Mar. 11 – What the March WASDE Report Didn’t Do

Grain prices this morning are mostly lower after the March WASDE report came and went without much reaction from an already-bearish grain market.

“Be content with what you have; rejoice in the way things are. When you realize there is nothing lacking, the whole world belongs to you.” – Lao Tzu (ancient Chinese philosopher)

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Grain prices this morning are mostly lower after the March WASDE report came and went without much reaction from an already-bearish grain market. [1] Most of the numbers that the USDA produced were either pretty close to their February WASDE number, or the pre-report estimate (which, as you can tell for yourself below, were not too far from last month’s WASDE number either!

There wasn’t much changed on the balance sheet for wheat in the March WASDE report, albeit US 2018/19 wheat exports were lowered by about 3% (or about 1 MMT) from their February estimate to 26.2 MMT. This included HRS wheat exports being felled by 680,000 MT (or more than 8%) to 7.48 MMT and white wheat exports (both soft and hard varieties) getting lowered by 272,000 MT (or about 4.5%) to 5.72 MMT.

Performance-wise, for the week, Chicago SRW wheat prices lost 15-16¢ (or 3.2% – 3.9%), Kansas City HRW wheat prices dropped 9-14¢ (1.8% – 3.1%), and Minneapolis was down 6-9¢ (1% – 1.6%). Most of these losses were realized earlier in the week though. This is because, despite the WASDE report being mostly categorized as bearish, and given the short position that speculators have been building up, it didn’t seem like there was much room to go lower.

WASDE Report Kicks Soybean Prices

Given some of the record soybean processing volumes we’ve seen the last few months, it was no surprise to the market that the USDA increased U.S. domestic crush by 10 million bushels. However, the market is still a bit confused by the expectation from the USDA that U.S. soybean exports, which were stayed at 1.875 billion bushels. This would be a 12% decline year-over-year. Compared to last Thursday’s USDA exports report, soybean exports are tracking 31.5% below last year’s pace. Not a ton of surprise that soybean prices fell about 15-16¢ USD/bushel on the Chicago board last week.

In South America, the USDA lowered the Brazilian soybean harvest by 500,000 MT to 116.5 MMT. The market was expecting 115.7 MMT though, a number that’s more in line with the 114 – 115 MMT that many private forecasts have on their balance sheet. Good weather in Brazil has helped accelerate the soybean harvest, as well as make transportation actually possible. More specifically, Brazil’s BR-163 highway was opened back up late last week after being shut down for being “unnavigable” earlier in the week.

In neighbouring Argentina, the USDA kept the soybean harvest there at 55 MMT. While this is a significant rebound from last crop year’s drought-riddled soybean harvest of 37.8 MMT, it might not be enough to reignite the country’s processing capacity, which is currently forecasted to be operating at about 50%. [2]

Why?

Thanks to the trade war between the U.S. and China, it’s been more lucrative for Argentina soybean players to export the raw product, versus processing it. Case in point, Reuters reports that Argentine soybean exports should reach 16 MMT this crop year, up from the usual 10.5 MMT. Conversely, exports of soy byproducts (soy oil and soymeal) should fall to 35 MMT from the 42.5 MMT normally shipped out.

Most of the increase in Argentina’s soybean exports are attributed to China. The Ministry of Agriculture there said they have raised their soybean import expectations as they are expecting a shortage of rapeseed meal. As mentioned last week, the political impact on canola prices has been very real as the Canadian oilseed has lost about $25 CAD/MT in the last 2 weeks of trading.

March WASDE Report Pressures Corn Prices

Coming back to the WASDE report, for me, corn markets saw the most surprising changes. U.S 2018/19 ending stocks were raised 100 million bushels thanks to exports being reduced by 75 million bushels and ethanol demand by 25 million bushels. The reduction in exports is especially surprising considering that, before the March WASDE numbers came out, I mentioned in last Friday’s FarmLead Breakfast Brief, that US corn exports are tracking nearly 40% higher year-over-year. As Argentina and Brazil are expected to harvest 46 MMT and 94.5 MMT of corn respectively, it seems that the USDA is expecting U.S. corn to start losing market share over the next few months.

This aligns with the USDA’s newest exports estimate for U.S. corn, as they’re calling for exports to drop 2.6% year-over-year to 2.375 billion bushels. A bit confusing, no? This sort of bearish expectation from the USDA in mind, 2018/19 old crop corn prices on the futures board in Chicago lost 7-8¢ USD/bushel for the week, with the May 2019 contract closing at $3.643. The new crop December 2019 contract is now firmly below the psychologically-significant $4, closing this week down almost 6¢ to $3.885.

If you’re already reading between the lines, this month’s WASDE report didn’t help grain prices get out of its current rut. With the market quite oversold (read: sitting in a net-short position), the fundamentals are seemingly continuing to defer to any action between China and the US in terms of a trade war deal finally getting done.

Is this level of bearishness though the contrarian indicator that we’ve been looking for though to get grain prices going back up? Should that happen, myself and at least Brian Doherty of Top Farmer thinks that those opportunities will be short-lived. [3] This is especially true for corn prices as the best marketing opportunities of the last 5 years haven’t lasted for more than a few weeks.

To growth,

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

At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3434 
CAD, $1 CAD = $0.7444 USD)

May Corn: +1.5¢ (+0.4%) to $3.658 USD or $4.913 CAD
May Soybeans: -1.8¢ (-0.2%) to $8.838 USD or $11.872 CAD
May Soybean Meal (per short ton): -$0.40 (-0.15%) to $303.30 USD or $407.44 CAD
May Soybean Oil (cents per lbs): -0.11¢ (-0.35%) to 29.54¢ USD or 39.68¢ CAD  
May Oats: unchanged at $2.635 USD or $3.54 CAD
May Wheat (Chicago): -1.5¢ (-0.35%) to $4.38 USD or $5.884 CAD
May Wheat (Kansas City): -2.3¢ (-0.5%) to $4.285 USD or $5.756 CAD

May Wheat (Minneapolis): -3.3¢ (-0.6%) to $5.46 USD or $7.335 CAD
May Canola: -4.1¢/bu (-0.4%) to $10.331/bu / $455.50/MT CAD or $7.69/bu / $339.07/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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