months of August and September, as reported by Reuters. AgriCensus’ math suggests that U.S. soybean 2020/21 ending stocks could be revised down to 6.5 MMT (or 238.8M bushels if converting metrics tonnes into bushels). This is logical when you consider that, compared to the USDA’s total year forecast for soybean exports in their October WASDE, already 80% of this estimated volume has been contracted!

The other factor supporting soybean prices is the delayed planting in Brazil due to dry conditions, which means that China and other major importers would rely on U.S. soybean exports longer than usual. The long-range forecast for Southern Brazil is notably concerning as fields there are already suffering from severe moisture shortages. Conversely, we do know that farmers in Mato Grosso, the largest soybean-producing state in Brazil – are running their planters 24/7 to get the crop in. Nonetheless, because of the small amount of soybeans there that carried over from 2019/20 to their 2020/21 crop year, tradable inventories in Brazil are extremely tight and domestic soybean prices (and that of corn) continue to set records in the cash market.

Higher global prices for corn are also supporting that of feed grains like wheat and barley, and in that line of thinking, we continue see healthy contracting activity on the Combyne Agricultural Trading Network for all 3 of these crops. Supporting corn prices this week was an updated report from the USDA attaché in China that they increased their forecast for corn imports by the People’s Republic from 7 MMT to 22 MMT. The Beijing office of the USDA cited a small harvest, smaller carryover form 2019/20 and high domestic prices for the reason. On that last point, you’re rolling in profit if you’re a corn importer in China right now!

On the flipside, China continues to put political pressure on Australia, now threatening to ban wheat imports from the Land Down Undaa, adding to Beijing’s existing embargoes on Australian barley, sugar, red wine, timber, coal, lobster, and copper. Further, any cargoes that are already enroute to China from Australia with any of the aforementioned goods will be turned around, due to “commercial reasons”. This all started 7 months ago after Australia officials pushed for an international inquiry into the origins of COVID-19 in China.

That said, the Aussie wheat harvest is starting to hit the market, and with an abundant crop this year (after 3 years of drought), domestic wheat prices are now below that of Black Sea wheat of comparably protein. While the USDA will update their estimate of the Australia wheat harvest from their October WASDE estimate of 28.5 MMT, IKON Commodities is estimating that this year’s haul now looks closer to 32 MMT. Thus, as cheaper Aussie wheat gets exported to other Asian markets, this likely opens the door for more U.S. and Canadian wheat exports to fill the void. In fact, Canadian wheat exports, through ¼ of the 2020/21 crop year, are already more than 1 MMT more than where we were at a year ago!

This has certainly supported domestic markets though as the healthy international interest is having to compete against the local buyers. This past week, on the Combyne Ag Trading Network, feed barley bids across all of Western Canada are trading up above $5 CAD/bushel (and obviously more in Lethbridge), making it more attractive than selling into the malt market right now! Feed wheat is trying its best to match up against #1 and #2 HRS wheat bids, but at $6 CAD/bushel or more in many places, that’s a really good price for anyone who has below-average quality. Meanwhile, $4 CAD/bushel milling oats is available in a few areas (albeit for deferred delivery).

In other crops, some $12 CAD/bushel canola is still trading for nearby movement in many places while we saw $18.50 CAD/bushel brown flax trade in central Alberta, the highest we have seen in a long time! $10 CAD/bushel green peas are returning to many parts of Saskatchewan after a few months while large green lentils being bid at 37¢ CAD/lbs is the best we’ve seen (consistently) so far this year.

Ultimately, if you haven’t pulled the trigger yet on your next 5% – 15% sale of any of the crops mentioned, I’d remind you that the downside risk is palatable and omnipresent. I think that we’ll continue to see volatility in the canola markets, but, there are more questions than there are answers for a lot of markets. Thus, I continue to recommend that you look into cashflow needs over the next 18 months, as there are opportunities that we’re seeing now that haven’t been around for a long time.

To growth!

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