Grain markets this morning are mostly green as the April WASDE report tomorrow has investors positioning, amidst all the other COVID-19 turmoil in the markets.
“If I had to live my life in anticipation of what others thought of me, little would get done.” – Henry Rollins (American artist)
Anticipating the April WASDE Report with a Grain of Salt
Grain markets this morning are mostly green as the April WASDE report tomorrow has investors positioning, amidst all the other COVID-19 turmoil in the markets. Yesterday, wheat prices dropped for the second straight day as the USDA said the crop is looking better than what investors were expecting. Going into the crop report, the market was expecting only 56% of America’s winter wheat crop to be rated good-to-excellent (G/E) but the USDA said it was in fact 62%. However, losses were minimized as wheat traders are wary of another cold snap that’s expected to hit the U.S. starting this Easter weekend. 
That said, with a window of nice weather to start this week, planters across the American Midwest started rolling this week, which is drawing the ire of every Western Canadian and Northern Plains farmer who still have snow in their fields. While it’s a long way out, Colorado University said that 2020 will likely be an above-average hurricane season, with most storms coming in the August to October timeframe (or just around the time crop tours are out and about). 
Quick How-to for Combyne Connections
I’ve had a few conversations this week with Combyne users about why they should be hitting the “Connect” button and adding people to their trading network on the Combyne cash grain marketplace. It’s pretty simple: Combyne only notifies you of grain deals from the people who are already your Combyne Connections. Thus, if you’re NOT connected on Combyne with someone, you never get notified of their deals.
Further, if you see a Listing on the Marketplace that doesn’t make sense from a movement or price standpoint today, there’s a strong likelihood that there will eventually be a deal that makes sense for you. Simply put, you should be tapping “Connect” with all the buyers you can (if you’re a farmer) and all the farmers you can (if you’re a buyer). Instead of randomly coming across grain deals (on Combyne or elsewhere), adding people to your Combyne Connections helps organize the randomness into one simple screen.
As a reminder, using Combyne is completely free (we will introduce some paid-for premium features later in 2020).
April WASDE Report Expectations
Tomorrow we’ll get the USDA’s updated world agricultural supply and demand estimates for the month of April. The April WASDE report is usually a non-event, with a lot of the numbers already digested from the USDA’s Prospective Plantings report, out last week on March 31st. Going into the April WASDE report, there are already a lot of people planning to take the data with a grain of salt. Notably for corn and soybean ending stocks, most traders are expecting both U.S. and global inventories to rise. While it’s unlikely that the USDA will account for these drops entirely in tomorrow’s April WASDE report, grain markets will still discount the USDA’s estimates (read: bearish).
The main reason for this? We already know that there’s drastically less oil demand out there, which means that there’s drastically less ethanol demand, which means that there’s drastically less demand for corn. For example, yesterday, POET it’s idling 4 plants (including one new one), which, combined, account for roughly 110M bushels of corn demand (or 2.8 MMT if converting bushels into metric tonnes).  It’s been estimated that if COVID-19 lockdown conditions persist, gasoline demand will drop by about 55% from pre-pandemic levels. This would equate to about 2.7 billion bushels of corn demand being lost (or about 68.6 MMT!) If that were to be the case, we won’t see the USDA acknowledge this is all at once, be it in April’s WASDE report, next month’s WASDE report, or even further!
In tomorrow’s April WASDE report, I’ll also be looking for what the USDA has to say about South American production. Dryness in southern Brazil and parts of Argentina have seen local analysts drop their production forecasts. For example, AgRural dropped its Brazilian soybean production estimate by 500,000 MT to 123.8 MMT just as the soybean harvest crosses 83% complete. More notable though is the Brazilian Education Minister who explicitly stated on Twitter that he thinks China is to blame for the pandemic and has the most to gain from it.  Obviously, China is a very big buyer of many Brazilian commodities, especially soybeans. China is also not happy with Argentina as COVID-19 is being referred to there more and more as the “Chinese flu”. 
On the bullish side of things, the team at the Hightower Report are thinking that disruptions in South American and below-average production is a positive for soybeans.  We also know that the USDA is going to re-survey corn and soybean producers in Michigan, Wisconsin, Minnesota, and South Dakota who previously reported unharvested fields. The one notable state that’s missing is North Dakota, who the USDA said they’ll contact those farmers again once the state gets closer to finishing their harvest. The bottom line is that we know the last few publications from the USDA have been rank with incomplete data, so I’m not really expecting the April WASDE report to be any different.
COVID-19 Macro Factors I’m Watching
Researchers at the Imperial College of London have a model that suggests the U.S., France, Italy, Spain, and the U.K. will all experience at least 5,000 deaths in the coming week from COVID-19.  This comes as British Prime Minister, Boris Johnson, spent his 2nd night in ICU due to COVID-19 complications. If a world leader passes because of COVID-19, the WHO and China are going to have work on saving face very quickly with everyone else.
That said, while it was officially reported by the Chinese government that the original epicentre, Wuhan, has no new cases and formally ended the lockdown there, some housing complexes remain in quarantine as an official newspaper said there could still be 10,000 to 20,000 cases in the city.  That article was quickly deleted online (if you’re asking by who, I’ll remind you that China censors its media with an iron fist).
On the macroeconomic side of things, Blackstone CEO Steve Schwarzman sees the financial impact of COVID-19 on the U.S. economy erasing roughly $5 Trillion, or nearly 25% of the country’s total annual $22 Trillion GDP.  Credit Suisse estimated earlier this week that U.S. economy could contact by 33% in the second quarter and at least 5% for the year, which would be double the losses we saw in the 2008 financial crisis. 
In Canada, more than 4M people have filed for unemployment benefits and that at least 15% of the country’s workforce would likely be laid off in March or will be in April.  Specifically in Alberta, Premier Jason Kenney predicts that unemployment in the province to climb above 25%.  As mentioned in Monday’s Breakfast Brief, the food supply chain is looking for more workers and so there are definitely jobs available, but it’s likely a matter of people deciding if they’re willing to do some “tougher” work versus needing to do it.
The obvious reasons behind the increase in unemployment in Alberta is first, the crash of oil prices and, second, the COVID-19 lockdowns shuttering businesses. I know of 4 businesspeople alone in Alberta who have or are in the process of winding down their retail businesses, meaning 1,000s of workers from just their companies are out of work. Some will point to the relief that the government is offering, but a $40,000 loan to cover $100,000s in operational costs every month just doesn’t make sense. The better bet seems to be to stop business altogether, wait until the COVID-19 economic disruptions pass, and then hope your operational partners are interested in doing business with you again in a few months. The ripple effects of this process are significant though, especially in the commercial real estate space.
In addition to tomorrow’s April WASDE report, markets will be closely eyeing the meeting between Saudi Arabia, Russia, and other major oil producers. Expectations are that the various countries will agree to a cut in production, but only if the U.S. is also willing to mandate lower production. However, oil prices lost more than 9% yesterday as even with production cuts, the market believes that it’s still too much to level out against the plunge in demand. 
Although President Trump hasn’t agreed to any government-mandated production cuts, the EIA shared yesterday that American oil companies have already cut output by 500,000 barrels per day.  Ultimately, without production cuts, it seems like the world will run out of storage in a few months, but one Houston-based company has built a solution to bag the oil.  And just to think, many years ago we thought putting grain into bags was a crazy idea.
As markets are closed in observance of Good Friday, there’ll be no Breakfast Brief that day. Another reminder: take it easy on the chocolate this long weekend!
At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4108 CAD, $1 CAD = $0.7088 USD)
May Corn: +2.3¢ (+0.7%) at $3.338 USD or $4.673 CAD
May Soybeans: +4.3¢ (+0.5%) to $8.59 USD or $12.027 CAD
May Soybean Meal (per short ton): +$3.10 (+1.05%) to $296.90 USD or $415.71 CAD
May Soybean Oil (cents per lbs): -0.08¢ (-0.3%) to 27.40¢ USD or 38.37¢ CAD
May Oats: +0.5¢ (+0.2%) to $2.748 USD or $3.847 CAD.
May Wheat (Chicago): +4¢ (+0.75%) to $5.533 USD or $7.746 CAD
May Wheat (Kansas City): +7¢ (+1.5%) at $4.803 USD or $6.724 CAD
May Wheat (Minneapolis): +4.8¢ (+0.9%) to $5.293 USD or $7.41 CAD
May Canola: -1.4¢ (-0.15%) to $10.43/bu / $459.90/MT CAD or $7.449/bu / $328.46/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.