September 12 – What to Know Before The WASDE Report

FarmLead Breakfast Brief
Tuesday, September 12th, 2017

“The world is full of magical things patiently waiting for our wits to grow sharper.”
– Bertrand Russell (Welsh philosopher)

Good Morning!

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 = $1.2129 CAD, $1 CAD = $0.8245 USD)

Dec Corn: -1¢ (-0.3%) to $3.565 USD or $4.324 CAD
Nov Soybeans: -0.5¢ (-0.05%) to $9.595 USD or $11.637 CAD
Oct Soybean Meal (per short ton): +$0.30 (+0.1%) to $300.70 USD or $364.71 CAD
Oct Soybean Oil (cents per lbs): unchanged at 34.88¢ USD or 42.30¢ CAD  
Dec Oats: +1.8¢ (+0.75%) to $2.36 USD or $2.862 CAD
Dec Wheat (Chicago): +1¢ (+0.25%) to $4.358 USD or $5.285 CAD
Dec Wheat (Kansas City): +1¢ (+0.25%) to $4.358 USD or $5.285 CAD
Dec Wheat (Minneapolis): +2.8¢ (+0.45%) to $6.45 USD or $7.823 CAD
Nov Canola (Winnipeg): -5¢/bu / -$2.20/MT (-0.45%) to $9.041/bu / $398.65/MT USD or $10.966/bu / $483.50/MT CAD

Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.603 USD or $3.157 CAD
Oct Durum Wheat: unchanged at $6.305 USD or $7.648 CAD
Oct Milling Wheat: -5.4¢ (-0.85%) to $5.183 USD or $6.287 CAD

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What to Know Before Tuesday’s WASDE Report

Grain markets are in the red ahead of the USDA’s September WASDE report.

The release will come at 12 p.m. EST (11 a.m. in Chicago/CST and 10 a.m. in Saskatchewan/MST).

Although Hurricanes Irma and Harvey are gone, weather remains a key factor.

A few remnants of Hurricane Irma could travel into the eastern Corn Belt this week. Still, total rainfall shouldn’t be that significant. AgResource is more focused on a weather system forecasts heavy rains in the US Plains and western Corn Belt in the third week of September.

The USDA’s crop conditions on Monday showed that good-to-excellent (G/E) ratings for the US corn crop stayed the same at 61% while soybeans dropped 1 point to 60%.

As Garrett recapped in Grain Markets Today, there’s some thinking out there that US crops could face further downgrade as we sort through the damage of the two hurricanes. Remember, another hurricane, Jose, is coming up through the Caribbean. Its strength remains uncertain, but more rain could follow.

Today, we’ll be focusing on the USDA WASDE report. Markets are not anticipating significant revisions. Historically, the WASDE report’s larger revisions for US crops occur in August, October, or January.

A surprise, of course, is possible.


Big or Boring WASDE Report?

Recently, our Doug Kirk reflected on what’s happening with his soybeans on his farm in Central Illinois. He notes that the last few years have been near perfect to finish the soybean crop. This story isn’t happening just on his farm, but also in a lot of places around America.

Doug notes that this year’s soybeans crop is looking more like 2014 or 2015. As such yield should come in at or below 48 bushels per acre. Accordingly, this means production should fall, as should ending stocks. In that vein, soybeans prices should go up.

We talked about this likelihood in yesterday’s Breakfast Brief.

Most of the market isn’t expecting major yield changes In the September WASDE.

Those changes will likely come in October.

This doesn’t mean, however, that there won’t be volatility! According to US Commodities’ Don Foose, you shouldn’t be looking at the yields. Instead, pay attention to how the market reacts.[1]

There doesn’t seem to be a lot of producer selling at the current corn and wheat prices. Perhaps this report trigger prices to rise from their lows.

This could be especially true for wheat. Arlan Suderman of FC Stone thinks US wheat exports could be pegged higher thanks to new that Russian shipping capacity has topped out.

For corn, new-crop / 2017-18 crop sales are sitting 44% behind last year’s pace and more than a third behind the 5-year average.[2] Expectations are that we’ll continue to see a US carry-out of over 2 Billion bushels.

This means any rallies in corn prices will continue to be challenged by plentiful supplies.

I did, however, talk about opportunities to capture the carry in corn prices a week ago.
European Wheat Woes?

Wheat production in Europe this year is certainly going to rebound from last year’s smaller crop, but it’s not going to be all roses.

In France, hotter weather has saved not only the quality but also the quantity.[3]

The French Ag Ministry recently upgraded its wheat production forecast to 37.9 million tonnes, making it France’s 3rd-largest crop ever.[4]

Quality is also excellent. At least two-thirds of this year’s wheat harvest in the European nation has at least 12% protein.

Expectations are that this will help the country regain its share of world exports after a very poor crop last year. Specifically, Agritel is forecasting soft wheat shipments out of France to climb by 58% year-over-year to 17.8 million tonnes.

The same heat wave that hit France sat over Germany in June as well. The difference was though that Germany wasn’t that wet like France was before the heat came. Instead, the moisture had come in August, when the harvest was supposed to be happening.

As such, Agritel is forecasting German wheat production to fall to its lowest since 2012, 24 million tonnes. Quality is also poor with test weights below average.

In the United Kingdom, yields are running above their 5-year averages, and quality is good. The International Grains Council is currently forecasting a 13.9-million-tonne crop. Despite the decent crop, the UK is expected to be a net-importer of wheat for the second consecutive year.

Let’s round out some of the other players.

Italian and Spanish crops are much smaller because of the heat mentioned above.

Polish wheat quality isn’t good at all, mainly because they’ve gotten rains during harvest time. And lower acres in Romani will push wheat production there down to a 5-year low of 7.8 million tonnes according to Strategie Grains.

However, this as yields are coming at record levels and quality is not bad.

Lower Grain Production in Australia

The Australian USDA, ABARES, just downgraded the Aussie wheat crop again.[5]

21.64 million tonnes would be the smallest wheat harvest in the Land Down Undaa since the 2008/09 crop.

It’s not exactly fair to compare against last year’s monster 32.64 million tonnes, but you can do the math (it’s a significant drop).

Comparably, the USDA will update their estimate today, but August’s number was 23.5 million tonnes, which is closer to ABARES’ previous estimate. The National Australia Bank is forecasting 20.1 million tonnes, which would be a 10-year low.[6]

The blame behind the lower production is on Mother Nature.

Most of the Aussie wheat-growing regions only got half of the precipitation they normally do in the June-July-August months.

In Western Australia, the wheat crop’s potential was slashed by 1.5 million tonnes to 7.1 million total. Recently, frost has been the negative factor affecting production in the eastern half of the country.

ABARES also said canola production would come in at 2.75 million tonnes. The previous estimate was almost a million tonnes higher at 3.69 million, thanks to higher acreage this year.

Again though, Mother Nature trumps all as frost during flowering stage in New South Wales decimated production potential.

For barley, 8 million tonnes is in the forecast (record 13.4 million-tonne crop last year). This year’s Australia oats crop should hit 1.03 million tonnes versus last year’s 1.87 million tonnes. And the lentils harvest in Australia is estimated at 419,000 MT, half of what it was a year ago.

Conclusively, the Australian crop will feel like nothing compared to last year’s bumper yields. However, farmers in the Land Down Undaa still must wait to get the crop off.

To growth,

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

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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