Feb. 25 – USDA Kickstarts Busy Week for Grain Markets

Grain markets this morning are mostly green on fresh headlines from the USDA and on the U.S.-China trade war potentially coming to an end.

“Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.” – Saint Francis of Assisi (Italian Catholic friar)

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Grain markets this morning are mostly green on fresh headlines from the USDA and on the U.S.-China trade war potentially coming to an end.

While last week started out rather weak (especially in the wheat complex), late on Friday we got the announcement that China had agreed to buy $1.2 Trillion in U.S. goods. Included in this is China’s commitment to buy 10 MMT of American soybeans, which is intuitively good for soybean prices. [1] The USDA’s export data as of last week suggests that just 7.4 MMT of U.S. soybeans from the 2018/19 harvest has been sold to China. A year ago, at this time, that number was 26 MMT. More on this later.

Also starting this week is the commitment from U.S. President Trump saying that his government will delay the implementation of additional import tariffs on Chinese goods that were originally schedule to begin on March 1st. [2] On that news, the benchmark Chinese stock market – the Shanghai Composite – had its best one-day performance in more than 3 years, jumping 5.6% on Monday. [3]

While the recent concessions made by the U.S. and China have supported a positive mood of grain and broader equity markets this morning, it’s rumored that the two sides remain far apart when it comes to intellectual property.

While the trade war negotiators will surely continue to be busy, this week we’ll see a lot of information coming at the market that could put a bit more risk in the game. [4] This includes (but is not limited to:

  • S. President Trump and North Korean leader Kim Jong Un meeting in Vietnam;
  • Congressional hearings on the 2016 U.S. Presidential campaign (RE: Russian interference) and the U.S. economy (by U.S. Federal Reserve Chairman Jerome Powell); and
  • Meetings about the U.K.’s ambiguous departure from the E.U. – will there be a Brexit “divorce deal” or not?

USDA: Decent Grain Sales (But Weaker Shipments)

Speaking of a lot of information, on Friday, the USDA released quite a lot of data. The dump included numbers on corn, soybean, and wheat exports from January 4th through February 14th.

For sales of wheat exports, purchases of all classes are starting to pick up, as 21.5 MMT has been contracted thus far, slightly above the 21.4 MMT seen by the same week in the 2017/18. That being said, actual wheat exports (product that’s been physically shipped) has totaled nearly 15 MMT. This is technically 10% below actual shipments from the same time a year ago. Keep in mind that the most recently-available data published by the USDA before the government shutdown started, showed US 2018/19 wheat exports tracking 9% behind last year’s pace.

For soybean exports, total sales are tracking 8 MMT behind last year’s pace. It’s no surprise that The Economist came out last week a headline of “The Global Soybean Market has Been Upended (and There May Be Permanent Effects)”. [5] Actual shipments through February 14th are sitting at 23.4 MMT, which is tracking behind 2017/18’s pace by 36% or 13.4 MMT. Before this batch of information from the USDA, the previous dataset for business through December 13th, 2018 suggested that U.S. soybean exports were tracking 41% behind last year’s pace. Thus, we’re seeing a slight improvement in soybean exports, but still a good clip behind 2017/18’s activity.

Worth noting in this conversation is Russian, who has seen its soybean exports to China grown 10X over the last 5 years. [6] Even without knowledge of a trade war, in September 2017, we timestamped our call that as Russia was becoming the new wheat exports king, their production of soybeans and subsequent soybean exports game was only starting to pick up steam.

Finally, for U.S. corn, sales are tracking about 800,000 MT behind last year’s pace, but actual shipments are flying high: 27.8 MMT of U.S. corn has been exported. Through February 14th, this is tracking 50% above last year’s shipments. I’ll asterisk though that this is a step down from last data the USDA gave us before the government shutdown, which showed U.S. 2018/19 corn exports tracking 76% higher than the year previous.

USDA Says King Corn Back in 2019

On Friday morning last week, the USDA gave grain markets more details on what it’s expecting for the 2019/20 crop year. [7] At their annual AgForum, the USDA said that they think U.S. soybean acres will about 5% lower than last year at 85 million acres getting planted this spring. If realized, using average projected soybean yields of 49.5 bushels per acre, this would still be on the largest crops ever in the U.S. at 4.2 billion bushels (or 114.3 MMT if converting bushels into metric tonnes).

USDA-2019-2020 American-crop-acreage-estimates

That size of harvest would, however, be 8% below 2018 and should, according to the USDA’s math, push 2019/20 U.S. soybean ending stocks down to 845 million bushels. This would be a drop of 65 million bushels from the current crop year’s projected carryout. The USDA says that this large of carryout though is attributed to import tariffs on U.S. soybeans by China still being in place.

On the flip side, the USDA suggested that American farmers will seed 92 million acres of corn, up about 3% over last year and the King of the acreage battle again. With average yields of 176 bushels per acre, this adds up to a 14.9 billion-bushel crop (or 378.5 MMT). Thanks to some strong domestic use and exports in 2019/20 that the USDA sees in its crystal ball, American carryout should fall 5% year-over-year to 1.7 billion bushels.

For wheat, the USDA is forecasting that 47 million acres of all classes of wheat will get seeded, down 2% year-over-year. With an average yield of 47.8 bushels per acre, this would produce a 1.9-billion bushel crop (or 51.76 MMT). However, the USDA is expecting stronger export competition in 2019/20 as wheat production in Australia and the E.U. rebound. Thus, they think that 2019/20 U.S. wheat ending stocks will total 944M bushels, down 7% from the 2018/19 expected carryout.

Overall, the USDA’s data dump last week has helped re-upright the ship that is the grain markets. With information sparsely being distributed by the USDA, this information provides the goalposts (read: fundamentals) for the trade to operate off going forward.

To growth,

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

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3135 
CAD, $1 CAD = $0.7613 USD)

May Corn: +2¢ (+0.5%) to $3.865 USD or $5.077 CAD
May Soybeans: +8.8¢ (+0.95%) to $9.325 USD or $12.249 CAD
May Soybean Meal (per short ton): +$2.70 (+0.85%) to $312.10 USD or $409.96 CAD
May Soybean Oil (cents per lbs): +0.07¢ (+0.25%) to 30.92¢ USD or 40.62¢ CAD  
May Oats: +1.8¢ (+0.65%) to $2.76 USD or $3.625 CAD
May Wheat (Chicago): -2.5¢ (-0.5%) to $4.893 USD or $6.427 CAD
May Wheat (Kansas City): -3.3¢ (-0.7%) to $4.628 USD or $6.078 CAD

May Wheat (Minneapolis): -1.3¢ (-0.2%) to $5.633 USD or $7.399 CAD
May Canola: +4.3¢/bu (+0.4%) to $10.961/bu / $483.30/MT CAD or $8.345/bu / $367.94/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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