Grain markets this morning are all green as the complex moves on from the September WASDE report, which was friendly for bulls.
“Be friendly to everyone. Those who deserve it the least need it the most.” – Dr. Bo Bennett (American author)
September WASDE Friendly for Grain Markets
Grain markets this morning are all green as the complex moves on from the September WASDE report, which was friendly for bulls. As the USDA lowered U.S. corn and soybean yields in their September WASDE, they also left the door open for demand increases and supply cuts, acknowledging the full impact of August’s dry weather and the derecho storm through the Midwest isn’t yet entirely accounted for. Further, the freezing temperatures seen last week were also not accounted in Friday’s September WASDE, and all of this soybean prices lead grain markets higher, topping $10 USD/bushel briefly on the futures board in Chicago before settling just below it. However, this morning, soybean prices are back above $10, a level not seen since May 2018.
Top U.S. diplomat in China, Ambassador Terry Branstrad, abruptly resigned over the weekend, with rumours buzzing that he’s returning home to Iowa to help President Trump campaign for critical votes in the state.  With no ambassador to China at probably the most contentious time in U.S.-Chinese relations is an interesting decision, but it looks like President Trump is prioritizing re-election over said relations. Now, it’s important to keep in mind that this past Friday, China announced new restrictions on U.S. diplomats operating in both mainland China and Hong Kong, albeit the U.S. claimed that the constraints aren’t new, but are now just being officially implemented. 
Coming back to the U.S. election, last week, President Trump instructed the EPA to deny dozens of oil refiners requests for retroactive waivers under the RFS laws.  As a quick refresher for those that don’t understand the laws (via Reuters): “Under the U.S. Renewable Fuel Standard (RFS), oil refiners must blend billions of gallons of biofuels into their products, or buy credits from those that do. But refiners may also seek an exemption from those obligations if they prove the requirements would cause them financial harm.”
Speaking of oil prices, futures for a barrel of crude have settled in below $40, but Citigroup thinks that we’ll see $60 again by the end of 2021, with demand potentially topping 100 million barrels per day.  It might be too little, too late for many companies though as the lower oil prices won’t offset debt obligations made on the forecast of oil prices being at $60 now, now in 15 months. No large oil company is probably more exposed to the downturn than ExxonMobil, as they doubled down on oil and gas assets in recent years, versus divesting into renewable energy programs like most of their competitors, including BP, who now admits that oil demand has likely plateaued. 
September WASDE Leaves Door Open
Starting with the two staples of any WASDE report, corn and soybean yields were lowered by the USDA to 3.3 and 1.4 bushels per acre to 178.5 and 51.9 bpa respectively. These were both slightly above the September WASDE pre-report expectations, but a lot of attention was paid to the 550,000 less harvested acres of corn, a number many analysts will continue to fall. Worth mentioning within the NASS micro data suggests corn ears per acre are better than last year, but not as much as the 2018 record. Comparably, U.S. average soybean yields is identical to 2016, but pod counts are lower. 
While the USDA admits that they didn’t account for the dry weather and/or the impact of this past week’s frosts, many traders took that wording as an indication that production numbers will fall further in subsequent WASDE reports. This, combined with ideas of stronger demand through the end of 2020, is largely the reasons behind the positive price performance on Friday for corn and soybeans.
Wheat prices were the unfortunate bearish scapegoat this week as global production and ending stocks continued to climb on the backs of bigger harvests in Canada, Australia, and even the EU. For Australia’s wheat harvest estimate of 28 MMT from the USDA, this nearly matched ABARES’ updated estimate from earlier this week that suggested the crop will nearly double year-over-year. The EU’s harvest was increased by 650,000 MT to 136.15 MMT, while Argentina’s was felled by 1 MMT to 19.5 MMT but I expect that to fall further. Finally, the USDA basically matched the first StatCan estimate, raising the Canadian total wheat harvest to 36 MMT (largely a function of the bigger durum crop in the Prairies!)
Bigger crop expectations out of South America didn’t hang over the market though, as more traders are cognizant of the impact on production south of the equator that a La Nina event can have (there’s a 75% chance of it happening this winter, according to the Climate Prediction Center as of Friday).  Nevertheless, the USDA kept their estimate of Chinese soybean imports at 99 MMT and corn imports at 7 MMT.
September WASDE Helps Soybean Prices Most?
Worth noting this morning is that China’s own Agriculture Ministry raised their expectations of corn imports by 2 MMT to 7 MMT, matching the USDA’s number in the September WADDE.  This is largely behind green corn prices this morning, but there continues to be many bulls pushing the Chinese corn demand narrative. That said, corn prices are also benefiting from China banning German pork imports after a case of African Swine Fever was found in the central European nation. 
This intuitively translates to China having to import more pork from elsewhere (i.e. the U.S.), and since corn is a regular feedstock for American pigs, corn prices are appreciating to reflect this. Worth remembering, however, is that China’s hog herd is in the process of rebuilding, with more than 20,000 new hog farms approved in the first 6 months of July by the government to start operations. 
However, arguably, it’s soybean prices that this September WASDE report is most supportive of, given further expected downgrades and increases in both domestic crush and export volumes. As a reflection of this, hedge funds are currently sitting on their largely net-long position since the first week of May 2018 with more than 171,000 contracts, up about 14,000 lots week-over-week.  As the table below shows, since the end of July, soybean prices (read: futures) have rallied more than $1 USD/bushel, create some strong marketing opportunities. 
That said, there are a large amount of voices out there that say $10 soybeans may be as good as it gets, but regardless of your opinion, everything I’ve read suggests some sort of action here, be it cash sales or owning some put options to protect against downside risk.  This is especially true for Ontario soybean farmers as a recent crop tour of the province suggests record yields of 53.2 bushels per acre. 
Conversely, yield monitors in Western Canada haven’t been all that positive when it comes to taking off this year’s canola crop in the Canadian Prairies. More specifically, in their weekly crop report last week, Saskatchewan Agriculture estimated the province’s average canola yield at 35 bushels per acre, well below Statistic Canada’s estimate from a few weeks ago of 41.1.  Based on social media activity, farmers are confirming the small yields, and the market is certainly trying to price in exactly how much supply might actually be available. Combined with the recent frost events (and potentially more freezing nights this week) as well as following the move higher in soybean prices, canola prices have seen some healthy improvements.  Accordingly, like soybeans, either making some cash sales and/or buying some put options to protect against a downside pullback seems to be a constant suggestion from advisors.
At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.317 CAD, $1 CAD = $0.7593 USD)
Dec Corn: +3.8¢ (+1%) to $3.70 USD or $4.873 CAD
Nov Soybeans: +3.8¢ (+0.4%) to $9.998 USD or $13.167 CAD
Oct Soybean Meal (per short ton): -$0.30 (-0.1%) to $319.60 USD or $420.91 CAD
Oct Soybean Oil (cents per lbs): +0.51¢ (+1.5%) to 34.12¢ USD or 44.94¢ CAD
Dec Oats: +4.3¢ (+1.55%) to $
Dec Wheat (Chicago): +0.5¢ (+0.1%) to $5.425 USD or $7.145 CAD
Dec Wheat (Kansas City): +1.3¢ (+0.25%) to $4.725 USD or $6.223 CAD
Dec Wheat (Minneapolis): +1.8¢ (+0.35%) to $5.34 USD or $7.033 CAD
Nov Canola: +2.3¢ (+0.2%) at $11.757/bu / $518.40/MT CAD or $8.927/bu / $393.62/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.