FarmLead Breakfast Brief
Wednesday, July 12th, 2017
“Life is not a matter of holding good cards, but of playing a poor hand well.”
– Robert Louis Stevenson (Scottish author)
At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.293 CAD, $1 CAD = $0.7734 USD)
Sept Corn: -6.5¢ (-1.6%) to $3.953 USD or $5.111 CAD
Aug Soybeans: -12.3¢ (-1.2%) to $10.17 USD or $13.15 CAD
Aug Soybean Meal (per short ton): -$3.50 (-1.05%) to $335.20 USD or $433.41 CAD
Aug Soybean Oil (cents per lbs): -31¢ (-0.9%) to 33.50¢ USD or 43.32¢ CAD
Sept Oats: -6.8¢ (-2.3%) to $2.853 USD or $3.688 CAD
Sept Wheat (Chicago): -6.3¢ (-1.15%) to $5.468 USD or $7.069 CAD
Sept Wheat (Kansas City): -5.8¢ (-1.05%) to $5.468 USD or $7.069 CAD
Sept Wheat (Minneapolis): -6¢ (-0.75%) to $7.908 USD or $10.224 CAD
Nov Canola: -15.2¢/bu / -$6.70/MT (-1.25%) to $9.13/bu / $402.55/MT USD or $11.805/bu / $520.50/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.357 USD or $3.048 CAD
Oct Milling Wheat: unchanged at $6.504 USD or $8.41 CAD
Ready to Play?
On Wednesday, grains and oilseeds are all in the red.
Corn prices led the downturn, as profit-taking takes hold of the market again.
Traders are anticipating the USDA’s July WASDE report, set for release at 12PM EST.
We’re not anticipating the markets will trade as wildly as they did after the stocks and acreage report on June 30; however, we do expect a fair amount of volume. With so many factors at play, more outside, speculative money continues to pour into the market.
What sort of movement are we talking?
Will Corn Prices Rally?
From a technical standpoint, Dan Heuber argues that if there are multiple days that December corn closes above $4.54 USD / bushel on the futures board, things will fly up to $5.10 – $5.20.  For the record, December corn is trading around $4.10 today.
We know production will be smaller than last year’s record. Still, we have to ask how much bullish weather the USDA will factor into its July forecasts. Specifically, will they downgrade yields today?
Most of the market isn’t expecting any changes. The USDA typically doesn’t take that action in the July report. If such a downgrade is coming, we will likely see it in August. This is mainly due to the fact that corn and soybean plants do not enter the pollination or pod-setting phase of crop development until after this report.
The average pre-report guesstimate from analysts is for 14.13 billion bushels of corn production in the United States using an average yield of 169.6 bushels per acre. The June WASDE number was 14.07 billion bushels using a 170.7 bu / ac national average yield. Last year’s production was 15.15 billion bushels with a 174.6 bu/ac average yield.
Food for thought: the last time the USDA reduced corn yields in July came in 2012.
This was also the last time we saw a drought issue in the U.S.
What Else Will the USDA Reveal?
For U.S. soybeans, 4.243 billion bushels are expected by the market using an average yield of 47.9 bu/ac.
This figure is basically unchanged from June’s forecast of 48 bu/ac national average yield and total production of 4.255 billion bushels. Last year’s production was a record 4.31 billion bushels off a 52.1 bu/ac average yield.
Only 83.4 million acres of beans were planted last year in the U.S., versus the 89.5 million that the USDA has forecasted.
For wheat, the market is expecting that the USDA will show total American production at 1.75 billion bushels. This figure is down from the 1.824 billion bushels the USDA came out with in their June WASDE report.
That estimate came before the majority of the really dry weather hit the Northern Plains. Wheat output in American last year was 2.31 billion bushels off of a 52.6 bu/ac national average yield. While the USDA forecasted 47.3 bu/ac back in June, we expect that number to drop quite a bit with this report.
Most will agree that the biggest drop should be in spring and durum wheat numbers. The average Reuters pre-report estimate is for 416 million bushels of spring wheat. Of the Bloomberg survey of analysts, the average estimate is for 409 million bushels. 
If you’re factoring in the smaller acres than last year, this down only marginally from the 493 million bushels produced in the 2016/17 crop year. It is worth noting thought that the range of analysts’ estimates is huge, from 305 million up to 464 million bushels. Benson Quinn mentioned yesterday that 10% abandonment is typical for the U.S. spring wheat crop. 
However, in the drier year of 2002, abandonment was closer to 85%.
When there’s still a lot of crop uncertainty, the market is finding less reason to trust the USDA’s numbers with confidence. 
The crop ratings face much scrutiny despite the USDA (in my opinion) doing a decent job of factoring in drier conditions. Perhaps the market is starting to agree with me as yesterday’s trading action was a bit slower despite the bullish crop progress update. 
With 65% of the U.S. corn crop rated in good-to-excellent (G/E) health, that’s a three-point drop in one week. After this current week of hot weather in the western corn belt, conditions will continue to deteriorate like they did this week .
I’m expecting to see another two- to three-point drop next week in corn G/E ratings.
For soybeans, 62% of the U.S. crop is rated G/E, down two points week-over-week. Spring wheat G/E ratings fell by two points to 35% rated. Winter wheat harvest is now at 67% complete, ahead of last year’s pace and the five-year average by two points.
Harvest reports out of Kansas is that you’re either getting quality or quantity but you’re not getting both. 
Factoring In the WASDE Report
Let’s return to the global side of things and the WASDE report.
Here are a few key things to watch on Wednesday.
First, we’ll be watching to see how much impact the dryness in Western Australia will have a potential wheat production. National Australia Bank is getting extremely bullish and putting a lot of noise in the market for suggesting that a 20 million-tonne crop is possible. 
Second, we’re looking at European wheat production and carryout levels. We already know that Russia is going to produce somewhere around 68 to 70 million tonnes of wheat, but the third thing we’ll look at is how impactful dryness in Ukraine will affect their production number.
The fourth thing will be South American production, namely Brazilian production.
The country saw record corn and soybean harvests for the 2016/17 crop at 114 million and 97 million tonnes respectively. The Brazilian 2017/18 crop year technically starts in February 2018, when the nations’ harvest begins.
For the year, the Brazilian USDA attaché is forecasting a 105 million-tonne crop, which is obviously lower year-over-year. However, this year saw near-perfect growing conditions. 
This 2017/18 production is based off 85 million acres getting planted, a 1.2% increase over 2016/17 acres. From a growth perspective, this would be the smallest increase in soybean acres in the past five years. For exports, the attaché is expecting 62 million tonnes of soybeans in 2017/18, down marginally from 2016/17’s estimate of 64 million tonnes but there’s questions about that number being reached.
On the demand side, we don’t necessarily expect too many changes. Still, the narrative is all about supply right now. In order of importance, spring wheat numbers will probably be watched closest, as the crop faces the most volatility with more and more speculators interested in playing ball.
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.