Rural Voice Market Commentary – October 14, 2020

by: Scott Krakar

As we moved into the fall season the grain markets demonstrated a dramatic sentiment change.  Through most of the year the expectation had been one of large and high yielding crops, that would see limited demand due to declining ethanol usage and limited export demand.  These were the expectations because the US China relationship was uncertain and seemingly combative.  Also end users bought little coverage into the fall as the covid situation left them unsure what their requirements might be and likewise from this, concerns were present about what their demand might be.

Well it turned out that regardless of what worries might be out there in respect to the political relationship between China and the US, it doesn’t negate the fact that they need corn and soys in a big way.  China’s seemingly unsatiable demand for soys has been the major reason that US export sales have been extremely strong recently; pushing sales to a much faster pace than the 5 year average.  Further adding to the upside and bullish momentum for beans was talk of extreme dryness in Brazil causing planting delays.  The pace of Brazils soy plantings are the lowest in 10 years, reaching only about 3.5% completion as opposed to 11% planted at this time last year.  From the delayed planting the market fears a later than normal harvest in South America, resulting in a longer US shipping season to China, before they switch to cheaper Brazilian supplies.  Further complicating the soy market is the concern that US soy yields aren’t necessarily as great as everyone expected them to be during the growing season.  All of these changing dynamics have been great for Ontario growers.  As early harvest came on growers have been able to receive great prices off the combine.  In the Oct 9th USDA crop report soybean yields are forecast to be record high average yields in the US, at 51.9 bushels per acre.  Currently the speculative traders are very long the market and therefore it will take a larger surge in Chinese demand or deteriorating conditions in Brazil to add strength to the soy market.

Dryness in major wheat producing countries also got the market jumping on possible production issues into next years crop.  The US plains where they grow huge amounts of Hard Red Winter is dry and crops are waiting for rain to get the crop up and established before winter.  It is the exact same situation in Russia and the Ukraine, where moisture is needed to get seeded acres germinated.  While the crop isn’t necessarily going to experience issues the market added risk premium quickly, pushing wheat prices to levels not seen for over 5 years.  Fears are mounting that Russia may enact a wheat export ban if their crop seems to be moving towards a production failure, to maintain local supplies.  The recent momentum in wheat prices was not caused by countries buying physical supplies, but rather commodity fund traders.  Big money rolled into the wheat market to causes prices to explode higher and like with soys, the timing for growers couldn’t have been better.  Ontario growers were able to sell nice prices into 2021 for wheat, helping to ensure large acreage in Ontario once again into the 2021 harvest year.  Ontario is not the only region where the wheat crop should be large again this season, both Michigan and Wisconsin are seeing some growers plant wheat for the first time in years, as prevented planting has limited wheat sowing multiple years in a row.  So will the drought in stricken regions be significant enough keep the market continuing to the upside?  It may take more than just a dry fall at seeding time to do this.  The old saying is: plant in the dust and your bins will bust.

Reports are that China has issued corn import quotas of over 7 million tonnes, with some estimating these new quotas to exceeed over 10 million tonnes and up.  Chinese domestic corn supplies have fallen to rather low levels, and from this corn prices in China are making new highs.  In the October 9th USDA report, Chinese corn demand was left unchanged from previous reports.  The rational for this is that China has yet to issue higher import quotas, and therefore the USDA decided to leave this number unchanged until China issues further allowances.  Until this demand outlook changes South American weather will be the main driver of corn prices.  The expectation of a La Nina year suggests that Brazil and Argentina will see dry weather for the growing season.  This is occurring as we discussed earlier, and Argentina is beginning to have worries about dryness affecting their upcoming corn crop.  From these considerations:  growing export demand and production worries in major regions, the corn market should be supported past harvest.