March 9 – Grain Prices Pull Back From Boring WASDE

Good morning!

Grain prices this morning are pretty much all in the red as speculative capital heads for the exits after a boring WASDE report yesterday.

“There is no conversation more boring than the one where everybody agrees.”

– Michel de Montaigne (French philosopher)

Grain Prices Pull Back From Boring WASDE

Grain markets this morning are mostly in the red as it appears that capital is leaving commodities on the heels of some bearish WASDE numbers out from the USDA yesterday, as well as more geopolitical risk impacting prices.

As he does on every WASDE publication date, immediately after the report, Garrett summarized some instant reactions to the March WASDE (including yours truly). In the regular Grain Markets Today column, we also gave a full summary of what this month’s WASDE report showed the market.

The key thing that most people saw first was that the USDA dropped Argentina’s soybean production number by more than the market was expecting! Bullish, right? However, the reduction was offset by the USDA increasing American soybean ending stocks by a healthy amount. The market wasn’t expecting this latter move.

Fewer Soybeans in Argentina, More in America

The USDA dropped their estimate of the Argentine soybean crop from 54 million to 47 million tonnes, 1.4 million tonnes higher than what the average pre-report guesstimate was. Most private estimates continue to be below this number, which suggests that we may see a further cut to Argentina’s soybean production number in the April WASDE, out on Tuesday, April 10. (mark the calendar!)

Next door in Brazil, soybean production was raised by 1 million to 113 million tonnes. This was slightly below the 113.8 million tonnes the market was expecting. CONAB, basically the USDA in Brazil, also pegged the soybean crop there at 113 million tonnes. [1]

The bearish surprise in the WASDE soybean numbers was US 2017/18 carryout being raised 25 million bushels (or the equivalent of 680,400 tonnes when you convert bushels into metric tonnes). Most of the decline was attributed to smaller exports.

Thanks to Argentina’s smaller crop, soybean carryout worldwide was felled by 3.7 million tonnes to 94.4 million. Overall, the report was exactly bearish, but given the move in soybean prices in the past 24 hours, one could easily argue that indeed it was bullish.

march-2018-wasde-estimates-farmlead

Wheat and Corn Numbers in the WASDE

The bullish news of the WASDE report was seen in corn, as US corn exports and ethanol use were increased, which intuitively dropped carryout numbers by 225 million bushels month-over-month to 2.127 billion bushels.

Also playing a role in the bullishness was Argentina’s corn crop being dropped by 3 million tonnes to 36 million. Brazil’s corn production number was lowered by 500,000 tonnes to 94.5 million, a number that was still much higher than the 92.2 million-tonne average pre-report guesstimate.

This all added up to global inventories of corn being lowered by nearly 4 million to 199.2 million tonnes.

For wheat, the USDA lowered hard red winter wheat exports by 15 million bushels and hard spring wheat exports by 10 million bushels. This meant the US wheat ending stocks were raised by 25 million bushels month-over-month to 1.034 billion bushels.

Internationally, global stocks for the end of the 2017/18 crop year were raised by nearly 3 million tonnes to almost 269 million (reminder: this is a record). This, despite Russia’s exports being hiked from 36 million tonnes in the February WASDE to 37.5 million tonnes in the March WASDE.

What Do the US Steel Tariffs Mean for Agriculture?

Yesterday, the updated/renamed Trans-Pacific Partnership was signed by the 11 nations it was negotiated between. The 11 did not include the United States of America, and for that reason, some opinions are that the free trade deal amongst Pacific Rim countries lacks enough force to act as a counterweight to China’s growing influence. [2]

On that note, U.S. President Trump is standing by his import taxes: 25% on steel and 10% on aluminum. As a point of relief, it was announced yesterday that Mexico and Canada are, in fact, exempt from the tariffs as NAFTA renegotiations are being kicked down the road. After all, the neighboring countries accounted for 9% and 16% respectively of American steel imports in 2017.

However, China is not. And they feel a bit slighted for it. After all, they do produce nearly 50% of all the steel in the world! That being said, while the actual impact on Chinese steelmakers is expected to be small, the folks leading things in Beijing don’t be appreciative of the new taxes from the White House. Specifically, the Chinese commerce ministry promised to “take effective measures to protect China’s rights.” [3]

The most talked-about retaliation tactic is to place some taxes on US agricultural products heading into China. The most notable of all would be soybeans. FarmLead’s friend and the chairwoman of the Illinois Soybean Growers, Lynn Rohrscheib was quoted in the Wall Street Journal as saying, “We have seen that Brazil and Argentina are happy to take our place in the Chinese marketplace.”

This is all too true. I mentioned in Wednesday’s Breakfast Brief though that, “the logistical infrastructure of Brazil and Argentine are not efficient enough to be able to export the volume required to satisfy Chinese demand.”

For the last month for our GrainCents subscribers, Garrett and I have been talking about the different implications of China getting into the trade war mindsight, especially as it relates to soybeans. Must reads on this include the impact on Chinese consumers of less US soybeans being imported and the net/nightmare effect on US soybean farmers.

The trickle-down into other parts of the agricultural/rural economy is certainly possible though. The place first feeling the heat will like to be grain bins (cue the higher interest in grain bags!), but farm machinery/equipment and farm shop builders are also on the watchlist. [4]

Record FarmLead Marketplace Activity

Speaking of watchlists, have you checked your FarmLead Watchlist recently?

We’ve seen a new record amount of grain deals and tonnage connected on the FarmLead Marketplace this week – everything from canola to soybeans to corn to hard red spring wheat to feed barley.

We know that there has been a bit more uncertainty in the grain markets lately, which is adding to volatility. However, when volatility increases, so does opportunities to the upside.

Some say that luck is when preparedness meets opportunity. Thus, I have to ask the question, Is your grain marketing plan prepared? Post your new or old crop grain for sale on the Marketplace today and watch the opportunities comes to you.

Have a great weekend!

To growth,

Brennan Turner
President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2882
 CAD, $1 CAD = $0.7763 USD)

May Corn: -1.0¢(-0.25%) to $3.925 USD or $5.056 CAD
May Soybeans: -11.8¢ (-1.10%) to $10.523 USD or $13.555 CAD
May Soybean Meal (per short ton): -$4.80 (-1.25%) to $378.60 USD or $487.698 CAD
May Soybean Oil (cents per lbs): -1.6¢ (-0.5%) at 31.68¢ USD or 40.81¢ CAD  
May Oats: -0.3¢ (-0.09%) to $2.648 USD or $3.410 CAD
May Wheat (Chicago): -5.3¢ (-1.05%) to $4.940 USD or $6.364 CAD
May Wheat (Kansas City): -5.5¢ (-1.03%) to $5.278 USD or $6.798 CAD
May Wheat (Minneapolis): -4.5¢ (-0.72%) to $6.203 USD or $7.990 CAD
May Canola: -$2.60 (-0.50%) to $11.775/bu / $519.20/MT CAD or $9.141/bu / $403.055/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.

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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