Oct 11 – October WASDE Provides Some Help for Grain Markets

Grain markets this morning are higher after yesterday’s bullish October WASDE report and increased optimism for a U.S.-China trade war to soften/end.

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October WASDE Provides Some Help for Grain Markets

Grain markets this morning are higher after yesterday’s October WASDE report and increased optimism for a U.S.-China trade war to soften/end. Corn and wheat prices are rebounding after a bit of a sell-off yesterday due to bigger inventories than the grain markets were expecting.

Even going into yesterday’s WASDE report, fall weather in the Midwest and expected freezing/snow/blizzard conditions in the Northern Plains and Manitoba had grain markets pushing higher. [1] The other factor in play is that President Trump is meeting with China’s Vice Premier Liu He today at the White House to conclude two days of high-level trade war talks, which are mainly focused on the aversion of U.S. tariffs being increased yet again and China’s currency manipulation. [2]

October WASDE Helps Soybeans, Questions Corn

Yesterday the USDA gave us their numbers for the October WASDE report and it was pretty supportive for soybeans, but not so much for corn and wheat.  Corn yields were raised by 0.2 bushels per acre (bpa) to 168.4 while American soybean yields dropped by a full bushel to 46.9 bpa. The decrease in soybean yields in this October WASDE was a function of weaker pod weights offsetting an increase in average pod counts numbers, although the USDA also lowered harvested soybean acres by 140,000. [3]

2019 October WASDE report final estimates

On the stocks front in the October WASDE, US soybean carryout for 2019/20 was lowered pretty significantly to 460M bushels, down 180M from the September WASDE report. This is actually pretty incredible considering that, back in June, U.S. soybean 2019/20 carryout was estimated at 1.045 billion bushels! I’ll agree with Karen Braun of Reuters who suggests that “NO ONE would have called this just a few months ago.” [4] U.S. soybean exports were held at 1.775 billion bushels (or 48.31 MMT if converting bushels into metric tonnes), which would be about a 1.6% increase from 2018/19’s shipments. That said, through Week 5 of the 2019/20 crop year, U.S. soybean exports are tracking about 3% higher than last year with 4.03 MMT shipped out.

U.S. 2019/20 weekly soybean exports through Week 5

Looking globally, only wheat stocks were raised, but global corn inventories came in larger than what the trade was anticipating. Both Australia and Canada saw its wheat production estimates lowered by 1MMT and 300,000 MT respectively, with the estimate for the former now matching the USDA’s Aussie attaché’s estimate of 18 MMT. The USDA also lowered Australian wheat exports to 9.5 MMT, and despite Canada’s wheat production lowered to 33 MMT, total wheat exports were stayed at 24.5 MMT. Worth also mentioning on the wheat side of things from the September WASDE was Argentina’s wheat production number staying at 20.5 MMT and exports at 14.5 MMT. Comparably, the Buenos Aires Grains Exchange is now pegging their country’s wheat production at 19.8 MMT, due to an early frost and dry conditions.

Pulses, Durum Prices Climb with Quality Issues

For a few weeks now, Mother Nature hasn’t really been the best partner for Harvest 2109. With the ongoing delays to this year’s combine campaign, the quality of remaining pulses and cereal crops yet to be harvested is not likely to be all the great. As of yesterday’s Saskatchewan crop report, more than two-fifths, or 41%, of the province’s durum crop was not yet in the bin. In North Dakota, as of Sunday’s crop progress report from the USDA, 21% of the state’s durum fields had not yet been combined. In Montana, 36% of durum fields still haven’t been harvested.

Put bluntly, there is a significant amount of the North American durum crop that’s still not yet been combined and likely won’t any time soon, creating scenarios of some pretty solid premiums for #1 and #2 grades. [5] The main issue is the increase in sprout damage, and accordingly, a decline in the Falling Number, an important characteristic for the milling market. [6] In the last week or so, we’ve seen a bunch of durum deals on the FarmLead Marketplace close for $8.50 CAD/bu and sometimes higher depending on movement period and quality characteristics. As you can tell from the chart below, durum prices are certainly improving.

Western Canada durum prices for spot movement through October 4, 2019

In the world of pulses, we already know that there’s a bit of a quality divide on lentils, as after the rains fell in mid-September, there was the split between good and poor quality. [7] Mustard is grown in a lot of the same areas in Western Canada as lentils and so it’s no surprise that mustard quality is also going to be a big question mark. [8] Ultimately, I will reinforce the need to get your peas, chickpeas, lentils, or mustard tested since It’s probably worth waiting a bit, before selling something (but only if your cashflow situation permits it).

Western Canada yellow pea prices for spot movement through October 4, 2019

Now, this isn’t because of the plant protein craze, but more so the seasonality, just as this chart above of yellow pea prices in Western Canada for spot movement shows you. It’s obvious that you should want plant protein to be a success if you’re growing pulses. [9] However, it’s not going to be an overnight success as the demand function will take time to build up. [10] As Brian Clancey of STAT Publishing notes, the market for pulses continues to change, but you have to change with it. [11] What’s been a little more reliable has been the export market, especially for green peas. On that note, through Week 9 of the 2019/20 crop year, Canadian pea exports are tracking 77% higher than a year ago at 727,400 MT shipped out.

Canadian 2019/20 weekly pea exports through Week 9

Overall, between a slightly bullish September WASDE, the ongoing weather issues plaguing Harvest 2019, or the optimism of a trade war deal being found, there seems to be more opportunity to the upside than downside risk for the grain markets. Put another way, grain markets are working past the harvest lows.

Happy Canadian Thanksgiving and I hope you have a great long weekend.

To growth!

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

At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3207 
CAD, $1 CAD = $0.7572 USD)

Dec Corn: +6.5¢ (+1.7%) to $3.868 USD or $5.108 CAD
Nov Soybeans: +7.5¢ (+0.8%) to $9.31 USD or $12.296 CAD
Dec Soybean Meal (per short ton): +$2.90 (+0.95%) to $310.70 USD or $410.36 CAD
Dec Soybean Oil (cents per lbs): +0.21¢ (+0.7%) to 29.99¢ USD or 39.61¢ CAD  
Dec Oats: +4.8¢ (+1.65%) to $2.905 USD or $3.837 CAD
Dec Wheat (Chicago): +4¢ (+0.8%) to $4.098 USD or $5.412 CAD
Dec Wheat (Kansas City): +6.5¢ (+1.6%) to $4.098 USD or $5.412 CAD 

Dec Wheat (Minneapolis): +2¢ (+0.35%) to $5.373 USD or $7.096 CAD
Nov Canola: +5.4¢ (+0.5%) to $10.476/bu / $461.90/MT CAD or $7.932/bu / $349.63/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.

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