What’s real, what’s rumoured — This week in the grain markets

USDA photo by Anson Eaglin (Flickr, CC by 2.0)

Grain markets were mostly higher this week as weather premiums continues to whip up some bullish activity. Wheat prices led the grain complex lower Friday as traders prepared for the upcoming holiday weekend. The day had started with small gains due to news of harvest delays down in the Brazilian fields. But profit-taking appeared to be too much of an urge for some. Overall though, the week was pretty positive (for once, right?)!

For front-month March 2018 soybean contracts, Argentine bullishness helped prices rally nearly 4%, or about 40 cents USD / bushel on the Chicago Board of Trade this week. For new crop, the November 2018 contract gained 22 cents, to close 2.2% higher week-over week.

Brennan Turner and RealAg’s Kelvin Heppner discussed the impact of South American weather on oilseed prices, acreage expectations and concerns about dryness in North America at CropConnect in Winnipeg this week.

On canola, the March 2018 contract closed $5.40 CAD / metric tonne higher than last Friday, or up 1.1% for the week. On new crop November 2018, the gains were less pronounced, up just $1.60 / tonne or 0.3% week-over-week.

Front-month corn contracts were up 1.5% (5.5 cents USD / bushel in Chicago) compared to last Friday. Meanwhile, new crop December 2018 contracts inched closer to the ultra-psychologically significant level of $4 USD / bushel. That’s up 1.2% week-over-week.

For oats, March 2018 contracts in Chicago traded just 0.5% higher to end just below $2.68 USD / bushel. On new crop December 2018 contracts, oats prices were up 4 cents / bushel to gain 1.5% since last Friday.

Soft red winter wheat prices in Chicago gained nearly a dime on the March 2018 contract or nearly 2% to close at a tad under $4.58. Comparably, hard red winter wheat prices for the same contract month in Kansas City added 13 cents to climb 2.8% for the week and close at $4.785 USD / bushel.

For new crop winter wheat contracts in September 2018, Chicago SRW wheat prices gained 2.6% for the week, whereas KC HRW wheat prices were up 2.8%. What’s interesting is that there’s about a 50 cent USD / bushel spread between old crop and new crop winter wheat prices on the futures board right now.

We’ve been mentioning for a few weeks now but the spread between low protein and high protein continues to narrow. While winter wheat prices are clearly pricing in some drought risk in the U.S. Southern Plains, no attention is being paid to the spring wheat growing regions. Spring wheat futures prices in Minneapolis gained only 2 cents, or 0.3%, on the March 2018 contract to close just above $6.05 USD / bushel. For new crop, the December 2018 contract closed at $6.39, also a minuscule 2 cent gain since last Friday.

Ultimately, for wheat, the focus continues to be on the need for rain in the U.S. Southern Plains, but there doesn’t seem to be in the forecast for the next little while. Also, Strategie Grains just lowered EU wheat exports for the fourth straight month to 21.4 million tonnes. Competition with the Black Sea and now Argentina continue to be blamed.

U.S. corn got a nice export sales report this week, coming in at just under 2 million tonnes, which easily beat pre-report expectations! Corn exports are gaining ground on last year’s figures but we’re still 12.6% behind last year’s pace. Factors supporting U.S. corn exports right now include Argentina’s weather woes and rising prices in Ukraine. Also supporting corn prices this week was that the Buenos Aires Grain Exchange said today that just 14% of their corn crop is rated good or excellent, while 58% is rated poor or very poor.

Coming back to soybeans, U.S. export sales last week came within expectations, while the NOPA crush report from January showed 163.1 million bushels used. While that’s still a record for the month, the market was expecting 165.6 million bushels, and a 2% drop year-over-year.

Moving to Brazil, in the Mato Grosso state, IMEA says that soybean harvest progress sits at 28.7%, which is three points behind the five-year average. Rains there have slowed the progress of combines in a few places, but for the most part, it’s not the hand that’s feeding the bulls in this market. That hand is in Argentina.

There certainly needs to be some rain as the soybean and corn crops there are looking for moisture to halt their declining crop conditions. Specifically, according to the Buenos Aires Grains Exchange, 56% of the soybean crop is rated in poor-to-very poor shape. Despite the crop condition, the BAGE left their production estimates for soybeans at 50 million and 39 million tonnes for corn.

The smaller soybean crop in Argentine and some delay in the Brazilian soybean harvest means that international buyers are looking back to the U.S. The pullback in the Greenback the last few days has supported more of the idea that U.S. soybean exports could start to pick up again.

As such, the bulls are getting frothy at the mouth. Money managers cut their short position in soybeans by half last week. Further, most agree (including yours truly) that the CFTC data out later today will show hedge fund managers are no longer in a net short position. If this is indeed the case, a catalyst for further upside has been lost as there just won’t be any more short-covering, which is a pill for activating higher prices (hence the term, “short-covering rally”).

Alongside this, we’ve seen soymeal and soybean prices increasing on the Argentinian weather premium, but soy oil has been pretty reluctant to join the party. And since canola prices are often more aligned with soy oil that soybeans, it’s why you haven’t seen a proportionate rally for canola like we’ve seen in soybeans. The fact remains that the world has a very healthy supply of vegetable oils, and the substitution effects on canola are very real.

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