China-U.S. trade dispute likely to drag on, affecting price

U.S. ethanol policy change could increase demand by two billion bushels

Ontario farmers have harvested 60 per cent of the soybeans and 25 per cent of the corn as of Oct. 21. American farmers have combined 49 per cent of the corn and 53 per cent of the soybeans.

The seven- to 10-day forecast calls for seasonal temperatures with limited precipitation, which should allow producers to make significant progress.

We recently mentioned that American farmers are selling corn and storing soybeans in hopes that the Chinese lift tariffs later in the crop year. Our bias is that the trade dispute between China and the United States will continue until the next U.S. presidential election. Therefore, our marketing strategy is to do the exact opposite of the U.S. farmer for the 2018-19 crop year.

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Quick look

Soybeans: The next Brazillian crop is expected to be larger than a year ago.
Corn: U.S. ethanol blend changes could increase demand by two billion bushels.
Wheat: Russia will dominate the market in the first half of the crop year.

U.S. President Donald Trump and Chinese President Xi Jinping are supposedly planning talks prior to the G20 summit in November. However, take note of the recent policy changes in the U.S. Earlier in summer, the U.S. government announced a subsidy payment to soybean growers. Last week, Trump moved to lift restrictions on summer ethanol blending in gasoline from 10 per cent to 15 per cent. This policy could be implemented for the summer of 2019 and would increase corn demand by nearly two billion bushels. These policies support our expectations that Trump has dug his heels in for the long haul. The government is working to appease U.S. farmers and implement policies to enhance demand for U.S. commodities.


Ontario elevator bids continue to hover in the range of C$11.40/bushel to $11.50/bushel for nearby delivery. Prices for October 2019 are in the range of $11.20/bushel to $11.40/bushel. The inverted price structure tells farmers to sell now instead of holding soybeans for delivery in the deferred positions. Producers will not be rewarded for storing their soybeans.

What to do: We recently advised farmers to sell 30 per cent of their 2018 production bringing total sales to 60 per cent. The current price structure confirms this recommendation.

Brazilian soybean planting was about 50 per cent complete as of Oct. 21 according to our contacts in South America. Conditions are quite favorable and there is no concern at this time. The U.S. Department of Agriculture is projecting Brazilian soybean production to finish at 120.5 million tonnes, up one million tonnes from last year.

Argentine soybean planting will move into full force next month; a minor year-over-year increase in soybean acres is expected. Using trend type yields, Argentina soybean production is projected to finish near 57 million tonnes, up nearly 20 million tonnes from the 2017 output. New crop Brazilian production will be available in late January, which could cause Canadian prices to soften.

U.S. soybean production is projected to reach 127 million tonnes, up from 120 million tonnes last year. U.S. origin beans are functioning to encourage demand to all other destinations. We’ve seen some additional sales to China but there have also been cancellations over the past week; therefore, don’t count on China stepping up in a big way for U.S. soybeans because the political sentiment is more powerful than the market in China. Even if importing U.S. beans does seem feasible at the current discount, it’s not popular.

Statistics Canada’s model-based crop estimate in September had the Ontario soybean crop at four million tonnes, up from the producer survey of 3.6 million tonnes and up from 2017 output of 3.8 million tonnes. Recent yield reports confirm the Statistics Canada model-based estimate.


Ontario ethanol companies are showing bids in the range of C$5/bushel to $5.20/bushel for nearby delivery, while elevator bids are quoted from $4.30 to $4.60.

What to do: Earlier in spring, we advised producers to sell 15 per cent of their 2018 production; we’re waiting to make our next sale in early November or early December prior to lake freeze up. We’re anticipating a surge in offshore movement along with seasonally strong domestic demand during the early winter period.

A few recent changes should result in higher prices over the winter. First, the USDA report decreased their yield projection on the October World Agricultural Supply Demand Estimates report. U.S. corn production is expected to finish 375 million tonnes, which is down one million tonnes from their October estimate. This decrease is very small but the sentiment is what traders look at. The crop is not getting bigger but rather stabilizing or even shrinking moving forward. On the demand side, U.S. exports were increased to 63 million tonnes, up one million tonnes from last year. Keep in mind that U.S. exports and domestic demand make a seasonal high in December.

Brazilian farmers have seeded approximately 40 per cent of their first crop corn. Argentinian farmers have seeded nearly 45 per cent of their corn crop as of Oct. 21. At this stage, there are no concerns in regards to South American production.

The USDA is projecting Brazilian production at 94 million tonnes, up from the previous year’s output of 82 million tonnes; the 2018-19 Argentinian production is pegged at 41 million tonnes, up from 32 million tonnes this year. The market is counting on these estimates coming to fruition and will be extremely sensitive to growing conditions moving forward. Given the current estimates from U.S. and South America, world stocks will drop to 159 million tonnes at the end of the 2018-19 crop year, down from the 10-year average carryout of 164 million tonnes.

Canadian year-to-date corn exports for the week ending were 271,000 tonnes Oct. 14, up from 63,000 tonnes last year for the same timeframe. The bulk of these exports are from Ontario. We project a sharp year-over-year increase in Ontario corn exports to Europe due to their lower production. We are hearing about some fusarium issues and also some samples are light weight due to the extensive heat in summer. Exports will pick up once the crop quality is more certain.


What to do: We recently advised Ontario farmers to sell their first 20 per cent increment of their 2018 wheat production for deferred delivery. The wheat market usually makes a seasonal high from mid-October through mid-November. We want to be selling into this strength. After the lakes freeze up, the market usually moves into a dormant stage, similar to the actual winter wheat crop.

Russia will dominate the world market in the first half of the crop year. Later in winter, the selling pressure from Russia will subside and the market is expected to percolate higher. Given the year-over-year decrease in Russian wheat production, it’s not possible to keep up the current export pace.

The USDA lowered their Australian production estimate from 20 million tonnes, down to 18.5 million tonnes. We’re looking for further downward revisions on subsequent reports as private forecasts are projecting a crop size from 16 to 17 million tonnes. The domestic feed market in Australia is quite firm, which will lower the exportable surplus of wheat.

U.S. winter wheat seeding was 72 per cent complete as of Oct. 21. Conditions are favorable in the U.S. Southern Plains. However, in Northern Europe, particularly Germany and in Russia, drier conditions have hindered winter wheat germination. In parts of Europe, farmers have delayed seeding because it’s so dry. In Europe and Russia, drier conditions in fall and winter tend to result in lower yields.

We don’t see this correlation in North America. If timely rains do not materialize over the next month particularly in Germany and the Black Sea region, the wheat market could incorporate a risk premium due to the uncertainty in production.

We’re going to watch how the winter wheat crop develops in Europe and Russia. Secondly, we’re anticipating a surge in North American export demand in the latter half of the crop year.

Finally, the wheat market will receive spill-over support from corn later in winter. The current environment tells us to be patient to make additional sales.

About the author

Markets Analyst

Jerry Klassen is the manager of Canadian operations for Swiss-based grain trading house GAP SA Grains & Products.



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