Apr 13 – April WASDE, USDA Give a Few Potential Indicators

Grain markets closed last week’s Good Friday-shortened trading in the green as a neutral April WASDE and new oil production cuts helped the complex.

“Consumers have changed how they eat, and it’s rippling back right to the farm gate.” — Dennis Rodenbaugh (Dairy Farmers of America Executive Vice President) [1]

April WASDE, USDA Give a Few Potential Indicators

Grain markets closed last week’s Good Friday-shortened trading in the green as a neutral April WASDE and new oil production cuts helped the complex. As mentioned last Wednesday, going into the April WASDE report, many traders were already largely discounting the numbers due to fluid COVID-19-related demand fluctuations, but the complex was able to find positive gains, relative to the previous Friday. And apologies for the delayed start this morning – I’ve been dealing with some internet issues all weekend.
Grain markets weekly futures performance through April 9, 2020
New crop grain markets futures performance through April 9, 2020
In other headlines, we continue to monitor the growing locust plague that’s been negatively impacting eastern parts of Africa, namely Ethiopia, Kenya, and Somalia. [2] Combined, there’s nearly 62M acres of farmland in just these 3 countries that are now dealing with the bugs, including 84% of farmland in Ethiopia, according to Gro Intelligence. The swarms are travelling east towards western Asia, including Pakistan and India but because of weakened logistics networks because of COVID-19, pesticide deliveries are basically non-existent. [3] Without curtailing the swarms, there will be a significant impact on food production in areas of the world where nutrition is already in short supply.
Those same logistical issues are not just privy to eastern Africa, but many other parts of the world, as lockdown measures are filling up ports with containers that are not getting moved because workers are staying home. [4] While China is also in the path of the locusts, it’s still a ways away before it makes it to the People’s Republic. That said, China is starting to end its lockdowns and as people re-emerge, so are the wet markets, where the COVID-19 is suspected to have originated, from Wuhan specifically. [5] That said, Cofeed is estimating that China will import around 6.9 MMT of soybeans in April as they look to re-fill their supplies before more crush plants there go idle. [6]
Looking into politics briefly, California Governor Gavin Newsom declared his state a nation-state, as he looks to defend the region from COVID-19 in terms of sourcing medical supplies, versus fighting other states and even Washington, DC for said supplies. [7] That said, the WHO is reporting that there are over seventy (70) COVID-19 vaccines currently in development around the world, including 3 that are already in human trials. [8]

April WASDE Comes and Goes

On Thursday last week, the USDA put out their April WASDE without much fanfare. [9] In their April WASDE report, the USDA lowered their estimate of how much corn is going into the ethanol column by 375M bushels to 5.05 billion bushels. This basically implies that ethanol processing for March and April was cut in half, but the USDA didn’t give us any indication in the April WASDE what it be like going forward. [10]
While leaving corn exports the same, they also raised corn going into the feed market by 150M bushels, a number I think is low as DDG production falls by the wayside with ethanol plant production dropping. Ultimately, U.S. corn ending stocks were raised by 200M bushels to climb back above 2 billion bushels. Help corn prices on Friday though was weekly U.S. export sales that blew past expectations with nearly 2.46 MMT bought up.
For soybeans, exports and residual use were lowered to raise ending stocks by 55M bushels, well above pre-report expectations. Finally, in the wheat complex, U.S. exports were lowered in the April WASDE due to uncompetitive prices on the international market. More specifically, HRW and SRW wheat exports were lowered by 10M and 5M bushels respectively (or 272,000 MT and 136,000 MT, respectively, if converting bushels in to metric tonnes).
The 2020 April WASDE gave some insights into new COVID-19 demand structures
Many grain market participants were more interested though in what’s happening down in South America, given the dryness in southern Brazil and parts of Argentina. The USDA did recognize some of the hotter weather, dropping both Brazilian and Argentine soybean estimates, but they kept corn production numbers the same as the March WASDE. Worth noting is the USDA’s attaché in Brazil lowered its estimate of the harvest there by 500,000 MT to 123 MMT. [11]
Similarly, CONAB, the USDA of Brazil, lowered their estimate of the Brazilian soybean harvest by 2.2 MMT to 122 MMT, but raised its corn production estimate by 1.8 MMT to 101.8 MMT. [12] Thanks to the strength of the U.S. Dollar in recent weeks (and as mentioned 3.5 weeks ago), the Brazil Real has weakened significantly. This has benefited Brazilian farmers as prices for soybeans and other agricultural commodities have gone up. [13]
As a quick refresher: international buyers purchase in U.S. Dollars and so when another country’s currency weakens, buyers can buy more product with the same dollars. This increases demand, and domestic prices in said country go up. In fact, apart from the ethanol industry, Brazilian agriculture might weather the COVID-19 storm better than others. [14] Conversely, a stronger U.S. Dollar makes American exports less competitive (and as mentioned above).
Something to keep in mind here is that the USDA’s estimates in this month’s April WASDE are based on the final collection of data submitted weeks before the actual publishing of the WASDE report. And, in current COVID-19 situation, a ton of factors can change in just 2 weeks. The same can be said for the planting season that’s upon us as Mother Nature has been known to giveth and taketh away very quickly.
That in mind, while the conditions may look right, most experts are saying to avoid planting corn too early as temperatures forecasts for next week are turning much cooler. [15] Similarly, with the April WASDE giving us an updated playing field, pricing in new crop corn isn’t likely the best grain marketing play right now but call options could be. [16]

Volatile Oil Markets & Meat Demand

Thursday’s meeting between OPEC and Russia was watched with bated breath by the world to see if they were going to cut production or not. In it, OPEC, Russia, and other major players have agreed to cut global oil production by 9.7M barrels of oil production per day (bpd). However, investors were hoping to see a bigger cut and thus, oil markets dropped nearly 8% in Thursday’s trading alone (albeit they’re rebounding slightly this morning). More specifically, there remains a “15-20M bpd near term imbalance in the marketplace” according to S&P Global Platts. [17] Further, much of this production drop was associated with the fact that estimated global oil demand in April would be down about 25% or 25M barrels per day in April, but the aforementioned production cuts don’t happen until May.
There’s nearly just as much supply and demand disruption in the meat markets as there is in oil markets. In the hog markets, pork prices have taken a huge hit as long-term demand is being questioned, notably from the food service industry, which is down roughly 50-70%. [18] There have been some comparisons to the crash to pork prices in 1998, but obviously the factors between now and then are obviously different, namely that markets have been turned upside down this time in terms of where the demand is coming from. [19]
In this vein, the biggest pork processing plant in the U.S., Smithfield Food’s Sioux Falls, SD facility, was shut down over the weekend as roughly 8% of their 3,700-person workforce has tested positive for COVID-19. [20] This is significant as the factory processes nearly 130M servings of food EVERY WEEK, or about 5% of U.S. total capacity! With 550 independent pork farmers in the area supplying the plant, it’s a significant blow to the value chain. Similarly, in Canada, Olymel closed one of its pork plants in Quebec after 9 of its employees tested positive for COVID-19 and in doing so, filed for force majeure on its contracts, leaving tens of thousands of animals in limbo. [21]
Ultimately, there is no model available to these companies or farmers to provide a guiding light in uncertain times. Egg prices in American grocery stores have tripled in the past month. [22] Farmers are dumping milk as processors and retailers struggle to match production to without demand from the restaurant and hospitality industries. [23] Beef markets are in similar uncertain times but optimism is growing for more stable prices as better weather and seasonal demand bumps draw nearer. [24] Beef processing plants aren’t immune either JBS has closed a Colorado plant as dozens of employees contracted COVID-19, and two employees have unfortunately passed away. [25]
Looking at the bigger picture, the IMF is now saying that the world will suffer its worst recession since the Great Depression! [26] If the COVID-19 pandemic fades and we see an easing of current lockdown/containment measures, they seen a partial economic recovery starting in 2021. In the meantime, we’ve seen 16.8M people in the U.S. file for unemployment benefits in just the last 3 weeks. This is literally unprecedented as the chart from The Block shows below.
U.S. jobless claims in the last 3 weeks have totaled 16.5M people
I hope you have a purposeful week!
To growth,
Due to some technical issues and getting the Breakfast Brief out later than desired, there is no grain markets futures data included today but you can review them here at your convenience.
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.

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