Jan 13 – January WASDE Plays Second Fiddle to Trade War Deal

Grain markets are mostly red as the complex re-positions after Friday’s nothing January WASDE report and this week’s trade war deal signing.

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January WASDE Plays Second Fiddle to Trade War Deal

Grain markets this morning are mostly red as the complex re-positions after Friday’s January WASDE report and ahead of Wednesday’s Phase One trade war deal signing. After an 18-month tit-for-tat tariff-heavy spat between Washington and Beijing, Presidents Trump and Xi will sign an agreement that will not necessarily end the trade war between China and the U.S., but at least slow it down.

In it, China will agree to buy $200 billion of U.S. goods (additional to what they already purchase), including $40 – $50 billion of U.S. agricultural products, while the U.S. will reduce tariffs on Chinese goods, albeit tariffs on about $380 billion of goods will remain in place. [1] President Trump has said many times though this deal is mostly for the farmers. [2] All this in mind, the actual text of the deal has not been released and won’t be until after the signing, keeping grain markets participants a bit cautious.

January WASDE Kicks Can Again

Grain markets ended the first full of trading in 2020 mostly higher as the complex ignored some of the bearish data that the USDA presented in their January WASDE report. [3] Instead, the trade war deal expected to be signed by China and the U.S. next week helped grain markets actually close Friday higher. One of the main reasons behind the green finish was that the USDA did not include any forecasted expectations from the trade deal getting signed, which traders obviously think is bullish.

Front-month futures grain markets weekly performance through Jan 10, 2020

Going into the January WASDE, analysts were mostly bullish to begin with, expecting U.S. corn and soybean yields, harvested, acres, and ultimately production to all be lowered. That didn’t happen though (except for harvested acres that is). The USDA instead raised corn yields from their December estimate of 167 bushels per acre (bpa) to 168 bpa this month, despite the average pre-report expecting to see 166.2. [4] Similarly, average American soybean yields were increased by 0.5 bpa to 47.4, versus the 46.6 the market was anticipating.

The only reason that total U.S. corn and soybean production came in near their respective pre-report guesstimates was because harvested acres were lowered. For corn, acres dropped to 81.5M, down just 330,000 from the November estimate, despite the USDA acknowledging there’s still a lot of corn not yet harvested, mainly in northern states. For soybeans, the harvested acreage decline was more pronounced, falling about 600,000 to 75M.

This in mind, the USDA said they’re going to re-survey producers yet again ahead of the February WASDE report, in terms of both harvested acres, but also total grain stocks. [5] There was a lot of shaking of heads across the industry when the USDA shared that all said unharvested acres were actually counted in the grain stocks report for what was left in the pipeline. While the debate about how many bushels are actually left out in the field, this is actually starting NASS policy. That said, Dec 1 corn stocks were 11.4 billion bushels (-4.5% year-over-year and below pre-report expectations), soybean stocks were 3.252 billion bushels (-13% and above expectations), and total wheat inventories were 1.834 billion bushels (-9% and below expectations).

The 2020 January WASDE report disappointed grain markets with bearish data

On the demand side of things, the USDA lowered their expectations for corn exports and feed use, but U.S. soybean crush and exports were untouched. Again though, keep in mind that the USDA did not account for any benefits of the trade war deal singing the January WASDE. Further, as you can tell in the table above, the USDA didn’t change any production numbers for South America in the January WASDE.

January WASDE Ignoring Current Wheat Exports

Looking at the January WASDE numbers for the wheat market, U.S. 2020 winter wheat acres were pegged at 30.804M. This was slightly above expectations, only about a 1% drop year-over-year, but is still a 110-year low. More notably, U.S. HRW wheat exports were lowered by 5M bushels (or about 136,000 MT if converting bushels into metric tonnes) to 385M bushels (nearly 10.5 MMT). That said, 2019/20 U.S. HRW wheat exports are currently tracking 50% higher than compared to a year ago, with 5.5 MM sailed through Week 31.

U.S. 2019/20 weekly HRW wheat exports through Week 31

U.S. hard red spring wheat domestic use was raised by 5M bushels, helped pull back ending stocks by a similar amount. Durum’s carryout was also reduced by 5M bushels, a reflection of exports increasing to 40M bushels (or 1.088 MMT). If you missed it last week on the FarmLead Insights page, see where I think spring wheat prices and durum prices are heading in 2020.

Looking abroad, the USDA lowered its estimate of Australian wheat production again, this time by another 500,000 MT to 15.6 MMT. This is 250,000 MT lower than what ABARES pegged the Aussie wheat harvest at a month ago. Surprisingly, they only dropped exports by 200,000 MT. Russia’s wheat harvest and exports were lowered by 1 MMT, but European wheat exports were raised by 2 MMT, a reflection of the strong pace of shipments so far in the 2019/20 crop year. For example, French soft wheat exports in December reached a 7-year high, and for the year, are tracking 14% higher compared to the same week in 2018/19.

January WASDE Conclusions

Overall, the market was disappointed with the USDA for basically the 5th, arguably 6th straight months of the WASDE report releases. By saying all unharvested American corn and soybeans count towards their estimate of grain stocks, that’s a pretty big asterisk. As mentioned in last Friday’s FarmLead Breakfast Brief, grain markets were a bit bullish going into this month’s WASDE report but alas, it’s just a reminder to always expect the unexpected (my grandfather, a lifelong farmer, always said that!). This might make the next month’s WASDE report, released on Tuesday, February 11th. However, one fact I’m cognizant of is that grain markets tend to start their late winter drift lower around this time as more South American production hits the market.

On a separate note, I had a few good surprises come across my desk on Friday that I had to deal with through this weekend. Thus, for those of you looking for my outlook in pulses and corn prices, expect to see them on the FarmLead Insights page over the next 48 hours.

A great week starts with today!

To growth,

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

At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3044 CAD, $1 CAD = $0.7667 USD)

Mar Corn: +1.3¢ (+0.3%) to $3.87 USD or $5.048 CAD
Mar Soybeans: -6.5¢ (-0.7%) to $9.395 USD or $12.255 CAD
Mar Soybean Meal (per short ton): -$1.30 (-0.45%) to $302.20 USD or $394.18 CAD
Mar Soybean Oil (cents per lbs): -0.24¢ (-0.7%) to 34.11¢ USD or 44.49¢ CAD  
Mar Oats: +0.5¢ (+0.15%) to $3.09 USD or $4.031 CAD
Mar Wheat (Chicago): -2.5¢ (-0.45%) to $5.62 USD or $7.331 CAD
Mar Wheat (Kansas City): -1.5¢ (-0.3%) at $4.933 USD or $6.434 CAD 
Mar Wheat (Minneapolis): -2.5¢ (-0.45%) to $5.558 USD or $7.249 CAD
Mar Canola: -4.8¢ (-0.45%) to $10.929/bu / $481.90/MT CAD or $8.379/bu / $369.45/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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