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Grain markets this morning are mostly lower as the complex continues to factor in lack of weather concerns and the proverbial geopolitical risk can being kicked down the road.

“Wandering re-establishes the original harmony which once existed between man and the universe.” – Anatole France (French poet)

Grain markets this morning are mostly lower as the complex continues to factor in lack of weather concerns and the proverbial geopolitical risk can getting kicked down the road.

Yes, there’s probably some of reading the weather comment and thinking, “has he looked at the temperature?” Reality check though: a crop isn’t made in early March so it’s a pretty irrelevant factor to me right now. That being said, another dump of snow is expected for parts of the U.S. Northern Plains and western Corn Belt this week.

Coming back to actual trading of grain markets, corn and wheat prices were able to rebound a little bit yesterday but are giving up some of those gains this morning. For corn prices, there are more analysts who think that the coarse grain is starting see a bit of a bullish story emerge. More acutely, this is attributed to if acreage doesn’t expand by the current 3 million acres the USDA is forecasting and the ongoing just-in-time supply pace in places pretty much in every country not called the United States or China. [1]

On the geopolitical front, trade talks between the U.S. and China continue to be “tough” and the market is looking for some sort of breakthrough to help lead it higher. At the same time, the EU and U.S. trade negotiators are meeting for a fifth time today to discuss agriculture trade. [2] Given the amount of heat the Trump administration has taken over U.S. grain markets getting hit hard by Chinese import tariffs, the U.S. is looking to diversify and try and open up European markets.

Bearish 2019/20 Wheat Harvest Potential Emerging

On Friday, we’ll get the March WASDE report from the USDA at 12PM EST. I’ll dig into some of the estimates for the report in Friday’s Breakfast Brief, but most eyes in the grain markets will be on South America and American ending stocks.

Coming out today though is ABARES’ estimate for the 2019/20 wheat harvest in the Land Down Undaa. The government agency is expecting the 2019/20 Aussie wheat harvest to come in at 23.9 MMT, a 38% jump from this past year’s drought-riddled 17.3 MMT haul. [3] The latter number was actually raised by ABARES by 400,000 MT from their last forecast in December.

The immediate question I’m asking about this forecast though is “how?”. As mentioned in Wednesday’s Breakfast Brief last week, the weather in Australia is scorching hot and it’s expected to continue through their fall season.

On the export front, ABARES is expecting Australia to export 14.2 MMT of wheat in the 2019/20 crop year. This would be up 41% from the 10.1 MMT forecasted in Aussie wheat exports for the 2018/19 season. In Friday’s WASDE report, I’ll be looking at wheat exports for the likes of Australia, but also Russia.

On that note, Russia’s Agriculture Ministry says that the country will see a 2019/20 wheat harvest of between 75 – 78 MMT, up at least 4% year-over-year. [4] However, the agency also mentioned that the number could reach as high as 80 MMT. Meanwhile, IKAR reports that wheat prices for 12.5% protein at Russian ports continues to dip, now sitting at $226 USD / MT (or $6.15 USD and $8.23 CAD per bushel if converting metric tonnes to bushels).

Canadian Canola Clearly a Political Pawn?

As mentioned in Monday’s FarmLead Breakfast Brief, canola prices have been in a rut. Probably the most significant headline that’s come out this week was one involving China and Canadian canola. More specifically, Richardson’s import certificate for canola going into China has been canceled. [5] Now this isn’t to say that China is stopping its imports of Canadian canola, but it’s very speculative as to, first, why Richardson lost its right to ship to China, and second, if this is a political move by China or not.

On the latter point, China just accused two Canadians of spying, literally days after Canada authorized an extradition hearing for Huawei’s CFO, Meng Wanzhou. [6] That legal event is expected to start today and while the cancellation of the Richardson canola import certificate is technically “unrelated”, it certainly seems like the Chinese government is trying to put some pressure on the Canadian government.

If you’ve been living under a rock, the current federal government in Ottawa isn’t really in a position to handle the bombardment of challenges to its foreign policy. A second cabinet minister for Prime Minister Justin Trudeau threw in the towel this week, as Treasury Board president Jane Philpott resigned over the loss of confidence in the government’s handling of the current SNC-Lavalin scandal. [7]

Coming back to canola (and as mentioned on Monday), China is expected to import 4.715 MMT of canola / rapeseed in the 2018/19 crop year, 90% of which is supposed to come from Canada. To Canada, the canola trade with China is worth about $3.6 Billion CAD alone. While, technically, it’s about 0.2% of Canada’s entire GDP, most of these monies are directly associated with the economy of Western Canada.

Considering that Canada’s economy in 4Q2018 grew at its slowest pace in 2 years, China might just be hitting back in the political arena when Canadian political leaders are at their lowest, and thus more apt to potentially bend. [8] Optimistically, I’m hopeful that the people behind the scenes – diplomats and foreign trade ministers – can help sort through the mess.

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