Grain markets continue to be quite volatile through the middle of April as it tried to determine what was more important: geopolitical risk or weather. What certainly was not concerning was most of the USDA numbers, which the market was anticipating with some pretty good guesses. A couple of the notable datapoints that I saw in the WASDE included:

  • Russia’s wheat exports raised by 1 MMT to 38.5 million (a record);
  • Global wheat stocks were raised by 2.3 MMT to 271.2 million (a record and 3 million more than what the market was expecting);
  • Brazilian corn production lowered by 2 MMT to 92 million (market expected 92.7); and
  • Argentine corn production was cut by 3 MMT to 33 million.
  • Brazilian soybean production was raised by 2 MMT to 115 million (a record);
  • Brazilian soybean exports were raised by 2.6 MMT to 73.1 million (a record);
  • Argentina’s soybean production number by 7 MMT to 40 million (the average pre-report guesstimate was 42.6 million); and
  • Global soybean stocks were cut by 3.6 MMT to 90.8 million (larger-than-expected cut)

Soybean prices continue to intensely driven by trade war rhetoric that China will put a 25% import tariff on US soybeans. Digging in, China is expected to import 97 million tonnes of soybeans in the 2017/18 crop year. You can see the chart below that the USA accounts for a pretty significant portion of this. However, with US beans getting taxed and pushing their relative import price up, there would be about a 25-30 million tonne shortfall in China’s soybean needs.

In the short-term, we know that China has already been looking to secure more soybeans from the Brazil (obvious) and Canada (not so obvious). Other countries like Paraguay and Chile are in the running too but Argentina hasn’t had a great year of soybean production, and so they’re likely buying any nearby product they can.

CNGOIC notes that if China puts the 25% import tax on US soybeans, they think the People’s Republic will have a shortfall of 20 million tonnes. As a result, China’s soybean and soymeal stocks –  approximately 26.5 million tonnes and 6.5 million tonnes respectively – would be tapped into. But they also admit that they would look to Europe for some sourcing soybeans, soymeal, rapeseed, and rapeseed meal.

This would be good news for canola prices in Canada and rapeseed prices in Europe, but for the former, prices have slipped in the last few days. The pressure was caused mainly by farmer selling, tighter crush margins, and a stronger Canadian Loonie, which has been sitting around 79.5¢ USD lately. Also, it’s becoming more likely that Canadian farmers (especially those in Manitoba) flip their canola acres for soybeans instead.

Ultimately, with some stronger prices of late and the likelihood of better soil moisture conditions, will it be enough to push canola acres to a record 24 million? Or will the weather and trade risk limit Canadian canola acres? Usually, at this time of year, you only have to worry about Mother Nature as the major determinant in your final acreage intentions. However, this year, geopolitical risk is trying to neck out the weather as the horse to bet on for the direction of grain prices.

To growth,

Brennan Turner is the President & CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Turner was named to Fast Company’s List of Most Creative People in Business. He is originally from Foam Lake, Sask. where his family started farming land nearly 100 years ago (and still do to this day).