March 6 – Ahead of WASDE, Grains Take Bullish Break

Good morning!

Grain prices this morning are barely in the red as the complex pulls back from yesterday’s gains, despite a weaker US Dollar.

“It is better to have your head in the clouds, and know where you are… than to breathe the clearer atmosphere below them, and think that you are in paradise.” – Henry David Thoreau (American philosopher)

 

graincents-trial

 

Ahead of WASDE, Grains Take a Bullish Break

Grain prices this morning are barely in the red as the complex pulls back from yesterday’s gains, despite a weaker US Dollar.

The rest of the broader market is in the green, with most commodity and equities all showing gains this morning. WTI oil is sitting above $63 USD /barrel while Brent crude is above $66, given a hint of a return to levels seen in January.

Despite the cautious tone earlier in the day in grain markets, yesterday saw bullish activity pick up towards the end of the trading session. Garrett noted yesterday afternoon in the daily Grain Markets Today that wheat prices were again the leader. Some rains have been falling in the Southern Plains with a bit more in the forecast over the weekend, but generally speaking, it remains dry. [1]

The USDA’s daily market recap noted yesterday afternoon that, “with wheat prices now higher and the rest of the world flush with supplies, U.S. exports have become a difficult sell.” I mentioned in yesterday’s Breakfast Brief though that they’re the best performing of the big three crops, tracking only 6% behind last year’s pace at this time.

We might get a better understanding of what the USDA is thinking in their March WASDE report out on Thursday, but my guess is that there will be some volatility over the next 48 to 72 hours.

Grain Prices Pressured by the Land Down Undaa?

Yesterday, ABARES (the Aussie version of the USDA) came out with its first estimate of the 2018/19 crop in Australia. [2] More sorghum, oats, and barley are expected to get planted as pulses fall out of favor on Australian paddocks (their word for fields). Barley production is expected to climb slightly year-over-year to 9 million tonnes. Sorghum will see the most notable jump, with acreage climbing 38% year-over-year from 1.11 million acres to 1.53 million.

Expectations for the 2018/19 wheat crop were pegged at 23.7 million tonnes, which would be nearly a 12% jump from this year’s drought-riddled harvest of 21.2 million tonnes. A return to more normalized yields is the big reason for the increase, but acreage is also seen up a bit.

The thesis is shared with canola as ABARES is pegging the Aussie 2018/19 canola crop at 4 million tonnes, versus the 3.7 million tonnes taken off in 2017/18. Winter-seed canola – which will start going into the ground in about a month – is expected to climb by about 300,000 acres to 7.3 million. This is a six-year high.

As mentioned, with India’s import taxes in place on lentils, peas, and chickpeas, interest in growing them is dropping like a baby giraffe falling out of the womb. Specifically, Aussie chickpeas acreage is expected to drop by 26% year-over-year to a four-year low of 1.88 million acres.

Is China the New Wheat King?

With the drier conditions, we know that the protein content of the Australia wheat crop is one of the best. Despite this, we see market share for this higher quality Australian wheat be snapped up (but so is the lower quality Australian wheat). Thus, ABARES is forecasting Aussie wheat exports in 2018/19 to fall to a three-year low, down 540,000 year-over-year.

Of note in ABARES’ forecasts are the expectations for China to hold almost half of all of the wheat in the world in the next five years. Globally, they’re forecasting that wheat’s stocks-to-use ratio will stay above 30%, but this might be false advertising.

If China were to hold half of the world’s wheat, how much of it would be readily available for the world market? Not much. And how much wheat would they import? Again, not much at a couple of million tonnes, and nowhere near Indonesia’s interest in both high protein wheat and low protein wheat. So it’s not super relevant to the world (much is the case in terms of China’s impact on the corn market, at least for now…we know that China’s ethanol mandate is coming).

Conversely, ABARES is forecasting that the stocks-to-use ratio of major wheat exporters will start to decline over the next three years or so. I would agree with this, as wheat production should pull back a bit thanks to the lower prices. Higher domestic consumption in markets Southeast Asia and MENA (the Middle East & North Africa) will also support slightly stronger demand.

Specifically, ABARES is forecasting the stocks-to-use ratio of the major players – America, Canada, the EU, Russia, Ukraine, Kazakhstan, Australia, and Argentina – to fall to 15% by 2019/20 (that’s next crop year for those who haven’t had coffee yet).

Soybean Expectations for Thursday’s WASDE

In the Grain Markets Today link above, Garrett walked through some of the estimates that the market is thinking about for this Thursday’s WASDE report. I’ll get into all the estimates in tomorrow’s Breakfast Brief, but the key one to note is South American soybean production.

In February’s WASDE report, the USDA said that this year’s Argentine soybean come in at 54 million tonnes, a 2 million tonne from January. For Brazil, the USDA pegged the soybean crop there at 112 million tonnes, up 2 million tonnes. The market reacted rather quietly as it was a “production wash,” with Brazilian gains and Argentine losses offsetting one another.

A lot has happened in the past month (as discussed in our February recap of grain prices), so the market holds many different expectations. Specifically, the average guesstimate of analysts is for Argentine soybean production in the March WASDE is 48.5million tonnes. For Brazil, the pre-WASDE average soybean production guesstimate is for 113.8 million tonnes.

While both notable, the clear bullish factor is Argentina. A drop of 5.5 million tonnes month-over-month is certainly interesting. But is the market already pricing this in?

Over the weekend, Garrett looked at just how high soybean prices could go, specifically as it relates to where the USDA landed with their Argentine production estimate in Thursday’s WASDE. As there is a bit of a relationship, a view on where canola prices could go has also been presented.

We’ll know for sure on Thursday at noon EST when the March WASDE is released (just don’t hold your breath till then).

To growth,

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

 

At 7:05 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2912
 CAD, $1 CAD = $0.7745 USD)

May Corn: -0.5 (-0.13%) to $3.868 USD or $4.994 CAD
May Soybeans: -2.5¢ (-0.23%) to $10.75 USD or $13.88 CAD
May Soybean Meal (per short ton): -$2.20 (-0.56%) to $390.80 USD or $504.597 CAD
May Soybean Oil (cents per lbs): +2.1¢ (+0.06%) at 32.42¢ USD or 41.86¢ CAD  
May Oats: -1.0¢ (-0.37%) to $2.68 USD or $3.46 CAD
May Wheat (Chicago): -6.3¢ (-1.23%) to $5.03 USD or $6.495 CAD
May Wheat (Kansas City): -6.8¢ (-1.24%) to $5.388 USD or $6.956 CAD
May Wheat (Minneapolis): -3.8¢ (-0.60%) to $6.205 USD or $8.012 CAD
May Canola: -$2.40 (-0.45%) to $11.977/bu / $528.10/MT CAD or $9.276/bu / $409.003/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.

Most Recent Posts
Dec. 12 - Anyone Notice Yesterday’s WASDE Report?
December 12, 2018 Brennan Turner
Grain prices are all in the green this morning as the complex rebounds from a relatively quiet WASDE report, albeit it was viewed as bearish.
October 4: Corn Prices Edge Higher With October WASDE in Focus
October 04, 2018 Garrett Baldwin
Corn prices ticked higher Thursday as traders and analysts began to speculate on next week’s release of the October WASDE report.