September 13 – USDA Shows Nothing in WASDE

FarmLead Breakfast Brief
Wednesday, September 13th, 2017

“To know, is to know that you know nothing. That is the meaning of true knowledge.”
– Socrates (Greek philosopher)

Good Morning!

At 7:45 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2133 CAD, $1 CAD = $0.8242 USD)

Dec Corn: +2.5¢ (+0.7%) to $3.54 USD or $4.295 CAD
Nov Soybeans: +4.8¢ (+0.5%) to $9.553 USD or $11.59 CAD
Oct Soybean Meal (per short ton): +$1.80 (+0.6%) to $298.50 USD or $362.17 CAD
Oct Soybean Oil (cents per lbs): +0.9¢ (+0.25%) to  35.02¢ USD or 42.49¢ CAD  
Dec Oats: +2.5¢ (+1.05%) to $2.368 USD or $2.872 CAD
Dec Wheat (Chicago): +4¢ (+0.9%) to $4.46 USD or $5.411 CAD
Dec Wheat (Kansas City): +3.5¢ (+0.8%) to $4.453 USD or $5.402 CAD
Dec Wheat (Minneapolis): +2.3¢ (+0.35%) to $6.44 USD or $7.814 CAD
Nov Canola (Winnipeg): +1.4¢/bu / +$0.60/MT (+0.1%) to $9.066/bu / $399.74/MT USD or $11/bu / $485/MT CAD

Yesterday’s Winnipeg ICE Close
Oct Barley: unchanged at $2.602USD or $3.157 CAD
Oct Durum Wheat: unchanged at $6.303 USD or $7.648 CAD
Oct Milling Wheat: -2.7¢ (-0.45%) to $5.159 USD or $6.26 CAD

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USDA Shows Nothing in WASDE

Grain markets are back in the green this morning after bouncing from yesterday’s lows.

Grain prices fell yesterday as the USDA came out with another mostly bearish WASDE report.[1] I’ll dig into the numbers below but check out some of yesterday’s initial WASDE reactions here.

In an effort to wind back its corn stocks, China is getting into ethanol more aggressively.[2] By 2020, the Beijing government is planning to roll out the use of ethanol in gasoline. Blending mandates, like those set in America, are currently set at the provincial level.

Ethanol production is expected to be mainly based in the northeast region of the People’s Republic. Not coincidentally, this is also where most of China’s corn is grown.

Rain is on the horizon for Western Canada over the next few days with Alberta expected to get the most precipitation. Given the pace of harvest through across the Canadian Prairies, a slowdown might be warranted to help get those canola swaths closer to getting picked up.

Overall, the market continues to dissect this month’s WASDE report, but honestly, there’s really nothing new that they’ve showed us.

USDA Capitulates Corn

If you’re looking for a dictionary to look up capitulate, it means “to submit” or “surrender”. Basically, when the entire market was expecting a lower corn yield number, the USDA raised their estimate by 0.4 bushels to 169.9 bushels per acre.

This is the third-largest yield ever for US farmers and puts total production at 14.18 Billion bushels. From a carryout perspective, it suggests that there will still be 2.34 Billion bushels of corn available by the end of the 2017/18 season. The market was expecting 2.18 Billion bushels.

In conversations with farmers at the Big Iron Farm Show in Fargo, ND yesterday, there was a lot of head-shaking. Farmers from the Dakotas, Minnesota, and even Illinois at the show all are trying to figure out how we have a very similar crop to last year despite growing conditions being notably poorer.

If you have your theories, feel free to tweet them to @FarmLead with the hashtag #CornYields. If you’re around Fargo, ND for the Big Iron Show, stop by our booth in Barn K and tell us in person! Or if you’re in Woodstock, ON for Canada’s Outdoor Farm Show, head to the FCC Pavilion tent and tell our team in the tent there!

My guesstimate is that the yield gets revised lower by a little bit in the October or January reports.

On the demand side, corn going into feed was raised by 25 million bushels. However, this was offset by a 75 million bushel reduction in food, seed, & industrial use, including 25 million bushels less going into ethanol. US corn exports in 2017/18 were unchanged at 47 million tonnes.

Internationally, Argentina’s crop was raised by 2 million to 42 million tonnes. While the USDA is trying to factor in more corn getting planted in the South American nation this year, However, the country is facing some excess moisture issues.[3] According to farm group Carbap , 28% of Argentina’s largest-producing province, Buenos Aires, is dealing with above-average moisture. This equates to almost 12 million acres.

In Brazil, 2016/17 corn exports were raised but 2017/18 production remains forecasted at 95 million tonnes with exports of 36 million tonnes. World number four exporter, Ukraine, saw its exports get raised by 500,000 MT to 22 million tonnes as the USDA exports more supply filling EU needs after their crop was lowered by 600,000 MT to 59.4 million tonnes.

Suspicious Soybeans

The USDA raised their average US soybean yield by 0.5 to 49.9 bushels per acre.

Doug, in doing some of his own reading, found that the USDA has had to get creative to get to its 49.9 bushels per acre yield. While pod counts are lower, the USDA is suggesting that the weights of the pods are the heaviest ever. And by a longshot. Doug and I both agree it seems a little odd.

Regardless, this puts total US soybean production at 4.43 Billion bushels. That beat’s last year record output in America.

On the demand front, the USDA raised US soybeans exports for the 2016/17 crop year to 59.1 million tonnes, up 545,000 MT from the previous estimate. For the 2017/18 crop year, the USDA raised the American soybeans exports forecast by 680,000 MT to a new record of 61.2 million tonnes.

Comparably, Brazil’s soybeans exports were raised to 62.5 million tonnes for 2016/17 and 64 million tonnes for 2017/18. Also, worth noting is that the USDA has estimated Brazil’s 2017/18 production at 107 million tonnes.

Biggest buyer, China, should import 95 million tonnes according to the USDA. This is up 1 million tonnes from the August WASDE.

From a carryout standpoint, because of the higher 2016/17 exports, the 2017/18 year starts with 25 million less bushels. However, the bigger production number kept US carryout for the 2017/18 year at 475 million bushels. The market was expecting 442 million bushels.

Canola and Wheat USDA Numbers

Amazingly, the USDA raised US spring wheat by 15 million bushels on less exports and domestic use. Total 2017/18 carryout for US hard red spring wheat is now pegged at 146 million bushels (or slightly less than 4 million tonnes if you’re using GrainUnitConverter.com)

For durum, US ending stocks for 2017/18 were also raised by 2 million bushels to a total of 24 million bushels (or 653,000 MT). The reason for the increase was imports were raised. The only logical place those imports are coming from are Canada.

If you’re planning on trying to take advantage of the potential exportability of your Canadian durum wheat, you’ll need to know your US grades. Get your wheat tested through GrainTests.com from the likes of SGS or Intertek today.

Speaking of Canadian wheat, the USDA kept their total production estimate at 26.5 million tonnes, which is about 1 million tonnes above most of the private market and StatsCan’s recent estimate from August 31st.

The USDA did drop Australian production by 1 million to 22.5 million tonnes, but that’s still high compared to ABARES and other private estimates mentioned in yesterday’s Breakfast Brief. However, they also increased Russian wheat production by 3.5 million tonnes to 81 million, in line with most other forecasts.

This puts total wheat production for 2017/18 at nearly 745 million tonnes. It also keeps global carryout at a record 263 million tonnes (technically this number was lowered by 1.5 million tonnes so that’s working for us).

On the canola front, the USDA raised the 2016/17 Canadian crop to 19.6 million tonnes but lowered their number for the 2017/18 crop to 19.9 million tonnes. This latter number is still literally 1.7 million tonnes above StatsCan estimates.

Perhaps the USDA is just accounting for the fact that StatsCan has an abysmal record of revising their canola production numbers higher?

Regardless, 2017/18 Canadian canola carryout is pegged at 1.1 million tonnes. Is there a chance this number goes below 1 million this year? I think it can but it won’t be done until this time a year from now when the market is already looking to the 2018/19 crop. What we do know is what the USDA is telling us today, is, logically speaking, worth nothing down the road.

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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