Apr. 1 – USDA Bears Down in March Reports

Grain markets this morning are mixed with the complex trying to rebound from Friday’s reports from the USDA, namely corn and soybean prices.

“As the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market.”- Robert Kiyosaki (American businessman)

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Grain markets this morning are mixed with the complex trying to rebound from Friday’s reports from the USDA, namely corn and soybean prices. With these major USDA reports out of the way, most of the attention of the market will return to weather and the China-U.S. trade war negotiations.

One more report that might receive some attention today will be the February 2019 soybean crush report. The market is expecting to see 165 million bushels used up (or 4.49 MMT if converting bushels into metric tonnes), which would be a healthy jump from the 153.2 million bushels used in February 2018.

Overall though, grain markets are still recoiling from the USDA reports on Friday, March 29th. With the last year of a trade war with China and another big harvest in 2018, the USDA reminded us that there’s still a lot of grain left out there. While we’ll get into that data in a second, the bearish numbers – especially for corn – will certainly be factored into the next WASDE, published on Tuesday, April 9th. This comes as there are already big crops on the horizon for the Ukraine, Brazil, and Argentina.

Checking in on South America

On that note, it’s expected that South America will produce at least 26 MMT more corn than it did last year. In Argentina, the corn harvest there is just starting up with roughly 15% of the crop now cut, but it’s looking large. [1] In fact, it’s estimated that farmers in Argentina will harvest a record 46 MMT of corn for their 2018/19 crop year. With harvest in full swing, trucks are heading to the ports in Argentina in record numbers, with the Port of Rosario unloading an average of nearly 6,000 trucks per day last week. [2]

Since the majority of those trucks headed to port are filled with corn, you know that Argentina corn will be competing with U.S. corn on the export front. Further, it’s expected that Argentina farmers will be more likely to sell corn before they sell soybeans, as with the latter, prices are very low, and so most will wait for crusher bids to improve. The decline in soybean prices has mainly been attributed to a slowdown in buying interest from China, as the People’s Republic have started to source a bit more from the United States. Keep in mind that China is also dealing with a smaller demand need, thanks to the African Swine Fever pushing down the number of animals that need to be fed.

Next door in Brazil, better weather and bigger second-crop, safrinha acres in most of the country means that there’s a  big crop on the horizon, to the tune of more than 66 MMT, which would be a 23% jump year-over-year. It’s worth mentioning, however, that there is some dryness and cooler temperatures on the horizon, with some areas getting close to freezing. [3]

USDA Reminder of Hefty Grain Stocks

Coming back to the Friday USDA reports, corn was hit the hardest, as the USDA reported that there was still 8.605 billion bushels out there as of March 1st. [4] That’s down about 3% from the same time a year ago, but the market was expecting to see something closer to 8.335 billion bushels. As such, front-month May contracts lost 17.5 cents USD/bushel alone on Friday, while new crop December 2019 futures fell 13.5 cents. For the former, this was the biggest one-day drop in corn prices in percentage terms since July 2016! For the week, these two contracts lost nearly 22¢ and more than 15¢, respectively.

The double-whammy for corn prices came in the USDA Prospective Plantings report, where the government agency now estimates that American farmers will seed 92.792 million acres of corn this spring. That is way above the 91.33 million acres that the market was expecting to see and even higher than the 92 million acres that the USDA estimated back in February and their Ag Outlook forum. For perspective, last year, American producers seeded 89.14 million acres of corn; if the new number from the USDA is realized, this year’s crop could be planted on 4% more area.

Wheat and soybeans mostly followed corn prices lower on Friday, but wheat also had some trouble of its own as its inventory levels as of March 1st was pegged at 1.591 billion bushels. This would be the second-largest volume in the last 30 years and about 30 million bushels above what the market was expecting to see.

Further, total wheat acreage came out at 47.33 million, which is a little above the pre-report average guesstimate of 46.92 million acres. Despite winter wheat acreage expecting to be the smallest it’s been in 110 years, new crop Chicago and Kansas City wheat prices dropped nearly 11% and more than 14% respectively for the first quarter of the calendar year.

For soybeans, inventories as of March 1st were pegged at 2.716 billion bushels. [5] This would be a new record for the reporting period, 29% higher than last year’s volume, and 36 million bushels above the market’s pre-report expectation of 2.68 billion bushels. From an acreage standpoint, the USDA suggested that American farmers will seed 84.617 million acres of soybeans, which is about 1.55 million or 2% below what the market was expecting to see.

As mentioned in last Friday’s FarmLead Breakfast Brief that came out before the USDA reports, a lot of attention will now turn towards how many acres do not get planted this spring. This is because of the ongoing flooding that the NOAA says is only going to get worse from the roughly 1 million acres of US farmland already under water. [6] On that note, “significant rainfall” is expected in the western Corn Belt over the next two weeks. [7] Most analysts are expecting somewhere between 3 and 4 million prevent plant acres, which would be the highest since 2016. Mother Nature ultimately, and as usual, will have the final say.

To growth,

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

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3345 
CAD, $1 CAD = $0.7494 USD)

May Corn: +2.8¢ (+0.75%) to $3.593 USD or $4.794 CAD
May Soybeans: +5.5¢ (+0.6%) to $8.898 USD or $11.874 CAD
May Soybean Meal (per short ton): +$1.20 (+0.4%) to $307.70 USD or $410.62 CAD
May Soybean Oil (cents per lbs): +0.09¢ (+0.3%) to 28.45¢ USD or 37.97¢ CAD  
May Oats: +6.3¢ (+2.3%) to $2.753 USD or $3.673 CAD
May Wheat (Chicago): +1.3¢ (+0.25%) to $4.59 USD or $6.125 CAD
May Wheat (Kansas City): -0.5¢ (-0.1%) to $4.295 USD or $5.732 CAD 

May Wheat (Minneapolis): -1.3¢ (-0.25%) to $5.535 USD or $7.386 CAD
May Canola: -1.4¢ (-0.15%) to $10.312/bu / $454.70/MT CAD or $7.728/bu / $340.73/MT USD

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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