Grain markets this morning are mostly in the green, following yesterday’s June WASDE report which showed some bullish numbers for corn prices.
“A hero is someone who, in spite of weakness, doubt or not always knowing the answers, goes ahead and overcomes anyway.” – Christopher Reeve (American actor)
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June 12 – Bullish June WASDE Report Still Has Doubters
Grain markets this morning are mostly in the green, following yesterday’s June WASDE report which showed some bullish numbers for corn prices. While the USDA lowered their expectation of corn yields by 10 full bushels – from 176 bushels per acre (bpa) in the May WASDE report to 166 bpa in this WASDE report – there are some doubts about whether the cut was enough, and if the USDA has the acreage number right.
Bullish Crop Progress Precedes Bullish WASDE Report
First things first, the crop progress report published Monday afternoon by the USDA said that corn planted was at 83% complete as of Sunday, June 9th.  This still leaves about 15 million acres of corn left to plant entering the second week of June! However, the USDA, in their June WASDE report yesterday dropped corn acres by 3M! This reduction in acres is a new record for the USDA in terms of a one-month change. The previous record was set in 1995 when the USDA cut 2M corn acres in the June WASDE report, going from 75.3M to 73.3M acres. Granted, that year, by now, the crop was completely planted.
The other thing worth noting was that the percentage of the U.S. corn crop rated good-to-excellent (G/E) came in at just 59%. This is a bit bullish considering that it is 15 points behind the five-year average and 18 points behind the 77% G/E first rating a year ago. As usual, Karen Braun of Reuters has been on the ball and provides some good perspective of how things look year-over-year and on a state-by-state basis for corn crop conditions. 
On soybeans, 60% of the U.S. crop in the ground as of this past Sunday. While that is still way behind the 88% average for this time of year, it was a jump of 21% week-over-week. The main eyebrow-raising datapoint I’m looking at though is that only 34% of the crop has emerged, well behind the 73% five-year average we usually see by the second weekend of June. Put simply, thanks to Mother Nature, a bullish story might be emerging for soybeans yet. 
Looking into the cereals, the U.S. winter wheat harvest is slowing getting going with 4% of the crop cut as of Sunday (10% is the five-year average). 81% of the U.S. spring wheat crop is G/E shape, and while that’s technically down 2 points week-over-week, it’s still better than the 70% G/E rating the crop saw at this time a year ago. 84% of the U.S. barley crop is rated G/E, down 4 points from last week, mainly because of cold weather in Idaho (including snow in some places!) but the barley crop condition was 83% at this time a year ago. Finally, for U.S. oats, 65% of the crop is rated G/E, up 2 points week-over-week but 2 points behind the 67% G/E rating at this time a year ago.
June WASDE Report Shows Much Smaller Corn Crop
As mentioned, the USDA felled U.S. corn yields in the June WASDE report by 10 bushels to now sit at an average of 166 bushels per acre across the country.  Combined with planted acres falling by 3M, this meant U.S. corn production was dropped by 1.35 billion bushels to 13.68 billion! Keep in mind that this is still a huge crop, relatively speaking, as it’s only the smallest since 2015/16, but it does drop ending stocks to their lowest since 2013/14!
Comparably, U.S. soybean yields were stayed at 49.5 bpa, above the 49 bpa that the trade was looking for. As such, 2019/20 U.S. soybean production also didn’t move, sticking at 4.15 billion bushels.
On the demand front, the USDA cut 2019/20 corn use by 425 million bushels, including 125 million from exports and 300 million bushels from feed and residual use. Going into this June WASDE, I mentioned in Monday’s FarmLead Breakfast Brief that I was expecting to see some substitution effects in corn. One interesting datapoint was that U.S. wheat going into the feed markets was only raised by 50 million bushels. While there was nothing to really report on changes to the U.S. soybean balance sheet, the USDA did acknowledge in their oilseeds report that “global oilseed consumption continues to grow despite slowing trade and production.” 
WASDE Report Quiet on the International Front
Except for corn, the global numbers that came out in the June WASDE report were a bit more neutral, with no major changes. Yes, 2019/20 worldwide corn ending stocks were dropped significantly to reflect the downgrade in U.S. production, but there weren’t too many changes. Maybe the one highlight would be the USDA raising Brazilian corn production estimates to 101 MMT, a new record.
For wheat, again, not too much changed in this WASDE report except for Black Sea numbers as the USDA dropped both Russian and Ukrainian wheat production by 1 MMT. This puts their 2019/20 wheat harvests at 77 MMT and 29 MMT respectively. For the record, these are both below local forecasts from private analysts, including SovEcon’s estimate of Russian wheat production at 82.2 MMT.
This means that Canada’s wheat production number stayed at 34.5 MMT, Kazakhstan and Argentina held at 13.8 MMT and 20 MMT respectively, and even Australia’s number did not move from 22.5 MMT. However, ABARES did lower their estimate of 2019/20 wheat production in the Land Down Undaa just this morning to 21.2 MMT from their first forecast of 23.9 MMT (not to worry; we’ll look more at Australia numbers in this coming Friday’s FarmLead Breakfast Brief).
Where Go Prices Go After this WASDE Report?
Now that the June WASDE report is out the way, it’s back to a yield and production debate. However, you can’t have that discussion without a foundational base in terms of the number of acres seeded and this will hinge on Prevent Plant acres, something mentioned in last Friday’s FarmLead Breakfast Brief. In that commentary, I also timestamped that the final corn yield would end up somewhere between 163 and 168 by the January 2020 WASDE report, so I’m in the ballpark of where the USDA pegged things this go around.
The previous high for Prevent Plant acres in the past two decades was 3.6M acres of corn and 2.2M acres of soybeans.  Most talking heads agree that a new record for Prevent Plant corn acres will be established this year and my gut says that the number will be above 4.5M acres, but no more than 6M, as the market is asking/paying U.S. farmers to plant corn.  After all, yesterday, we saw the ratio between new crop corn prices and new crop soybeans dip below 2.0 for the first time since 2012 when things were really dry in the Corn Belt.
Concretely, the rally in corn prices will likely last a bit longer and will support wheat and feed barley prices higher. The latter two crops will likely see more gains if drought conditions persist in most parts of Western Canada, and while the rains this past weekend didn’t fall everywhere in the region, I consider them to be bearish. Finally, soybean and canola prices have international trade disputes weighing on them (read: Chinese trade disputes) and so, while Mother Nature could provide some weather premiums, the international demand function will likely limit any significant rallies.
Due to travel and meetings this morning, there is no futures data in today’s FarmLead Breakfast Brief but you can view them here.
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