Grain markets this morning are mostly in the green after 2 days of selling following the USDA’s surprisingly bearish numbers from Monday’s WASDE.
“I’ve had my run in with trouble. Fortunately, one slap on the hand is usually the last time for me… I learned my lesson.” – Aaron Carter (American musician)
Aug 14 – USDA Gives Grain Markets Bearish Slap in the Face
Grain markets this morning are in the green this morning after 2 days of selling following the USDA’s surprisingly bearish numbers from Monday’s WASDE. Corn prices have easily taken the biggest hit since the August WASDE was released. More specifically, the December 2019 corn contract has lost about 40 cents USD/bushel (or nearly 10%) to currently sit around $3.80. I think there might be a little more bleeding left to go and there’ll need to be some sort of bullish data point to re-energize the speculators.
Before digging into Monday’s numbers from the USDA, the White House has suggested that they will delay import tariffs on the remaining $300B of Chinese goods until December 15th and will go back to the negotiating table with China in a few weeks.  President Trump has argued it’s to help ease the financial burden on Americans during the Christmas season but there are more American farmers getting impatient with the world leader, as they continue to look for trade, not trade aid.  On that note, rumours are buzzing that President Trump asked Japan to start buying large amounts of agricultural goods.  This comes as the U.S. and China are hoping to get a bilateral trade deal done in September.
While a lot of the action this week has focused on the August WASDE, the USDA also shared crop conditions on Monday, but ratings remain stagnant, with nothing improving or declining.  That said, there’s a lot of uncertainty and the cooler weather as of late isn’t doing anything to help the crop. More specifically, frost has already been seen by farmers in the Peace (Alberta) and North Dakota, and it’s becoming a major concern for Minnesota and Wisconsin. 
USDA Suggests Huge Corn Acres, Yields
Getting back to the August WASDE, the biggest surprise from the USDA on Monday was acres. Everyone and their mother was expecting corn acres to drop, yet the USDA basically suggested that said every farmer and their mother planted corn in June as corn prices rallied. More specifically, the USDA said that total planted corn acres this year were 90M, well above the 88M that the market was expecting. This, despite it being the worst planting season ever as 11.5M acres of corn were categorized as Prevent Plant. This basically means that U.S. farmers intended to plant 101.2M acres of corn this year (Cue your favourite “shocked-face” gif).
University of Illinois ag economist Scott Irwin made some really healthy points following the WASDE report release, suggesting that acres could be right, but yields are likely wrong.  More specifically, basically 2/3s of the U.S. corn crop was planted after May 15th, the usual cut-off date for optimal yield potential. This included more than 1/3 of the crop that was planted after June 1st. Thus, if a significant amount of corn was planted after optimal yield dates, how can the USDA justify corn yields of 169.5 bushels per acre, or just 7 bushels less than last year’s 176.4 bpa.
Put another way, we didn’t have near-optimal planting conditions like seen last year and so it’s scientifically possible that corn yields are only marginally lower than last year’s near-record yields? Conversely, a private crop tour via Pro Ag Marketing estimated their corn yield at 159.9 bushels per acre.  We have more crop tours on the books, including one through Ohio this week (which has some of the highest prevent plant corn acres in the country) as well as the Pro Farmer crop tour next week. These in-field measurements might be just bullish enough to get corn prices going again.
More broadly, more than 19.4M acres of American crops weren’t able to get seeded and got categorized as Prevent Plant.  This included 4.4M acres of soybeans that weren’t able to get planted, which meant soybean planted acreage fell to 76.7M acres. The market was actually expecting to see 81M acres planted, so that 4.3M-acre reduction was relatively bullish, but soybean prices have fallen alongside corn prices. Further, although the USDA kept soybean yields at 48.5 bushels per acre (same as the July WASDE report), the acreage reduction was enough to push production down to 3.68 billion bushels (market was expecting 3.8 billion) and 2019/20 carryout to 755M bushels (market was expecting 821M bushels). Here’s a breakdown of some of the other major areas grain markets were watching on Monday.
Wheat Numbers from the USDA to Consider
For the wheat market, it was a bit surprising to see the USDA raise average American wheat yields by 1.6 bushels per acre, especially considering that a crop tour of HRS wheat yields a few weeks ago said otherwise. This effectively drove production 60M bushels higher from the July WASDE, and although U.S. wheat exports and feed use were also raised, ending stocks jumped 14M bushels.
Digging deeper, durum production was lowered by more than 1M bushels and exports were increased by 5M, which resulted in American durum carryout lowered by 6M to now sit at 54M bushels (or 1.47 MMT if converting bushels into metric tonnes). Conversely, U.S. hard red spring wheat production was raised by 24M bushels but domestic use was raised by basically the equivalent amount, so ending stocks barely moved, now sitting at 322M bushels (or 8.76 MMT).
Internationally, Europe and Russia saw production declines from the July WASDE, but this was made up by bumps in the wheat harvest of America, Argentina, and the Ukraine. On the exports front, it was the same dynamic with Russian and E.U. shipments felled, but the other nations with production increases also are expected to export more. Worth noting is that the USDA expects only 2 major wheat countries to see their wheat exports decline in 2019/20 compared to last year: Canada and Russia.
Overall, Like Mr. Irwin and many other market analysts, the USDA has created more questions in this WASDE report, than answering the ones we still had from the July WASDE.  Of course we can speculate about what the USDA isn’t doing right, but the main takeaway here is that, as many risk managers have pointed out this week, “the USDA is wrong” is not a very good excuse for not being on top of your grain marketing and instead making poor decisions.  Maybe tough words to digest but I think we can all agree that it’s the truth.
At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3221 CAD, $1 CAD = $0.7564 USD)
Sept Corn: +1.5¢ (+0.4%) to $3.675 USD or $4.859 CAD
Sept Soybeans: -5.3¢ (-0.6%) to $8.71 USD or $11.515 CAD
Sept Soybean Meal (per short ton): -$2.00 (-0.65%) to $297.20 USD or $392.91 CAD
Sept Soybean Oil (cents per lbs): unchanged at 29.17¢ USD or 38.56¢ CAD
Sept Oats: -1.8¢ (-0.65%) to $2.70 USD or $3.57 CAD
Sept Wheat (Chicago): +3.3¢ (+0.7%) to $4.753 USD or $6.283 CAD
Sept Wheat (Kansas City): +1¢ (+0.25%) to $3.845 USD or $5.083 CAD
Sept Wheat (Minneapolis): +2.8¢ (+0.55%) to $5.06 USD or $6.69 CAD
Nov Canola: +3.4¢ (+0.35%) to $10.215/bu / $450.40/MT CAD or $7.727/bu / $340.68/MT USD
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