Oct 11 – What to Expect in Today’s October WASDE

Good Morning!

Ahead of today’s October WASDE, out at 12 PM Eastern, grain markets this morning are mixed as the complex jockeys for position.

 “The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools.” – Confucius (Chinese Philosopher)

 

Test your grain today!

 

What to Expect in Today’s October WASDE 

Ahead of today’s October WASDE, out at 12 PM Eastern, grain markets this morning are mixed as the complex jockeys for position.  

Before we get into all the pre-report expectations, yesterday we saw a major sell-off in U.S. equity markets, with both the S&P 500 and Dow posting their biggest one-day losses since February 2018. [1] The reason for the significant decline has been growing concerns and higher bond. Also, the tech sector had its worst collective day in seven years!  

Also stirring the pot is U.S.  President Donald Trump, who told reporters that the “Fed is making a mistake” and that the U.S. Federal Reserve has “gone crazy,” referencing the speed at which their raising interest rates. [2 

Grain markets seem to be weathering the storm a bit. It’s worth noting that in the financial crisis of 2008, commodities enjoyed a significant inflow of capital from equity markets, starting what became one of the best runs of all time for grain prices. The explosion of grain markets in 2008 was preceded by a healthy building up of volatility in commodity prices from 2005 through 2007, as fundamentals were largely ignored.  

Fewer Soybeans Needed in China?  

CNGOIC came out with their updated estimate of 2018/19 Chinese soybean crush numbers. It was not bullish.  

The state think tank says that China will crush 89.5 million metric tonnes (MMT) of soybeans in their 2018/19 crop year (which technically starts October 1). CNGOIC’s September estimate was 96.1 MMT, while 2017/18’s total volume was 94.3 MMT. The Chinese Ag Ministry was supposed to put out their estimates today for soybean demand in the People’s Republic, but they canceled the release, citing technical issues as the reason why! 

This comes on the heels of China’s Feed Industry Association proposing earlier this week to cut the minimum protein threshold for pig and poultry feed by 3 points, from 20% to 17%. [3 

If realized, that would drop China’s soybean needs by anywhere from 8  to 10 MMT in 2018/19.  

October WASDE Expectations: U.S. Corn and Soybeans 

In yesterday’s FarmLead Breakfast Brief, I mostly discussed an update on crop progress, but we also gave a high-level look at pre-report expectations for ending stocks in today’s October WASDE.  

I think that the major focus of grain markets in the October WASDE will yield and ending stocks. 

For U.S. corn yields, the September WASDE hiked the number by nearly three full bushels from the August report to 181.3 bushels per acre (BPA). The obvious question is if this is too high or not, and have markets already priced in a crop bigger than what the September WASDE estimated. [enter final] The previous record of 176.6 BPA was set just a year ago.  

Informa recently hiked its estimate to 182.1 bushels per acre. That figure would put U.S. production at 14.89 billion bushels.  

In the September WASDE report, the USDA raised soybean yields from 51.6 to 52.8 BPA 

Last week though, Informa hiked its soybean yield estimate from 52.9 bushels per acre to 53 BPA, matching the estimate from ProFarmer crop tour. That would put U.S. soybean production at 4.677 billion bushels, down from the 4.7 billion bushels reported in the September WASDE. 

Record production in the United States will complement the possibility of new record numbers down in South America. However, the gain in corn and soybean yields has been significant to American balance sheet as, since the June WASDE, about 350 million bushels of corn and 500 million bushels of soybean production have been added.  

Grain markets will also be watching today for any changes to U.S. soybean and corn exports to offset these increases. On that note, slower U.S. soybean and wheat exports are expected to push American ending stocks for the two crops up to 860 million 1.03 billion bushels, respectively.  

 

Expectations for the October WASDE are generally bearish

 

October WASDE Expectations: Global Outlook 

Globally, grain markets are expecting to see higher carryout for both 2017/18 and 2018/19 for the three major crops.  

For corn, higher production (particularly in Europe, the U.S., and Ukraine) has pushed ending stock estimates higher. If the USDA raised the corn harvest for both the U.S. and Europe, we would likely see pressure on corn prices today. 

Comparably, the IGC projects that 2018/19 corn production in Brazil will hit 93.8 MMT, up from 81.4 MMT in 2017/18. The group also hiked estimates on Argentine maize from 43.3 MMT in 2017/18 to 49.5 MMT in this crop year. 

Right now, it doesn’t look like the global corn market is going to benefit from a significant weather event in South America, although the Australian Bureau of Meteorology did suggest that they’re estimating the possibility of an El Nino event at 70%.  

For soybeans, Dr. Michael Cordonnier projected that Brazilian soybean farmers would increase their 2018/19 soybean acreage anywhere from 3% to 5%. As a result, he expects that the country will produce upward of 120 MMT to 123 MMT of soybeans in 2018/19. That figure would be up from the 119.5 MMT in 2017/18. 

He also argued that farmers in Brazil are going to hold off on selling soybeans for anything less than $10.00 USD per bushel. We could see spreads between U.S. and Brazilian soybean prices get very out of control, where premiums push as high as $12.50 in the latter. If that materializes, then China could return to the U.S. market should the tariffs be worth less than the difference between U.S. and Brazilian beans. 

For wheat, we will be watching for production numbers in the Black Sea, South America, and Australia in the October WASDE. In the September WASDE, the USDA lowered U.S. spring wheat ending stocks but raised global numbers.  

The International Grains Council recently said that total global wheat production would come in at 716.7 MMT, a figure that was just 300,000 MT higher than its August estimate. The gain was mainly fueled by a slight increase in Russian production, which the IGC put Russian production at 68.5 MMT. Comparably, the USDA has Russian wheat production at 71 MMT. 

To growth,

Brennan Turner

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

At 7:20 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3050 
CAD, $1 CAD = $0.7663 USD)

Dec Corn: -1.8¢ (-0.50%) to $3.610 USD or $4.711 CAD
Nov Soybeans: -4.0¢ (-0.47%) to $8.483 USD or $11.071 CAD
Dec Soybean Meal (per short ton): -$1.40 (-0.44%) to $314.30 USD or $410.17 CAD

Dec Soybean Oil (cents per lbs): -0.6¢ (-0.20%) at 29.58¢ USD or 38.60¢ CAD  
Dec Oats: 1.3¢ (0.46%) to $2.830 USD or $3.693 CAD
Dec Wheat (Chicago): 1.3¢ (0.25%) to $5.110 USD or $6.669 CAD
Dec Wheat (Kansas City): 1.0¢ (0.35%) to $5.173 USD or $6.751 CAD

Dec Wheat (Minneapolis): 0.8¢ (0.51%) to $5.938 USD or $7.749 CAD
Nov Canola: $1.20 (0.24%) to $11.294/bu / $498.00/MT CAD or $8.654/bu / $381.60/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.