Grain markets are mostly green after yesterday’s June WASDE report, which showed some decent demand for soybean exports but a bigger winter wheat harvest.
“Influential people are never satisfied with the status quo. They’re the ones who constantly ask, ‘What if?’ and ‘Why not?’ They’re not afraid to challenge conventional wisdom, and they don’t disrupt things for the sake of being disruptive; they do it to make things better.” – Dr. Travis Bradberry (American author)
June WASDE Shows Much of What We Already Knew
Grain markets are mostly green after yesterday’s June WASDE report, which showed some decent demand for soybean exports but a bigger winter wheat harvest. Grain markets have also been helped by new weather forecasts for the Midwest that are showing some warmer/drier conditions over the next 10 days.  Similar dryness pain is being felt by producers in southern areas of Western Canada, where rains continue to be forecasted but haven’t materialized.  The saving grace for crop potential in these areas though is the available soil moisture that’s still available from last fall. 
In outside markets, stocks took a nosedive yesterday on a new surge in the number of American COVID-19 cases (especially in California, Texas, and Florida), which most investors and the U.S. Federal Reserve see as further indications that this won’t be a V-shaped recovery. That said, the U.S. Federal Reserve has literally used a firehose of printed money to quell market volatility, which is why you’ve seen stocks reach new highs this past week.  In that vein, this week the Federal Reserve pledged that interest rates will remain near zero through 2022 and that they’ll use all of their tools to help the economy recover. However, the jobs reports continue to point to increasingly tough economic environment to jumpstart again (especially for leisure, travel, and retail industries).
Worth noting that, after booking about $1 Billion in profits in commodity trade last calendar quarter, Goldman Sachs is warning that that the rally in commodities is likely just accompanying equities and not reflective of the current fundamentals.  With a second wave of cases in the U.S. starting, the bank says that oil prices might retract again and that agricultural prices have similar downside risk. 
June WASDE Report: I Give it a “Meh”
Going into the June WASDE report, traders were fairly bearish as the looked to bigger crops in the U.S. and South America adding to an already-heavy supply base and uncertain demand. Specific to corn, ending stocks in the United States were raised again in the June WASDE and adding to challenges was a cut in ethanol demand, albeit it was less than what grain markets were expecting. While some ethanol processing facilities are starting to re-start, I estimate that there’s already been about 500M bushels in corn demand that has been lost over the last 3 months. I’ll admit that this is less that what I was initially expecting, but, as mentioned, we’re far from being out of the woods.
This in mind, without any major weather issues, grain prices tend to drop as we get deeper into the growing season, and thus, I expected corn prices to start to pull back in the coming weeks (even despite the hotter weather…a week doesn’t make the crop!). On that note, the USDA left U.S. corn yields and planted acreage unchanged at 178.5 bushels and 97M acres, but sentiment across grain markets is that this number could be lowered to 94M acres before the 2020/21 U.S. corn crop year official starts on October 1st. Globally, the USDA only increased Brazil’s corn harvest by 1 MMT to now sit at 107 MMT but a lower 2019/20 carryout meant global 2020/21 corn ending stocks were also lowered from last month’s WASDE report.
For the wheat market, prices in Chicago dropped to a three-week low yesterday as the USDA raised their outlook for the winter wheat harvest in the U.S., as well as raising global inventories to a new record of 316 MMT. Wheat prices have already been pressured this week by the start of the northern hemisphere’s harvest and some bigger production expectations from the Land Down Undaa. On that note, the Aussie wheat harvest was raised by 2 MMT to 26 MMT, and exports by the same amount to sit now at 17 MMT. This echoes my musical chairs sentiment for wheat exports that I discussed in Monday’s Breakfast Brief.
Offsetting, the increase in the wheat harvest estimates for the United States and Australia was downgrades for the E.U. (lowered by 2 MMT to 141 MMT of all types of wheat) and the Ukraine (dropped by 1.5 MMT to 26.5 MMT). The reason for the wheat harvest downgrades is squarely pinned on the hot, dry spring weather that most of the region experienced. While the USDA kept the Russian wheat harvest at 77 MMT in the June WASDE, IKAR raised its estimate by 2.4 MMT to 78 MMT based on better yields than initially expected. Worth mentioning (albeit not super relevant in the global wheat trade game) is that India’s wheat harvest was raised to a new record of 107.2, a jump of 4.2MMT from the May WASDE report. Similarly, China is expected to hold more than half of all global wheat supplies by the end of 2020/21.
June WASDE Reiterates Soybean Exports 3-Way Game
A lot of the attention going into the June WASDE was on the soybean balance, notably competing soybean exports from Brazil and the U.S., and what China will buy. The bulls were disappointed though that the USDA dropped their U.S. old crop soybean exports target yet again; this time it was 25M bushels in yesterday’s June WASDE report, adding to the 100M-bushel drop in last month’s WASDE report. U.S. 2019/20 soybean exports are now estimated at 1.65 and 2.05 Billion bushels respectively (or 44.9 MMT and 55.8 MMT if converting bushels into metric tonnes).
Despite the pessimism shared by the USDA in yesterday’s June WASDE report, China continues to buy U.S. soybeans, including 10 cargoes so far this month that we know about.  This likely due to currency effects as the U.S. Dollar is sitting at a 2-month lows while, conversely, the Brazilian Real has touched 2-month highs. That said, last week saw the largest sales of U.S. soybean exports so far this crop year and the largest since 2018 with 2.22 MMT contracted.  From an actual shipments standpoint, U.S. soybean exports are now barely tracking above last year’s pace.
Reading between the lines of the June WASDE, it’s safe to say that China is likely to buy much of the world’s surplus in soybean production, as their 2019/20 imports were raised by 2 MMT to 94 MMT (but 2020/21 was unchanged at 96 MMT). That said, China has already booked at a lot of soybeans, mainly from Brazil, and that may mean that their exportable supplies are starting to dwindle.  In fact, Datagro estimates that Brazilian farmers have already sold nearly 90% of their 2019/20 crop (or about 106.5 MMT), as well as one-third of their 2020/21 expected production, which is well above-average for this time of year.  And, I mean, why the heck wouldn’t you, especially when the local cash price is at record levels!
ADM, in their quarterly earnings call this past week, says that China is indeed still buying U.S. soybean exports, but are anticipating a “very strong” 4Q2020 of U.S. soybean exports sales as with China’s economy recovering, “they do need to bring in more soybeans”.  Further, Rabobank thinks that China will continue to import more soybeans as they (1) re-build their hog herds, (2) mitigate against potential supply disruptions in Brazil, and (3) also mitigate against weakening trade relations with the U.S.
As an indicator of China’s economic rebound, car sales in China climbed for the second straight month.  However, given their handling of the COVID-19 situation, I’m cautious against taking any data at face value that the Chinese government puts out to the world. Further, as the government pushes its millions of newly unemployed to re-create the stalls/street vendor economy of generations past, this has ignited a debate about what type of economy China actually has going for it. A thought-provoking article from the New York Times yesterday, asks “Is China an increasingly middle-class country, represented by the skyscrapers and tech campuses in Beijing, Shanghai and Shenzhen? Or is much of it still poor and backward, a country of roadside stalls in back alleys? 
One final note in the soybean exports game: it looks like Argentine government is going to try to nationalize one of the country’s largest traders, Vicentin SAIC in order to bring in more revenue to satisfy its debt obligations.  This is alarming in many ways and would be the equivalent of the U.S. government taking over a company like CHS or, in Canada, taking over Parrish & Heimbecker. Ultimately, between COVID-19 and depressed commodity prices, it’s tough to find further silver linings and more concretely, the UDSA showed us with their June WASDE report what we already knew.
Have a great weekend!
@Combyne or @FarmLead on Twitter
At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3578 CAD, $1 CAD = $0.7365 USD)
July Corn: +0.8¢ (+0.25%) at $3.305 USD or $4.487 CAD
July Soybeans: +2¢ (+0.25%) at $8.68 USD or $11.285 CAD
July Soybean Meal (per short ton): +70¢ (+0.25%) to $290.40 USD or $394.30 CAD
July Soybean Oil (cents per lbs): +0.15¢ (+0.55%) to 27.65¢ USD or 37.54¢ CAD
July Oats: +3¢ (+0.95%) at $3.22 USD or $4.372 CAD
July Wheat (Chicago): -2.3¢ (-0.45%) to $4.97 USD or $6.748 CAD
July Wheat (Kansas City): +1.8¢ (+0.4%) at $4.488 USD or $6.093 CAD
July Wheat (Minneapolis): +1.8¢ (+0.35%) to $5.15 USD or $6.993 CAD
July Canola: -1.8¢ (-0.15%) to $10.591/bu / $467/MT CAD or $7.801/bu / $343.95/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.