February 8 – February WASDE Report Fireworks?

Good Morning!

Grain markets this morning are mixed as the complex prepares for the USDA’s February WASDE report out at noon eastern.

“I guess we all like to be recognized not for one piece of fireworks, but for the ledger of our daily work.” – Neil Armstrong (US astronaut and first man to walk on the moon)

Grain markets this morning are mixed as the complex prepares for the USDA’s February WASDE report out at noon eastern. Outside equity markets were less volatile yesterday as the US stock market has already regained about half of what it lost last week!

From a macroeconomic standpoint, both the U.S. economy and the global economy are doing pretty well. Despite that, it doesn’t look like the US Federal Reserve will slow its plans to hike interest rates three times in 2018. As an aside, the Brazilian Real closed at its highest level since December. This was the Brazilian central bank cut their benchmark interest rate to 6.75%, the lowest ever.

WASDE Report Focus on South America

For today’s WASDE report, most of the market is looking for any substantial changes to US ending stocks, as well as production updates for Argentina and Brazil. For the latter, another big soybean crop appears to be on the way, and combined with slower US exports, there’s not a lot of bullishness there.

Read our thoughts on our action plan ahead of the WASDE report for soybeans here and for corn here.

What the soybean bulls are stampeding are the weather and crop conditions in Argentina. After today’s WASDE report, everyone and their mother will be watching to see if rainfall materializes this weekend in Argentina. The major-producing areas in Argentina are forecasted to about an inch of rain.

If this rain does materialize, it could save the potential for an average yield of corn and soybean crops in Argentina. If the clouds do not open up, the Buenos Aires Grain Exchange is saying that soybean production estimates could easily fall below 45 million tonnes, if not 40 million. Today, they’re currently estimating 51 million tonnes, while the USDA is at 56 million!

Thinking more long-term though, there aren’t any weather models out there that are seeing the drought conditions to dissipate before the end of the winter. As such, that’s why the market is somewhat expecting the USDA to acknowledge this La Nina effect on South American production in today’s WASDE.

Tracking Winter Wheat Prices vs Conditions

Last week in GrainCents we discussed the state of the US winter wheat crop conditions and the potential impact for prices. We also discussed our sales strategy of said winter wheat, relative to the surrounding issues.

Yesterday, winter wheat prices in Kansas City and Chicago both had a strong day as concern over dry conditions in the major-growing regions catalyzed more short-covering.

The US Southern Plains – where hard red winter wheat is predominantly grown – remains relatively dry. There doesn’t appear to be much in the forecast.

Thus, everything thinks that wheat prices should go to the moon, right? Without any moisture in the soil, how can a crop effectively be grown?

The reality is that this problem isn’t truly a problem yet. The U.S. winter wheat crop is in dormancy and the moisture will be needed once it emerges from that winter hibernation. The real question is how quickly can some warmer temperatures in the forecast speed up that emergence from winter.

Russia is experiencing basically the opposite.

This week a lot of major winter-wheat growing areas got dumped with a blizzard of the century. [1] The blanket of snow will further protect the crop there in dormancy. Further, when temperatures warm up, the additional snowfall will melt and add more moisture to the soil.

Thus, this adds to the potential that there were still be a lot off low-protein wheat (i.e. 12% and lower) available in the world in 2018 and this quality can easily be blended with a smaller portion of high-protein wheat to make millers happy.

If you’re a North American wheat producer, this is probably annoying / frustrating to read but this is reality. Let’s play the game in front of us, not the one we’re hoping for.

To growth,

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

 

At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2549 CAD, $1 CAD = $0.7969 USD)

Mar Corn: +0.3¢ (+0.05%) to $3.655 USD or $4.587 CAD
Mar Soybeans: +2.3¢ (+0.25%) to $9.853 USD or $12.364 CAD
Mar Soybean Meal (per short ton): +$0.70 (+0.2%) to $336.10 USD or $421.76 CAD
Mar Soybean Oil (cents per lbs): -0.12¢ (-0.35%) to 32.68¢ USD or 41.01¢ CAD  
Mar Oats: -6.3¢ (-2.3%) to $2.67 USD or $3.35 CAD
Mar Wheat (Chicago): -2.3¢ (-0.5%) to $4.583 USD or $5.75 CAD
Mar Wheat (Kansas City): -2.3¢ (-0.45%) to $4.788 USD or $6.008 CAD
Mar Wheat (Minneapolis): +0.5¢ (+0.1%) to $6.128 USD or $7.689 CAD
Mar Canola: +2.5¢/bu / +$1.10/MT (+0.2%) to $11.324/bu / $499.30/MT CAD or $9.024/bu / $397.89/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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