FarmLead Breakfast Brief
Tuesday, July 25th, 2017
“I think I’d have done better if I had been a little more relaxed-if I had not pressed quite so hard, if I’d not lost quite so much sleep.”
– Charles Kuralt (US journalist)
At 7:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2481 CAD, $1 CAD = $0.8012 USD)
Sept Corn: -2.8¢ (-0.75%) to $3.745 USD or $4.674 CAD
Sept Soybeans: +7.38¢ (+0.7%) to $10.098 USD or $12.603 CAD
Sept Soybean Meal (per short ton): +$1.90 (+0.6%) to $329.70 USD or $411.51 CAD
Sept Soybean Oil (cents per lbs): +0.29¢ (+0.85%) to 34.02¢ USD or 42.46¢ CAD
Sept Oats: +2¢ (+0.65%) to $2.89 USD or $3.607 CAD
Sept Wheat (Chicago): -3.3¢ (-0.65%) to $4.855 USD or $6.311 CAD
Sept Wheat (Kansas City): -3.5¢ (-0.7%) to $4.84 USD or $6.041 CAD
Sept Wheat (Minneapolis): -14.8¢ (-1.95%) to $7.358 USD or $9.183 CAD
Nov Canola: +6.4¢/bu / +$2.80/MT (+0.55%) to $9.027/bu / $398.04/MT USD or $11.267/bu / $496.80/MT CAD
Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.442 USD or $3.048 CAD
Oct Milling Wheat: -16.3¢ (-2.05%) to $5.996 USD or $7.729 CAD
Hard-Pressed Grain Markets
Grain prices are mixed this morning as bulls are hard-pressed to find sticking points.
Corn prices and wheat prices were falling, while soybeans have pushed back above $10.00 per bushel.
Markets are attempting to rebound from losses yesterday.
The focus continues to be on the weather. Bulls might be heading to the sideline for the time-being as U.S. heat fears are subsiding.  However, they may be back in play in a few days as we’ll get an update on where the American drought is at on Thursday at 830AM ET when the weekly report is released.
American Crop Ratings Continue to Decline
As Garrett mentioned in Grain Markets Today, the USDA continued to the trend of dropping the ratings of American crops.
Spring wheat G/E ratings fell 1 point from last week to 33%.
Last year at this time, 68% of the U.S. spring wheat crop was rated G/E. North and South Dakota’s G/E ratings didn’t change from last week, staying at 32% and 8% respectively. Montana did suffer though, seeing its crop rating drop for spring wheat by 3 points to just 13% now rated G/E.
Just east, 76% of the South Dakota spring wheat crop is considered to be in P/VP shape, an increase of 2 points since last Sunday.
In North Dakota, P/VP ratings dropped by 1 point to 39%. Next door in Montana, 6% of the spring wheat crop pulled out of P/VP column, with only 55% now considered in poor-to-very poor condition.
It’s also worth noting that 84% of the Minnesota spring wheat crop is in G/E health (+1 point WoW).
Conversely, the Idaho spring wheat crop rated G/E lost 7 points in 1 week, now sitting at 63%.
For other small cereals, both 51% of the U.S. oats and barley crops are in good-to-excellent shape. This figure is a 2 point drop from last week for barley. It’s unchanged for oats. Harvest has started for the latter though, with 24% of the crop now combined, a bit behind last year’s pace.
Soybeans’ Ratings Decline Again
Quite simply, yes, soybeans’ crop ratings are deteriorating.
Just 57% of U.S. fields were ranked by the USDA as in G/E shape as of Sunday. This is a 4-point drop week-over-week. It’s also 14 points behind last year’s rating for a record crop.
On the flipside, 14% of the U.S. soybeans crop was rated in P/VP condition by the USDA.
The largest week-over-week decline was seen in Illinois. 
Roughly 8% of the crop in the Land of Lincoln lost its G/E stature in the past 7 days, leaving 59% in the good-to-excellent column.
Today, 25% of the South Dakota soybean crop is considered to be in G/E health, a drop of 4 points week-over-week. In North Dakota, the G/E number improved by 1 point from last week to 41%.
The report also says that 69% of the entire U.S. crop is now blooming, while 29% is setting pods. These numbers are both ahead of the 5-year averages of 67% and 27% respectively.
We can all agree that U.S. soybean yields won’t be anywhere near last year’s records. Still, David Widmar at Agricultural Economic Insights, explains that the most important factor right now is harvested acreage. 
U.S. and Brazil accounted for 48% of total global soybean acres in 2016 (and more than half of all production). Looking at acreage expansion since 1990 though, Widmar notes that U.S. soybean acres are 46% higher than they were in 1990, or a 1.5% average growth each year. In Brazil though, 248% more acre were seeded to soybeans in 2016 versus 1990.
This figure represents a 5% increase every year.
One more notable point from Widmar is that there are six other countries who had even bigger acreage growth rates than Brazil. They are Argentina, Paraguay, Uruguay, Ukraine, India, and Canada. If area growth continues to trend the way it is, we’ll continue to take off larger soybean harvests globally.
Are Corn Yields Priced In?
The USDAY reported that 62% of the U.S. corn crop is now rated in good-to-excellent (G/E) shape.
That’s a two-point decline from last week and a far cry from the 76% at this time a year ago. Just 12% is considered poor-to-very poor (P/VP), up from 11% a week ago. 
The most obvious negatives continue to be:
- South Dakota at 28% G/E (-2 points week-over-week) and 37% P/VP;
- North Dakota at 44% G/E (-1 point WoW) and 23% P/VP; and
- Indiana at 47% G/E and 18% P/VP (both unchanged from last week).
Across the country, 67% of the U.S. corn crop is silking, slightly below the 5-year average of 69% and a good stretch from last year’s 76% at this time of year.
Karen Braun from Reuters points out that a reduction in U.S corn yields and correspond production does not correlate perfectly with a reduction in carryout numbers. 
She argues that a cut in production during the growing season usually corresponds with a drop in demand as well. In the past 20 years, the USDA has plugged in an average corn yield estimate in the August WASDE report that is below their long-term trend yield. 7 out of those 8 times, U.S. corn demand also fell.
Braun expects consumption numbers for corn to fall in August if the USDA downgrades the average corn yield.
The categories of exports and feed and residual are the likely targets. However, with a smaller wheat crop coming off this year, 2017 might be comparable to 2001. That year, the USDA did downgrade corn yields. However, that year’s corn demand for feedstuffs did increase because less wheat went into the feed market.
The other thing we can expect is U.S. corn stocks by the end of 2017/18 to fall a bit. Currently, projected stocks going into 2017/18 of 2.37 Billion bushels (60.2 million tonnes) which would be the largest nearly 30 years. Even with a smaller crop this year, the current projection is for 2.325 Billion bushels (using 170.7 bu/ac yield). With a yield reduction to 165 bu/ac, this would suggest a 2017/18 carryout closer to 1.85 Billion bushels (47 million tonnes). But knowing that carryout and yield reductions don’t go 1-for-1, as Braun successfully notes, better estimates would suggest something closer to 2.1 Billion bushels (53.3 million tonnes).
If anything, we’ll likely see U.S. corn exports pull back a bit.
1.875 Billion bushels (or 47.63 million tonnes) is a lot of corn to ship out of America.
Especially considering that the combined Brazilian and Argentinian crops are expected to be 44% bigger than what they were a year ago. 97 million tonnes of corn will come off this year in Brazil, while Argentina will combine 41 million tonnes. Last year, the corn crops were just 67 million and 29 million tonnes respectively.
Further, South American corn exports are most active in the July-November months.
Overall, we expect the USDA to downgrade their average corn yields in 2 weeks.
I expect that after this most recent crop rating downgrade, we’ll see the yields come in somewhere around 167-168. Any negative weather from here on in won’t be counted towards the August WASDE. Please understand that really, the next few weeks are negligible when it comes to the USDA’s numbers.
There’s some variability in the crop – some areas received too much rain, some areas haven’t received enough. 
Overall though, corn prices are responding right now to two things: weather forecasts and the crop mentioned above ratings (you could argue that part of the latter could also include drought percentages). Mathematical models are trying to plug in all these factors to produce a yield number, corresponding carryout number, and more importantly, appropriate prices.
With corn prices lower this morning, my guess is that the market is a little tired of the bullish run and is taking a break. Do we see December corn prices move back in the direction of $4.25 or $4.50 on the futures board that many farmers are seemingly psychologically set on?
I say, yes.
However, without a significant change from the USDA in their August WASDE report (i.e. less than 166 bushels per acre), It’ll be hard-pressed to top those targets in the next month, especially $4.50.
Around the World’s Grain Markets
In Europe, the agronomy division there says that corn yields are going to come in smaller than expected, thanks to summer heat.  MARS is calling for average yields across the continent of 108.8 bushels per acre.
This figure is 3.4% below last year’s 112.6 bu/ac average yield.
For soft wheat, MARS is calling for an average E.U. yield of 87 bushels per acre. In France, expectations are for a 101.7 bushel per acre crop. Comparably, Agritel recently pegged France’s crop at an average yield of 105.9 bushels per acre. This translates to a 36.64 million tonne crop, or a significant 33% improvement in production over last year. These yields are still below the average, but higher acreage is compensating to produce the bigger crop.
Over in Russia, while the crop is looking similar, if not larger than last year’s crop. Further, while last year’s crop didn’t have amazing quality, it seems to be much of the same this year.  From a price standpoint, 12.5% protein wheat is being offered out of Black Sea ports at $196 USD/MT ($5.33 USD / bushel or $6.70 CAD/bushel).
For 11.5% protein, FOB port prices are sitting around $185 USD / MT ($5 USD / bushel or $6.30 CAD / bushel).
On the barley front, Russian barley is being offered up at about $165 USD / MT ($3.60 USD / bushel or $4.50 CAD/bushel).
In Argentina, wheat planting of the 2017/18 crop has been slowed by rains. 
To date, about 10.9 million acres of been seeded. With the rains though, it may be tougher to get in the other 2.5 million acres that the Buenos Aires Grain Exchange is forecasting (the planting window ends in August).
Acres that are not seeded with wheat as planned will likely go to soybeans in September.
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.