“While negativity is politically useful, it is also demoralizing unless it is accompanied – and to some extent overshadowed – by elevated and inspiring ideas about the American future.” – John Podhoretz (American writer)
Grain markets this morning are mostly in the red as the complex positions itself ahead of today’s May WASDE Report, albeit it doesn’t seem to be a huge focus!
Grain markets dropped sharply yesterday on a combination of factors, namely rising trade war tensions and some better weather in the Midwest for next week, albeit there is a freeze warning in effect for Nebraska and Kansas. Partnered with all the rain lately, there’s a growing possibility of negative yield impact on corn and if you don’t plant corn, current new crop soybean prices make it a bit tough to switch over.  I timestamped my thoughts before the April WASDE report, and I’ll mention it here again that Prevent Plant acres in the U.S. could top 5 million, which would be well above the average of 3.8 million acres. Will today’s WASDE report reflect that?
U.S. Grain Exports Slowing, Unlike Canada
Also putting some pressure on the grain markets is the bigger output expectations for South America and some very poor U.S. grain export sales numbers. American soybean export sales came in at a paltry 146,470 MT (grain markets were expecting something in the range of 500,000 MT – 1.1 MMT) while corn export sales came in just under 300,000 MT (grain markets were expecting 550,000 MT – 1 MMT).
From an actual shipments’ standpoint, corn exports are tracking 10.4% ahead of last year’s pace through week 35 but seem to be slowing down. There is real concern that the full 2018/19 crop year target might not be reached. This is mainly because the “Mississippi River is absolutely a mess, up and down.” 
In Canada, barley exports continue to perform very well, tracking nearly 21% above last year’s record pace with nearly 2 MMT shipped out through Week 40 of its 2018/19 crop year. Non-durum wheat exports are also continuing to perform well with nearly 14 MMT shipped out as of last week. That’s good for 15% above last year’s pace at this time in the marketing year.
Will the Trade War Trump the WASDE Report?
Just when it looked like we were going to see an end to the U.S.-Chinese trade war, President Trump has said that China has reneged on some of their previous commitments.  As such, Trump is upping the ante by raising tariffs from 10% to 25% on $200 Billion worth of Chinese goods.  This decision by President Trump is the biggest act yet as it puts a bigger price tag on nearly one-third of all Chinese products shipped to the United States. China has stated that they’ll retaliate.
The broader markets rebounded a bit on the soundbite from President Trump in which he said that he received a “beautiful letter” from Chinese President Xi and that the two would likely speak by phone very soon.  This all comes as Chinese and American trade negotiators are headed into their second day of talks today in Washington to try and find a deal.
In the background, we know the containment of the African Swine Fever in China continues to be a major headache for Beijing. The UN’s Food and Agriculture Organization recently estimates that Chinese pork output could drop by at least 10% in 2019. This is far below the 35% decline that Rabobank had suggested two weeks ago and mentioned in the FarmLead Breakfast Brief discussing mostly the same things: weather and the pig problems.
May WASDE Report Expectations
Staying in the People’s Republic but flipping to the supply side, China expects its domestic 2019/20 soybean output to be the largest crop in 14 years at 17.3 MMT.  The USDA attaché in Beijing has also dropped its forecast for 2019/20 Chinese soybean imports to 83 MMT, a far contrast from the official estimate from the USDA of 88 MMT. This basically means when China is already going import less soybeans, they’ll have a bit more from their own farmers to pull from.
Separately, Brazil’s CONAB raised its estimate of their 2018/19 soybean crop by almost 500,000 MT to 114.3 MMT. However, CONAB also lowered their estimates for their soybean exports from 70 MMT to 68 MMT, acknowledging China’s reduced demand.
While all the above is happening simultaneously, today, at 11AM CST, we’ll get the May WASDE report from the USDA. Heading into this month’s WASDE report, the expectations are mostly bearish but the May WASDE report is undoubtedly one of the more import reports from the USDA. This is because the USDA gives grain markets the first official supply and demand estimates for the new crop year and act as a bit of a baseline going forward.
For example, pre-report U.S. 2019/20 grain production estimates are 14.841 billion bushels of corn off an average yield of 175.3 bushels per acre (bpa). For soybeans, pre-report estimates are for a little less than 4.2 billion bushels of an average yield of 49.8 bpa. Finally, expectations are to see 1.91 billion bushels of total U.S. wheat production in 2019/20, including 1.277 billion bushels of winter wheat. Here’s a look at some of the other major numbers that grain markets are looking at.
Ultimately, grain markets seem to be more concerned with the trade war than they are about the delayed start in the U.S. for Plant 2019 and today’s May WASDE report.
Have a great weekend!
At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3462 CAD, $1 CAD = $0.7429 USD)
July Corn: -0.5¢ (-0.15%) to $3.528 USD or $4.749 CAD
July Soybeans: -3¢ (-0.35%) to $8.098 USD or $10.901 CAD
July Soybean Meal (per short ton): -$0.30 (-0.1%) to $288.80 USD or $388.77 CAD
July Soybean Oil (cents per lbs): -0.04¢ (-0.15%) to 26.59¢ USD or 35.80¢ CAD
July Oats: +3¢ (+1.05%) to $2.85 USD or $3.837 CAD
July Wheat (Chicago): -0.3¢ (-0.05%) to $4.293 USD or $5.778 CAD
July Wheat (Kansas City): +0.5¢ (+0.15%) to $3.983 USD or $5.361 CAD
July Wheat (Minneapolis): -2¢ (-0.4%) to $5.153 USD or $6.936 CAD
July Canola: -2¢ (-0.4%) to $9.913/bu / $437.10/MT CAD or $7.364/bu / $324.70/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.