November 10 – USDA Raises Ending Stocks…Again

Good Morning!

Today we look at all the happenings (or lack of happenings) in yesterday’s November WASDE report. We also discuss where the trade is looking for the next catalyst. 

“When one person makes an accusation, check to be sure he himself is not the guilty one. Sometimes it is those whose case is weak who make the most clamor.”
– Piers Anthony (English author)

Grain markets this morning are softly lower as the trade continues to digest some weak reporting numbers yesterday.

On Thursday, November 9th, the USDA came out with their monthly world agricultural supply and demand estimates.[1]

Usually, November is a bit of a sleeper month but given the delayed corn harvest in the US, there were some ideas that the USDA might provide the market something. Unfortunately, it didn’t.

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Corn Yields, Ending Stocks Increased By USDA

In the October WASDE, the USDA pegged US corn yields at 171.8 bushels per acre. Ahead of the report, traders were expecting to see an average US yield of 172.4 bushels per acre. Instead, the USDA blew all expectations out of the water with a new record yield of 175.4 bushels per acre.

The previous record was set last year with a yield of 174.6 bushels per acre.

As Garrett mentioned in the Grain Markets Today yesterday afternoon, corn prices did drop almost 7 cents or nearly 2% after the report. Most people, including yours truly, were expecting more of a drop. Why didn’t it happen?

Managed money is already extremely bearish on the market with nearly 200,000 short positions.[2] With such little volume I the trade, perhaps no one is willing to catch that knife.

What’s interesting is the last corn rating of the year pegged this year’s crop at 66% good-to-excellent (G/E), 23% fair, and 11% poor-to-very poor (P/VP).

The last corn rating of 2016 pegged the corn crop at 74% G/E, 19% fair, and 7% P/VP.

How the heck did the American farmer grow a bigger crop if this is the case?

No Corn Belt state produced a record yield. However, fringe corn-growing regions in northern states (i.e. Minnesota and North Dakota) and those in the Delta are no longer bringing down averages.

This where the yield trendline analysis comes into play. Scott Irwin of the University of Illinois pointed out that, per this year’s trendline yield, a true monster crop would’ve come in around 183 bushels an acre average. [3]

This increased total production by nearly 300 million bushels to a hair under 14.6 Billion.

Thanks to exports being raised, ending stocks grew by less than production, but will still end the 2017/18 crop year at nearly 2.5 Billion bushels. That’s nearly 10% higher what 2016/17 ended with.

The reason that ending stocks didn’t grow as much as production is because exports were raised to nearly 49 million tonnes (or 1.925 Billion bushels if you were converting tonnes to bushels at GrainUnitConverter.com – bookmark it!).

Globally, while the US production number went up, Ukraine’s was felled by 2 million tonnes.

Also, nearly every major-producing corn nation saw their 2017/18 ending stocks fall by a bit, except for the US and Argentina. However, the increase in US production puts worldwide carryout at nearly 204 million tonnes. Now that is 10% lower than last year but China is accounting for 98% of the decline.

Status Quo Soybean Yields

For soybeans, the USDA left the average US yield at 49.5 bushels per acre. The market was expecting 49.3 and so when that number didn’t show up, we saw a sell off on soybean prices.

Thanks to the record acres, a record US soybean crop of 4.43 Billion bushels is still expected. However, 2017/18 carryout will reach 425 million bushels. This is more than 40% higher than what 2016/17’s ending stocks were.

Globally, we saw the USDA bump ending stocks as well, increasing them by almost 2 million tonnes to nearly 98 million tonnes. This is up more than 3% year-over-year.

Brazil’s soybean production and exports number were increased by 1 million tonnes each for 2017/18 to now sit at 108 million and 65 million tonnes respectively.

The flipside is that USDA increased Chinese imports by 2 million tonnes to 97 million tonnes. While that’s certainly a positive, we continue to think that there are other bullish things about soybeans.

Also yesterday, CONAB, the Brazilian version of the USDA, estimated the soybean crop there between 106.4 and 108.6 million tonnes.

The rapeseed/canola balance sheet had no notable changes. Canola prices did fall yesterday though on a stronger Canadian Loonie in addition to soybean pressure.

Weltering Wheat

There was nothing notable about the wheat balance sheet as well. We were looking for some production downgrades from the southern hemisphere in Australia and Argentina, but they never came.

CONAB, did, however, drop their wheat production estimate for Brazil to 4.57 million tonnes.[4] That’s a 5-year low and a 32% drop from last year’s record crop.

The USDA did increase US wheat exports by 680,000 metric tonnes (or 25 million bushels), but they increased Russia’s too.[5] It’s expected that the Black Sea nation will be the global leader in wheat exports at 33 million for the 2017/18 crop year.

Egypt recently bought another 120,000 MT of wheat from Russia.[6] The price paid, however, was the lowest since August, at $210 USD per metric tonne (or $5.70 USD and $7.30 CAD per bushel).

This takes Egypt’s total wheat purchase thus far in 2017/18 to 3.8 million tonnes. Russia has accounted for 64% of this (or 2.42 million tonnes).

Total Russian wheat exports are tracking about 13% ahead of last year with 9.54 million tonnes shipped out in the first 3 months of the 2017/18 marketing year. From a January-September measurement though, nearly 21 million tonnes were shipped out. That’s 18% better than what was done in 2016 over the same timeframe.

Separately, there are rumors that Argentine wheat makes its way into North African markets.[7] It’s expected the frequency of those shipments will slow once as the growing season goes on there (just less of last year’s wheat to export).

Coming back to North America, spring wheat prices have seen a nice little bump lately, with the December contract now sitting closer to $6.50 USD / bushel on the Minneapolis futures board.

This is because the market is pricing in more US acres being marked as “abandoned” and didn’t get harvested. [8] More specifically, the USDA is pegging the US spring wheat area harvested at 9.7 million acres, with just 8% abandonment.

While that’s up from the 2.6% abandonment percentage in 2016/17, this year’s number is driven mainly by South Dakota’s 31% abandonment number. For North Dakota, it’s only pegged at 5%, in Minnesota at 2.5%, and in Montana, at 8%.

We’re still a month away from the USDA’s announcement on that though.

Main November WASDE Takeaways

We won’t likely see another change to the US  yield numbers until the January WASDE report on Friday, January 12th.

The lack of movement to the downside in the corn market

The trade will now start to focus on winter weather in the northern hemisphere, export numbers, and what growing conditions materialize in South America. Of note is that there’s more evidence that a La Nina event is showing up, although it’s expected to be a weak one.[9]

Have a great weekend!

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:20 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2668 CAD, $1 CAD = $0.7894 USD)

Dec Corn: unchanged at $3.415 USD or $4.326 CAD
Jan Soybeans: -0.3¢ (-0.05%) to $9.848 USD or $12.475 CAD
Dec Soybean Meal (per short ton): +0.40 (+0.15%) to $312.20 USD or $395.49 CAD
Dec Soybean Oil (cents per lbs): -0.18¢ (-0.5%) to 35.11¢ USD or 44.48¢ CAD  
Dec Oats: +1¢ (+0.35%) to $2.74 USD or $3.471 CAD
Dec Wheat (Chicago): -0.8¢ (-0.15%) at $4.283 USD or $5.425 CAD
Dec Wheat (Kansas City): -1.3¢ (-0.3%) at $4.278 USD or $5.419 CAD
Dec Wheat (Minneapolis): +0.5¢ (+0.1%) to $6.475 USD or $8.202 CAD
Jan Canola: -2.7¢/bu / -$1.20/MT (-0.25%) to $11.664/bu / $514.30/MT CAD or $9.208/bu / $405.99/MT USD or 

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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