Feb 10 – Does the February WASDE Even Matter?

Grain markets are mostly lower ahead of tomorrow’s February WASDE report, in which there are concerns about its relevancy.

“It’s not about finding relevance or perfection or imperfection in objects, but it’s that you can accept yourself and then go out and accept others.” – Jeff Koons (American artist)

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Does the February WASDE Even Matter?

Grain markets are mostly lower ahead of tomorrow’s February WASDE report, in which there are concerns about its relevancy. Grain markets were able to squeak out some cautious gains last week on some short-covering and bargain buying, ending the nearly 3-week skid for the complex due to coronavirus uncertainties.

Front-month futures grain markets weekly performance through Feb 7, 2020

February WASDE numbers aside, the USDA is saying that American net farm incomes should climb in 2020, despite there not being any trade war aid payments being sent out. [1] That said, they’re also expecting debt to grower faster than farmer equity in 2020, which aligns (unfortunately) with the fact that U.S. farm bankruptcies in 2019 hit at an eight-year high. [2] Inherently, a farmer’s viewpoint on the future tends to be centered around some sort of optimism and this year seems to be no different, albeit, there is more indecision out there in terms of what total acres for each crop might end up as. [3] Even in Canada, FCC is predicting some tight crop margins. [4]

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February WASDE Pre-Report Expectations

Going into the February WASDE report, there’s some buzz that we could see a bigger U.S. soybean exports number, which are currently tracking 25% better than las year with 26.8 MMT sailed (or if converting metric tonnes into bushels), but that’s still well below the historical average. We should keep in mind, however, that the USDA has stated that they’re only going to report on “publicly available information and data” pertaining to the Phase One trade war deal. [5] My translation of this is that we should not get our hopes up (especially if we’re using the last few WASDE reports as benchmarks for what the market is hoping for and what the USDA actually reports).

U.S. 2019/20 weekly soybean exports through Week 22

The bottom line is that Phase One trade deal details will not be included in the February WASDE. [6] On a related note though, China has put out an official report that they’re working to minimize disruptions in the movement of feedstuffs and livestock. [7] Further, hog markets traded limited up last Thursday on Tyson’s quarterly earnings report which stated that pork sales to China are up nearly 600% year-over-year. [8] Even more, the White House reported last week that Chinese President Xi told U.S. President Trump that China WILL meet their trade targets despite logistical disruptions due to the coronavirus.

While China is talking about holding up its end of the bargain, it and the rest of the grain markets will be watching to see what the USDA does for South American number sin tomorrow’s February WASDE report. After all, China bought just 31,500 MT of U.S. soybeans last week but a rumoured buyer of 21 – 25 cargoes of Brazilian soybeans instead thanks to Brazil’s weak currency and cheap freight rates. [9] Right now, it appears that Brazilian port soybean prices are about $15 USD/MT cheaper than U.S. port soybean prices. [10]

That said, soybean harvest in Brazil is tracking behind a year ago but it is ahead of the five-year average. It’s a similar dynamic with the planting of Brazil’s second corn / safrinha crop. With some of the early yields showing good numbers, Safras e Mercado is now forecasting a soybean harvest of 124.55 and a total year corn haul of 104.75 MMT. If we think that the USDA won’t show much in terms of an update to other soybean happenings in the U.S., then we shouldn’t expect too much of a change either in the South American balance sheet in tomorrow’s February WASDE.

2020 February WASDE pre-report expectations

Grain Stocks Report Shows Big Cereals Harvest

Last week, Statistics Canada said that there are more cereals being held in the Canadian agricultural pipeline than a year ago, mainly due to the bigger cereals harvest. [11] The survey of 8,600 Canadian farmers suggested that (and as shown in the second table below) they’re also holding onto more cereals (i.e. 1.262 MMT more non-durum wheat held on farm than a year ago!), versus less canola and other specialty crops. That said, there are many questioning this on-farm canola stocks number as it’s estimated that between one and two million tonnes of canola still haven’t been harvested! [12]

Canadian total grain stocks as of December 31, 2019

Canadian total on-farm grain stocks as of December 31, 2019

Canada commercial grain stocks as of December 31, 2019

For the likes of barley prices, this significant increase year-over-year of available stocks has kept values rather stagnant. Further, feedstuff buyers in feedlot alley and elsewhere have seemingly slowed down their purchases a bit on adequate coverage and ample supplies. [13] This is something I had anticipated and spoke about in my outlook for barley prices in 2020 and expecting to see more sideways-to-lower movement in the coming weeks. While we did see a move higher at this time a year ago, livestock numbers were robust and barley supplies were nowhere near as high as they are today.

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne on Twitter

Due to some early morning travel, futures grain markets data is not available in today’s Breakfast Brief but you can review them here at your convenience.

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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