FarmLead Breakfast Brief
Friday, August 11th, 2017
“Realize what you really want. It stops you from chasing butterflies and puts you to work digging gold.”
– Charles Moulton (US inventor)
Good Morning !
At 7:40 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2671 CAD, $1 CAD = $0.7892 USD)
Sept Corn: +0.8¢ (+0.2%) to $3.58 USD or $4.536 CAD
Sept Soybeans: +4.8¢ (+0.5%) to $9.388 USD or $11.895 CAD
Sept Soybean Meal (per short ton): +$2.40 (+0.8%) to $298.20 USD or $377.85 CAD
Sept Soybean Oil (cents per lbs): +0.24¢ (+0.7%) to 34.03¢ USD or 43.12¢ CAD
Sept Oats: -0.8¢ (-0.3%) to $2.653 USD or $3.361 CAD
Sept Wheat (Chicago): -0.5¢ (-0.1%) to $4.40 USD or $5.575 CAD
Sept Wheat (Kansas City): -2.3¢ (-0.5%) to $4.46 USD or $5.651 CAD
Sept Wheat (Minneapolis): +6.8¢ (+0.95%) to $7.10 USD or $8.996 CAD
Nov Canola: +3.2¢/bu / +$1.40/MT (+0.3%) to $9.085/bu / $400.60/MT USD or $11.512/bu / $507.60/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.492 USD or $3.157 CAD
Oct Durum Wheat: +19.1¢ (+2.25%) to $6.873 USD or $8.709 CAD
Oct Milling Wheat: -21.8¢ (-2.8%) to $5.95 USD or $7.539 CAD
Digging into the USDA’s August WASDE Numbers
That was the sound heard yesterday as fund money’s air was let out of the grains markets.
A selloff occurred moments after noon eastern time with the release of the USDA’s August World Agricultural Supply and Demand Estimates. 
As Garrett mentioned in Grain Markets Today, corn prices and soybeans prices all ticked higher ahead of the report.
And then the USDA washed away all those bullish dreams.
Everyone thinks that USDA analysts are nuts.
While we mentioned on Wednesday that the market was expecting US corn yields of around 166 bushels per acre and soybean yields around 47.5 bu/ac, the USDA told us a different story.
The USDA pegged US corn yields at 169.5 bu/ac, and American soybean yields were raised by 1.4 bushels per acre to 49.4.
According to the USDA, not only does rain make grain, but so does super-hot temperatures.
I, like practically 99% of the market, think that the USDA’s corn yields will be revised lower in September. There are people still sticking to their 160 bushel-per-acre estimates.
With soybeans, I’m not so sure. Given some decent growing conditions, a final US yield with a 48 in front of it would not surprise me in the January 2018 WASDE report.
Let’s dig into some of the USDA’s numbers. Even if you don’t believe them, they set the playing field for the next couple week.
Corn Yields and Prices
December corn dropped more than 15 cents per bushel on the Chicago futures board on that 169.5 yield number. If that number sticks, it would be the third-highest corn yield on record in America.
With this above-expected yield, US corn production came in at 14.15 Billion bushels (the FarmLead Grain Unit Converter tells us that this is equal to 359.5 million tonnes or MMT). The market was expecting around 13.855 billion bushels (or 7.6 million tonnes less).
The high production also means higher carryout. The USDA pegged 2017/18 US ending stocks at 2.273 billion bushels. Pre-report expectations were a little bit above 2 Billion bushels.
Globally, total corn production was lowered by 3.5 million tonnes, mainly because of the reduced American numbers.
Thanks to some heat in Europe, the crop there was reduced by 1.6 million tonnes to 60 MMT. Average corn yields in the EU are pegged at 111.3 bushels per acre, pretty much in line with the 5-year average.
Despite some hot weather in China, the USDA kept corn production in the People’s Republic at 215 million tonnes harvested across 86.5 million acres. This means average yields of 97.8 bushels per acre.
For global ending stocks, the USDA didn’t change much, keeping worldwide carryout things at nearly 201 MMT by the end of the 2017/18 crop year.
Sure, this is almost a 12% decline from the 2016/17 carryout, but China sold off a bunch of its inventory. And because China doesn’t import a whole lot of corn (3 MMT last year, 3 MMT this year), their ending stocks decline doesn’t have an impact on global corn prices.
Quite simply, there’s still a lot of corn out there in the world.
Better-Than-Expected Bean Fields
As mentioned, US soybeans yield was increased to 49.4 bushels per acre.
That’s not far off from last year’s record yield of 52.1.
This means total US production at a record 4.38 Billion bushels (or 119.2 million tonnes). The market was expecting something closer to 4.2 Billion bushels.
As such, US carryout was increased to 475 million bushels. This was not the 424 million bushels (11.64 MMT) carryout that the market was guesstimating beforehand.
The somewhat bullish news was that 2016/17 US soybeans ending stocks came in 370 million bushels, about 30 million less than the pre-report expectation. The increase was mainly because of exports.
Globally, oilseed production is forecasted at a record 577 million tonnes in 2017/18.  Global soybean production is forecasted at 347.4 million tonnes, just 1.25% below last year’s record of 351.7 million.
From a global demand standpoint, China continues to the lead the way although their soybean imports for 2017/18 went unchanged in this report at 94 million tonnes.
However, more bearish news followed this morning. China’s soybean crushers have suspended operations because of inspections and high soy-meal stocks.  This is happening even though they are finally making a profit ($6 USD/MT) after losing money on each tonne they processed for the last 6 months.
Brazil’s 2017/18 soybean exports were left the same as July’s report’s number at 64 million tonnes. That’s a record.
America’s 2017/18 soybean exports were raised by more than 2 million tonnes to 60.555 MMT. That’s also a record.
Looking at 2016/17 crop year revisions, US exports were raised by 1.5 million tonnes (or 55 million bushels). This puts total US soybean exports for 2016/17 at 58.5 million tonnes. Brazil still took the crown as top soybean exporter, even though their exports were lowered by 500,000 MT. Argentina’s soybean exports were also lowered for 2016/17, down 1MMT to 7M tonnes.
Sidenote: Canadian soybean production is estimated at 8.2 million tonnes with average yields of 42.4 bushels per acre.
Second side note: Russia’s soybean production of 3.9 million tonnes this year would be their second straight record crop. Average yields are only pegged at 23.2 bushels per acre, but that’s 19% higher than the 5-year average. It might take a few more years, but given the unseeded land available in Russia (rumored to be around 20 million acres), they might have the potential to be a player in the soybean market in the future.
Tighter Canola Trade?
EU rapeseed production is forecasted at 22 million tonnes, meaning they’ll have to import less in 2017/18. That being said, EU rapeseed imports for 2016/17 were revised higher by 380,000 MT 4.8 million tonnes.
The USDA also says that the bigger crop in the EU also offsets output reductions in the US and Canada.
In the Great White North specifically, Canadian canola production was dropped by 500,000 MT to 20.5 million tonnes. That’s above almost every other estimate I’ve seen, including my own (sitting around 19.75 million tonnes).
The USDA is forecasting average Canadian canola yields at 36.6 bushels per acre. This, despite admitting below-average soil moisture conditions across Western Canada and higher temperatures in Saskatchewan and Alberta. We’ll see in 3 weeks on Thursday, August 31st how StatsCan feels about this number when they release their production estimates (albeit, they’re based on July surveys).
From a demand perspective, the USDA raised 2017/18 Canadian canola exports by 200,000 MT to 11.2 million tonnes in their July estimates. However, this month, that 200,000 MT was erased, and the number was moved back to 11 million tonnes.
What’s Up Russia?
That’s my question.
They’ve got something going on in the soil over there because the USDA just increased wheat production by 5.5 million tonnes from their July forecast to 77.5 MMT. This is 5 million tonnes above last year’s record.
The USDA says the reason for the increase was two-fold. First, higher yields were seen in the winter wheat areas. Second, satellite imagery in spring wheat-growing areas of Russia shows some pretty deluxe conditions.
Overall, total average wheat yields in Russia are pegged at 43 bushels per acre. That’s up 10% from last month’s estimate, 8% higher than last year’s record, and 25% above the 5-year average. 
Ukrainian wheat production was also increased, up 2.5 million tonnes from July’s estimate to 26.5 million tonnes. The market was instead expecting a downgrade. Yes, hot weather hit part of the country that produces about 40% of the crop.
Apparently, the other areas made up for it though.
The USDA pegged average nationwide wheat yields at nearly 60 bushels per acre! With 92% of the Ukrainian wheat harvest done, put a fork in this number because it’s done (READ: not being revised).
Meanwhile, Canadian wheat production was dropped by nearly 2 MMT from July’s estimate to 26.5 million tonnes. Average yields are forecasted at 43.7 bushels per acre. That’s down 7% from July’s forecast and 18% lower than last year’s yields.
Australian production was kept at 23.5 million tonnes despite private firm downgrades to 22 MMT and lower.
In the U.S., spring wheat production estimates were lowered by 21 million to 364 million bushels (or 9.91 million tonnes). US durum output was also lowered by 6 million bushels to a 51-million-bushel crop (or 1.388 million tonnes).
Overall, global wheat production is forecasted by the USDA at 743.2 million tonnes, more than 5 million tonnes higher than July’s forecast. You can blame the Black Sea mainly for this increase.
This is also more than 11 million tonnes lower than last year’s record of 755 MMT. With the bigger production, global wheat carryout was raised by more than 4 million tonnes to a record of 264.7 MMT. That number will surely keep a lid on wheat prices.
USDA August WASDE Takeaways?
Remember, yesterday’s numbers are not final.
Next week, on Monday, I’ll dig into some other numbers, but overall, the cards have been dealt by the USDA.
How everyone at the table (read everyone in the market including farmers, grain buyers, and speculators) plays their hand is up in the air.
Considering that production numbers are very much up in the air, my guess is that we’ll see farmers dig in and wait for higher prices to come back. Still, we have to be wary of harvest grain price pressures.
Have a great weekend.
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.