Mar 11 – March WASDE Report Comes and Goes (Did Anyone See It?)

Grain markets this morning are mixed as the complex has already digested the March WASDE report and is going back to the regular programming of volatility.

“Bad times have a scientific value. These are occasions a good learner would not miss.” – Ralph Waldo Emerson (American author)

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March WASDE Report Comes and Goes (Did Anyone See It?)

Grain markets this morning are mixed as the complex has already digested the March WASDE report and is going back to the regular programming of volatility.

There are continued expectations from investors that governments will continue to provide financial assistance to specific companies and industries, in addition to looser fiscal AND monetary policies. Quite explicitly, this means bailouts and even lower interest rates from the cuts that were made last week by the U.S. Federal Reserve, the Bank of Canada, and others.

In fact, the Bank of England cut it key interest rate by 50 basis points (0.5%) to 0.25%. Further, a new lending facility of about $374 Billion was introduced by the BOE that could make it easy for UK small businesses to borrow. As put by Bank of England Governor, Mark Carney, “This is a big, big package.” [1] I expect more “coronavirus stimulus” in the days and weeks to come as countries try to stave off recession fears. However, those with net-exporting energy economies (i.e. Canada and Russia) are the most susceptible to these downward price shocks and thus, unfortunately, we should now expect a recession.

Wait, What March WASDE Report?

With the collective global anxiety about the coronavirus, the March WASDE report from USDA came and went without much attention from anyone. Specific to wheat, Russian and Argentine wheat exports were raised while Canadian and Australian shipments were lowered. Quite literally, the USDA did not change anything on the U.S. balance sheet for wheat, nothing was changed for corn, and only seed use increasing by 5M bushels was the only update for soybeans. [2] The only other change from the USDA in the March WASDE report was that they lowered their forecast of average corn and soybean prices by 5₵/bushel to $3.80 and $8.70, respectively.

Quite honestly, the only major highlight from the March WASDE report was that the USDA increased their estimate of Brazil and Argentina’s soybean production by 1 MMT to 126 MMT and 54 MMT, respectively, but kept corn production the same at 101 MMT in Brazil and 50 MMT in Argentina. CONAB – the Brazilian version of the USDA – slightly reduced its own expectations for the soybean harvest in Brazil by nearly 1 MMT to 123.25 MMT. Comparably, they slightly raised their corn harvest forecast by about 410,000 MT to 100.5 MMT.

The 2020 March WASDE report was released, but no one really noticed.

In Argentina, farmers in central regions are expected to receive some good moisture through the weekend, helping crops that have been stressed by drier conditions of late. That said, we all know crops need some stress to grow so the impact of said heat waves will likely have the most impact on the really late-planted fields. That said, because of the rains, it’s not like many farmers are able to get into the fields so it makes sense that they go on strike over the recent hike in export taxes. [3] As mentioned last Friday, the impact of the higher tariffs will likely have a greater impact on next year’s acres and soybean harvest.

When, Where Will Grain Markets Demand Show Up?

Going forward, apart the uber-constant coronavirus headlines, grain markets will be focusing on Plant 2020 conditions and export sales before the 2019/20 crop year ends (the expectation is that buying will pick back up once the coronavirus fears subside). This is especially notable for commodity-hungry China, albeit the obvious question is how long before that happens. Unfortunately, putting pressure on grain markets will be the build up of inventories as demand and subsequent movement slows.

For example, China’s soy oil stocks are sitting 50% higher than a year ago as demand slowed. [4] This is mainly because restaurants weren’t as busy and so less vegetable oil was needed as less cooking was being done. As of last week, China’s soy oil stocks were sitting at 1.344 MMT, and are likely to continue to climb as the laggard effects of slower demand work through the system. To put this point home, agricultural consultancy firm, Cofeed, says that, with decent crush margins in China, soy oil stocks could rise even further to above 1.65 MMT before the end of this month. As canola prices tend to follow soy oil closely, this is going to be bearish for canola prices (the pullback in cash markets to date has also been linked to the general pullback in oil prices).

Cash canola prices in Western Canada for spot movement through March 6, 2020

One market that might be more important is India as cases of coronavirus remain small in number at just 60 (at least what’s known, that is). [5] That said, imports of vegetable oils by India is likely to slow as the country’s oilseeds harvest is looking a lot better than a few months ago, including the rapeseed harvest now estimated at 7.8 MMT. [6] Intuitively, this means that they’ll likely be importing even less palm oil, which usually accounts for about 2/3s of all vegetable imports. As mentioned on Monday though, like oilseeds, India’s pulses harvest is looking better than initially though and this will likely put some pressure on pea prices.

Ultimately, at this time of year, we usually see the lows anyways but the sell-off, driven by investors’ fear, is augmenting this pull-back. The overall effect though is that we’re likely moving to a new trading range below where the crystal ball pundits had us sitting before. That said, people still have to eat and by the time the “breaking” coronavirus news cycle slows down (likely in April or May), it could time up well with the usual weather concerns for Plant 2020 that the market has. Quite simply, there’s going to be more volatility in the grain markets. However, one should remember that, in trading, with chaos, comes opportunity. In that vein, it might be worth having a conversation with your banker and/or reviewing your balance sheet with your accountant to see how this new structure in lending and grain markets could impact your business.

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne on Twitter

Due to some travel, I have not had time to put futures grain markets data in today’s Breakfast Brief but you can review them here at your convenience.

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.

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