February 7 – Looking at the Next WASDE Estimates

Good Morning!

Grain markets this morning are mostly in the green as the market continues to rebound from Friday and Monday’s sell-off. Participants are positioning themselves ahead of the USDA’s February WASDE report out tomorrow at noon eastern.

“A noble man compares and estimates himself by an idea which is higher than himself; and a mean man, by one lower than himself. The one produces aspiration; the other ambition, which is the way in which a vulgar man aspires.”  – Marcus Aurelius (Former Roman Emperor)

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Grain markets this morning are mostly in the green as the market continues to rebound from Friday and Monday’s sell-off. Participants are positioning themselves ahead of the USDA’s February WASDE report out tomorrow at noon eastern.

As Garrett mentioned in his afternoon recap in Grain Markets Today, soybean prices led a “Turnaround Tuesday” effort. Corn prices and wheat prices also made some solid gains as the market enjoyed a “risk off” trading day.

It certainly wasn’t risked off for our GrainCents subscribers though as we published nearly two dozen pieces of new content including,

• Are Global Wheat Stocks Declining?;
• 
Less Corn Coming Out of Ukraine;
• 
Impact of a Canola Buyer Going Broke;
• 
Impact of No Weekly Crush Reports in Canada;
• 
If Global Demand for Durum is Increasing;
• 
How COFCO is the Real King of Soybeans; and,
• An
alysis of StatsCan’s grain stocks estimates for all crops

Not a GrainCents subscriber? Start your free 3-week trial here today and start making more sense of the grain markets affect your operation and pinpointing when to make grain sales.

Who Needs Fertilizer?

The new child of Agrium and PotashCorp, Nutrien, says that global shipments of potash could hit 66 million tonnes in 2018. [1]

This would top the previous record seen this past year in 2017 of 64 million tonnes. Potash deliveries within North American borders slipping to somewhere between 9.5 million and 10 million tonnes. In 2017, the North American number was 10.2 million tonnes. The record is 11.1 million tonnes set in 1997.

Chinese and Indian demand for potash continues to grow, albeit at slower rates than in years past. This is notable for China where we might be at peak corn acres (note: I did not say peak corn production, but rather, the area getting seeded into corn might not increase).

On the demand side in China, the state grain institute, CNGOIC, raised its estimate for corn demand to 244 million tonnes in 2017/18.

Benson Quinn estimates corn-for-feed use in China could jump from 134 million tonnes last year to 146 million tonnes this year. Further, corn-for-industrial use is seen rising from 68 million tonnes in 2016/17 to 78 million tonnes this crop year. Nonetheless, the production to demand deficit is seen widening to 25.6 million tonnes.

Great South American Grain Expectations

Rain fell recently in Argentina and is in the forecast for Argentina for this upcoming weekend. The update suggests though that things will be more localized and less intense. In the next 6-15 days, dryness continues to be theme of almost any weather model.

A private estimate for the soybean crop in Argentina range anywhere from 46 – 56 million tonnes, with the USDA being at the top end here. For corn production, estimates have a spread of 36 – 42 million tonnes, again with the USDA being the most bearish at the top.

Next door in Brazil, CONAB will release its estimates of crop production there before the USDA pushed theirs out. Expectations are that soybean production will come in somewhere between 110.5 and 111.4 million tonnes. Comparably, Ag Resource is at 111.7 million tonnes. The USDA is currently at 110 million tonnes and unlikely to change that number as harvest is ongoing in Brazil.

The USDA’s attaché in Brazil cut their estimate for the Brazilian corn crop this week to 92 million tonnes. [2] This is 3 million tonnes below the official USDA estimate and 6 million tonnes below last year’s record corn crop in Brazil. The reason for the decline is mainly attributed to less safrinha/second crop corn acres getting planted. This is mainly because of planting happening outside of the ideal planting window. IMEA thinks that safrinha corn acres could fall 9% year-over-year.

Going into tomorrow’s WASDE report, the average pre-report guesstimate for Brazil’s soybean crop is for 111.2 million tonnes. For the Argentine soybean crop, the average trade guess is 54.1 million tonnes (I think this is a little high myself and thinking we could see some below 54 million tonnes).

For corn, the Brazilian corn crop is estimated at 93.7 million tonnes, while Argentina’s corn crop has an average guess of 40.7 million tonnes.

 

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Relationship Between Equities and Grain Markets

We’ve talked the last few mornings about the volatility in the broader equity markets. Yesterday, the Dow Jones had a 1,1000-point trading range. This is the sort of volatility that an algorithmic-based trader would dream of.

Why?

When there is volatility, the math-based high-frequency traders make thousands, of not tens of thousands, if not hundreds of thousands of bets, getting in and out of positions, some of which can be rather sizeable and can move the market one way or the other. With the broader market having a “risk on” aura about it, some money managers are likely looking to take their profits in the equity markets from the past year and run.

But where do they run?

Commodities! It can be easily argued that in 2008, when the financial crisis was ongoing, there was a large inflow of money into the commodity market and that sparked the next six years of a bullish grain market.

Yesterday, it was rumored that large speculators bought 18,000 corn contracts. [3] While it’s one data point, it could be argued that healthy export numbers supported the buying in yesterday’s grain complex.

Conversely, open interest in the likes of Kansas City hard red winter wheat, Chicago soft red winter wheat, soybeans, and soy oil fell yesterday. This would suggest short-covering, and not buying, as people are getting out of their positions, which drops the total amount of “open positions” (hence the name, “open interest”).

The bigger question though is if the money managers are taking the export data and the lower US Dollar as a sign that grain price prospects can improve and thus, they’re looking to get out of their short positions. The problem with this is that there’s still a lot of grain left in the pipeline to sell and there’s a lot of global competition. We’re of the mindset that any rallies will see more farmer selling and corn prices won’t travel too far.

Corn might be the one market that’s most hard-pressed to see significant a rally.

That being said, amongst the 100s of bids currently showing what credit-verified buyers on FarmLead want, there are corn bids on the FarmLead Marketplace in Alberta, Saskatchewan, Manitoba, North Dakota, and South Dakota. Start asking the buyers some questions or negotiating with them now!

To growth,

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

 

At 8 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2516 CAD, $1 CAD = $0.799 USD)

Mar Corn: +1¢ (+0.3%) to $3.645 USD or $4.562 CAD
Mar Soybeans: +0.3¢ (+0.05%) to $9.865 USD or $12.347 CAD
Mar Soybean Meal (per short ton): +$2.10 (+0.65%) to $333.80 USD or $417.77 CAD
Mar Soybean Oil (cents per lbs): -0.10¢ (-0.3%) to 33.06¢ USD or 41.38¢ CAD  
Mar Oats: +2.8¢ (+1%) to $2.718 USD or $3.401 CAD
Mar Wheat (Chicago): +5¢ (+1.1%) to $4.513 USD or $5.648 CAD
Mar Wheat (Kansas City): +4.3¢ (+0.9%) to $4.733 USD or $5.923 CAD
Mar Wheat (Minneapolis): +2.3¢ (+0.35%) to $6.105 USD or $7.651 CAD
Mar Canola: +1.6¢/bu / +$0.70/MT (+0.15%) to $11.351/bu / $500.50/MT CAD or $9.07/bu / $399.90/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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