Aug 9 – Monday’s WASDE Report to (Hopefully) Clear the Air

Grain markets continue to find gains ahead of Monday’s August WASDE Report, rebounding from the lows seen earlier in the week.

“The ordinary experiences of aging alter and clarify your view of past, present, and future.” – Edith Pearlman (American author)

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Aug 9 – Monday’s WASDE Report to (Hopefully) Clear the Air

Grain markets continue to find gains ahead of Monday’s August WASDE Report, rebounding from the lows seen earlier in the week. As discussed in Wednesday’s FarmLead Breakfast Brief, recent volleys between China and the United States have amplified the trade war between the two countries and sent equity and grain markets lower. The back and forth between Washington and Beijing have kept a little pressure on soybean prices but they did rally 17 cents yesterday; Corn gained nearly 5 cents while wheat prices in Chicago earned a dime for the day.

A strong reversal in soy oil prices and cool temperatures in Western Canada earlier this week has helped canola prices rebound a bit to get back above $450 CAD/MT on the futures board. The other factor supporting canola prices is just the variability of this year’s Canadian canola crop. Grain World’s crop tour last week through the Canadian Prairies showed some late crops, some just now flowering. With some really hot days last week, the flowering period could shorten, thus reducing the number of pods per plant. [1] Across Saskatchewan, there’s a high amount of variability and production potential is being looked at moreso from a field-by-field basis. [2] That said, average cash canola prices in Western Canada for spot movement lost a little more than 9% in the 2018/19 crop year.

2018/19 cash canola prices in Western Canada averaged 9% lower for the crop year

Brazil: Big 2019/20 for Soybeans

Domestic soybean prices in Brazil continue to be supported by strong demand from China, with port premiums up 70% in the last 8 weeks according to Refinitiv data. [3] At $1.35 USD/bushel above Chicago futures values, soybean prices at the Brazilian port of Paranagua are now sitting at their highest level in 9 months. The Brazilian Real losing 5% against the U.S. Dollar in the past month has also helped domestic soybean prices climb.

On that note, Brazil is expecting more demand from China and selling of both old crop and new crop is taking place, in addition to more acres being seeded this fall. Rich Nelson from Allendale notes that U.S. new crop soybean sales are the lowest they’ve been in 14 years. [4] On the flipside, China imported 8.64 MMT of soybeans in July, 8% higher than last July and the biggest month for shipments since August 2018. [5]

An average poll of analysts is pegging Brazil’s 2019/20 soybean crop at 90.68M acres, up 2.3% year-over-year. As a reminder, farmers in the South American country can start planting the oilseed after September 15th. It’s logical though as even COFCO, China’s state-buying grain agency, said that they’re expanding their operations in Brazil and will increase soybean purchases by 5% from Brazil for each of the next 5 years. [6] They also are planning to expand its renewable energy portfolio, on top of the four ethanol plants it already operates in Brazil.

The fact remains that U.S. ag exports to China dropped by 50% last year and the Wall Street Journal reports that that tens of thousands of jobs are expected to be lost in the American ag sector as a result of the weaker trade. [7] To be clear, this doesn’t include those farmers who might be considering bankruptcy as the double-whammy of the trade war and a poor Plant 2019 was just too much to handle financially. Some of the discontent boiled over this week as the leaders of various farm groups called out U.S. Secretary of Agriculture, Sonny Perdue, and his boss, President Trump, at a fair in Minnesota for continuing to inflict damage on U.S. farmers. [8]

August WASDE Report Expectations

In my opinion, the biggest thing to watch for in Monday’s WASDE report will be acres. Quite simply, the July WASDE was completely useless because the acreage numbers that lay the foundation for production were completely irrelevant and the USDA knew it. More specifically, the USDA used the June acreage report numbers in the July WASDE report, despite acknowledging that those acreage numbers were going to be re-surveyed (basically implying that even the USDA didn’t believe them!). [9]

Accordingly, the average pre-report estimate for acres in this WASDE report is pegged at 87.998M for corn and 81.006M for soybeans. Compare this to the July WASDE report acres of 91.7M for corn and 80M for soybeans. In terms of the range, the lowest corn acres estimate was 83.4M while the highest was 89.8M, ultimately meaning that, if the USDA doesn’t drop their estimate by at least 2M acres, things could get pretty bearish based on what the market is currently expecting to see. [10]

After acres, yield will be the second-most important thing to watch in my opinion. Average expectations from analysts ahead of Monday’s WASDE report is for U.S. corn yields to come in at 164.9 bushels per acre and soybeans at 47.6, both a bit below July’s numbers. Here’s a look at some of the other pre-report estimates (from Reuters) and compare them to the July WASDE report estimates.

Pre-report estimates for August WASDE report, set to be released by the USDA at 11AM EST on Monday, August 12th

Even AccuWeather is weighing in, forecasting U.S. corn production at 13.07 billion bushels and soybean production at 3.9 billion bushels. This corn harvest would be nearly 6% below the USDA’s estimate from the July WASDE report. [11] While the pre-WASDE report estimates and Ag Twitter run wild over the next few days, Monday morning at 11AM CST, the USDA will help clear the air. Then again, there’s always the possibility that they could fog it up again as they did in the July WASDE report, but I’ll admit I think there’s a small chance of the USDA making the same mistake two months in a row.

P.S. Next week I’ll be at AgSmart in Olds, AB – please let me know if you’re going to be attending as I’d love to meet up face-to-face and hear how things are going for you!

Have a great weekend!

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

At 8:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3216 
CAD, $1 CAD = $0.7567 USD)

Sept Corn: +2¢ (+0.5%) to $4.13 USD or $5.458 CAD
Sept Soybeans: +6.5¢ (+0.75%) to $8.768 USD or $11.587 CAD
Sept Soybean Meal (per short ton): +$1.10 (+0.35%) to $297.90 USD or $393.71 CAD
Sept Soybean Oil (cents per lbs): +0.45¢ (+1.55%) to 29.46¢ USD or 38.94¢ CAD  
Sept Oats: +0.8¢ (+0.25%) to $2.755 USD or $3.641 CAD
Sept Wheat (Chicago): +5.3¢ (+1.05%) to $5.038 USD or $6.658 CAD
Sept Wheat (Kansas City): +1.3¢ (+0.3%) to $4.198 USD or $5.547 CAD 

Sept Wheat (Minneapolis): +0.5¢ (+0.1%) to $5.21 USD or $6.886 CAD
Nov Canola: +4.8¢ (+0.45%) to $10.303/bu / $454.30/MT CAD or $7.796/bu / $343.75/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.

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