August 14 – What Do We Know?

August 14, 2017

Grain markets this morning are continuing to digest the surprisingly bearish USDA August WASDE report. Prices were falling across the board, with spring wheat continuing its bearish price trend.

The USDA’s Farm Service Agency also released Prevent Plant numbers last Thursday.

The report showed that more acres were planted this year versus last year, mainly due to the boost in wheat. Total acreage where planting was prevented came in at just 614,000. This is nearly one-third of wheat’s 1.78 million acres that were tagged as “Prevent Plant” last year.

Total corn acres that didn’t get in were labeled as 950,000, down from 1.06 million acres in 2016/17.

Total soybean acres where planting was prevented was 437,000, which is up from last year’s 237,000 acreage number. According to Rich Nelson from Allendale Brokers, the weather will go a long way in the next few weeks to justify the bearish 49.4 bushels per acre yield estimate from the USDA last week.

The US National Weather Service says that there are no active El Nino or La Nina weather patterns in the forecast through the 2017/18 winter. [1] This is a non-event, but you could also argue that this is a healthy data point for those who are looking for soil moisture for the 2018 growing season.

We certainly know that any of those fields who pulled on last year’s soil moisture carryover won’t be able to do so two years in a row.

Wheat Prices Continue Their Decline

This morning, we’re looking at another drop in wheat prices across the board. In Chicago, SRW prices are off more than 1 percent. The big drop is coming in Minneapolis, where the September spring wheat contract is down another 17 cents.

On Friday, prices fell below their 50-day moving average for the first time in roughly three months.

What is happening here?

First, there’s the data. Markets were surprised by the uptick in global wheat production estimates from the USDA last week, and news that we now see protein levels of 14% to 16% in certain pockets of the United States that had long been discounted as potential losses. The uptick in protein expectations complemented a smaller-than-expected revision to spring wheat estimates.

The data was especially surprising when the agency hiked the size of the Russian wheat crop by 5.5 million tonnes to 77.5 million tonnes.

Russia’s SovEcon responded on Friday by hiking its estimate to 77.9 million tonnes, blowing the doors off previous estimates. The Russian analysis group cited record crop yields, good conditions of spring grains and a hefty level of moisture in the soil” as justification for the hike. [2]

But there is more to this story.

Over the weekend, I looked at one’s wheat pricing options thus far in 2017.

Earlier in the year, it didn’t make a lot of sense to pre-price any new crop wheat.

However, given some of the contrarian indicators, those pricing options improved significantly in June and July. Be sure to check out my recap, where I go into detail on what these indicators were.

Thursday’s FSA data showed that prevented plant acreage in wheat came in at 613,884 acres. That represented a 65.52% decline from last year. But it certainly wasn’t a decline in the spring wheat market.

Overall, the number of acres prevented from planting for the top six producing states increased by 237% from the figure we saw in August 2016. All said, 196,790 acres were prevented, with the primary reason being abandonment during a heavy year of drought conditions.

We watched spec traders shift their positions from long to short starting last Tuesday at the Chicago Board of Trade. Overall, there was a net negative swing of 26,291 contracts. As of Friday, the net short positions were sitting at negative 14,101 contracts. As we regularly note, it’s critical that producers pay attention to the broader sentiment of the market.

We’re going to talk later this month about the best way to track how fund managers and speculators shift their positions and what it means for the broader market. In fact, be sure to check into all of our weekly articles to help you better understand the markets and how to better market your crop by visiting our FarmLead Insights page.

Corn, Soybeans Continue to Slide

Soybean prices were sliding in early trading as more profit taking hits the board in Chicago.

China’s ports are starting to clear of boats full of soybeans but “deliveries, in general, are still very slow,” according to one crusher’s sales manager. [3] Analysts are expecting meat and corresponding feed demand to start to stabilize this month and gradually improve in the 4th quarter as we head into festival and holiday season.

That news comes just days after the USDA reported a private purchase to China of 120,000 metric tonnes. The purchase consists of 50 percent new crop and 50 percent old crop.

Everyone is still scratching their heads from last week’s USDA report. When it comes to the uptick in soybean yields, people just aren’t buying it. CHS Hedging said last week that they expect that the figures posted by the USDA will be revised downward in the months ahead.

That sentiment has extended to the corn crop as well. Simply put, most traders don’t believe that corn yields are as high as the USDA says they are. We captured that reaction last week on Twitter right after the release of the WASDE report.

Western Canada Harvest 2017

Harvest 2017 continues to progress in Western Canada where yields and quality continue to be variable. This is mainly due to the drier weather in July where many places saw no rain and temperatures above 30 Celsius (86 Fahrenheit). [4] Test weights and protein are on the minds of many wheat farmers, with most hoping the former will be at least 58 lbs/bu and the latter above-average.

Thanks to the dry conditions in Saskatchewan and Alberta, the Western Grain Elevator Association is forecasting a 60 million-tonne crop in Western Canada. [5] The five-year average is 67 million tonnes of total grain, oilseed, and pulse crop production in the Canadian Prairies.

In last Friday’s Breakfast Brief, I discussed the USDA’s forecast of 20.5 million tonnes for the Canadian canola crop. My forecast is sitting closer to 19.75 million tonnes right now. Other forecasts are even more wide-ranging. [6]

Larry Weber of Weber Commodities is at 16.8 million tonnes and thinks he could go lower. Providence Grain has a range of 18.5  – 19.7 million tonnes although they’re leaning towards the top-end of that estimate. Ag Canada is sitting around 18.75 million tonnes.

Ag Resource is sitting at 18.2 million tonnes and getting bullish on prices. [7] They think that Winnipeg ICE futures prices could top out in 2017/18 somewhere above $575 CAD/MT and possibly hitting $600. They also acknowledge that in a bearish situation, the lowest they see futures dropping to is $430.

What we do know is that Saskatchewan and Alberta average yields are certainly down this year. However, the question is how much additional acreage will give a boost to the total production number?

To growth,

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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