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Dec 11 – December WASDE, USDA Disappoint Grain Markets Again

Grain markets are mostly lower after yesterday’s December WASDE report didn’t change anything, leaving the trade to look for new headlines.

When you bite off only what you can chew, you’re going to disappoint people. Guess what? Not your problem. You’re not doing anything wrong.” – Kris Carr (U.S. author)

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December WASDE, USDA Disappoint Grain Markets Again

Grain markets are mostly lower after yesterday’s December WASDE report didn’t change anything, leaving the trade to look for new headlines. While we’ll get into all the details in a bit, I can count the changes in yesterday’s December WASDE from what the USDA said in their November WASDE report on basically one hand. [1] People might ask if this is a good or bad thing; I’d say it’s a bad thing, echoing my sentiments about the USDA ahead of the November WASDE report, when I said,

“they probably won’t move the needle on corn yields that much and they won’t account for massive amounts of unharvested corn acres until the January. Also, worth mentioning is that in 5 of the last 6 years, the final WASDE report in January has a corn production number that’s 118M bushels, on average, lower than the number in the November WASDE.”

Switching gears for a hot second, yesterday, the new NAFTA, the “USMCA”, was signed yesterday by the U.S., Canada, and Mexico. [2] The deal was ironically approved the same day that articles of impeachment were served against President Trump, which will become more of a focus for U.S. politicians than ratifying the re-vamped free trade agreement, meaning that the deal likely won’t get actually ratified until 2020. [3] On a related trade note, US Secretary of Agriculture Sonny Perdue said that he’s not expecting the U.S. to implement additional tariffs on Chinese goods on December 15th, as originally planned. [4]

In a related vein, the Chinese Ag Ministry announced that China’s pig population in November grew by 2% from the previous month, the first increase in over a year since the country stated culling animals to slow the spread of African Swine Fever. [5]. It’s related because, if the current 72% tariff on U.S. pork exports to China were removed, it’s estimated that U.S. pork exports would double, in addition to reducing America’s trade deficit with China by 6%. [6]

December WASDE Changes Nothing

Yesterday, the USDA preserved the status quo in the December WASDE, setting the stage for what could be a fairly explosive January WASDE report with many changes. Nothing that there’s still over 6.5M acres of corn that hasn’t been harvested as of this past Sunday, the USDA still didn’t touch harvested acres, keeping them at 81.8M acres. Further, yields and total production numbers were also stayed! The only major notable change to the U.S. balance sheet

Results from the 2019 December WASDE report

Even if we looked at the southern hemisphere numbers from the December WASDE, there were no changes to corn and soybean production numbers in Brazil and Argentina. Separately, CONAB (Brazil’s equivalent of the USDA), said in their monthly report that they’re forecasting Brazilian soybean production for their 2019/20 crop year at a record 121 MMT and the corn harvest at 94.4 MMT. [7] This meant that no export numbers for the two countries were changed in the December WASDE. In the same theme, the USDA did not change U.S. soybean exports, despite shipments running 21% better than a year ago, as mentioned in Monday’s FarmLead Breakfast Brief ahead of yesterday’s WASDE report..

The USDA did acknowledge the weaker wheat production numbers from the southern hemisphere in the December WASDE though, dropping both Australian and Argentine wheat production numbers. More specifically, Australia’s wheat production number was felled by 1.1 MMT to 16.1 MMT, which is 250,000 MT more than what ABARES said last week that Harvest 2019 would produce for Australian wheat farmers. The lower wheat production number also meant the USDA lowered Aussie wheat exports by 600,000 MT to 8.4 MMT, but I think we might see that number drop below 8 MMT before the crop year is over. For Argentina, 2019/20 wheat production was dropped by 1 MMT to 19 MMT, while wheat exports were also felled by 1 MMT to now sit at 13 MMT.

Durum Exports Perform Well So Why Not Prices?

Speaking of wheat exports, durum exports from both Canada and the U.S. are performing very strongly.

Through Week 26, U.S. durum exports are up nearly two-thirds compared to this time a year ago with almost 400,000 MT sailed. It’s no surprise then that the USDA raised their estimate of U.S. durum exports by 10M bushels (or about 272,000 MT if converting bushels into metric tonnes) to 35M bushels (or 952,500 MT). Combined with U.S. durum imports lowered by 10M bushels in this December WASDE report, the USDA is expecting U.S. durum ending stocks to close 2019/20 at 26M bushels (or 707,604 MMT).

U.S. 2019/20 durum exports are tracking 61% through Week 26

Comparably, through Week 17, Canadian durum exports are at 1.7 MMT (+69% YoY) and we know that Canadian producer organizations are actively out on the international road telling the Canadian durum story. [8] However, durum prices haven’t been really following the increase in shipments. Why durum prices rallied more is because there is just a lot of durum left in the pipeline from the 2018/19 crop year: 1.68 MMT from Canada and an unusually large 1.5 MMT in the United States (the latter of which was, like everything else, unchanged in the December WASDE). This helps explains why durum prices haven’t wavered too much despite durum exports increasing.

Canadian 2019/20 durum exports tracking 69% higher through Week 17

Western Canadian durum prices averaging $7.51 CAD/bushel through December 6, 2019

With average durum prices in Western Canada hovering around the $7.50 CAD/bushel level for the past few months, I’m expecting some seasonality to come into the picture over the next few months. This means that before the end of January, we’ll probably get the highs of the year for durum prices. Also, as durum prices find some legs, this will likely buy more 2020 acres.

To growth,

Brennan Turner

CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

Due to travel this morning, no futures grain prices are in today’s FarmLead Breakfast Brief but you can review them here!

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the 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, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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