Aug. 12 – USDA Likely to Disappoint (Again) in WASDE Report

Grain markets this morning are mostly in the red as the complex prepares for today’s USDA report, the August WASDE, albeit most a bearish going into it.

“If I disappoint someone, it’s their loss for putting that expectation on me when they don’t know me. I can’t control what they want.” – – Simone Biles (Most decorated American gymnast)

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USDA Likely to Disappoint (Again) in WASDE Report

Grain markets this morning are mostly in the red as the complex prepares for today’s USDA report, the August WASDE, albeit most a bearish going into it. While we’ll dig into the pre-report expectations in a bit, soybean prices will be closely watching the numbers that come out of Brazil.

Why? There’s more buzz swirling that, as Brazil soybean supplies start to dwindle and prices there have increased, some Chinese traders are cancelling contracts and looking to buy American instead. [1] Supporting this rumour is that China bought 600,000 MT of U.S. soybeans on Monday, with another 6 boatloads contracted (but not yet reported). Again, as mentioned in Monday’s Breakfast Brief, soybean prices are looking for this demand story that’s been promised by China, but the size and consistency of buying to date hasn’t met said expectations.

In Monday’s crop progress report from the USDA saw good-to-excellent (G/E) ratings for corn fall by 1 point to 71%, while soybeans’ rating ticked up again by 1 point to 74% G/E. [2] On the wheat side of things, 90% of the U.S. winter wheat harvest is now in the bin, while 15% of the spring wheat harvest has been completed, but the portion of the HRS wheat crop rated G/E fell by 4 points to 69%.

In outside markets, Democratic U.S. Presidential candidate, Joe Biden, picked California Senator, Kamala Harris as his running mate. [3] Elsewhere, the UK economy sunk by 20% in 2Q2020, which, at an annualized rate, would equate to a drop of 60%! [4] Also, Russia claims to have COVID-19 vaccine but an informal poll of my network suggests no one here in North America wants anything to do with it, mainly because it hasn’t really been tested yet on people! [5]

USDA August WASDE Expectations

It’s estimated that as much as 10M acres of Iowa farmland and millions of bushels of grain already in storage were damaged in Monday’s “derecho” storm that passed through the Hawkeye state. [6] With the amount of photos and videos of the 100 MPH and higher winds coming across social media feeds, the storm certainly feels very bullish, but it comes just as this month’s WASDE report is about to be released. [7] Being honest with ourselves, we all know that there’s no way the USDA is accounting for any of these losses.

In fact, going into today’s WASDE report, analysts are expecting to see a record corn yield of 180 bushels per acre (up 1.5 bushels from the July WASDE) and 51 bu/ac for soybeans (up 1.2 bushels month-over-month). StoneX (AKA INTL FC Stone) is one of the biggest bears going into this report, estimating that the USDA will print a 182.4 bu/ac number later today. [8]

Given the selling we’ve seen in grain markets over the last few sessions, if the USDA prints yield averages that are below these average expectations, we could see a bullish finish to the monthly WASDE report day. The one outlier in this equation could be acreage, as all year there has been skepticism about the area the USDA said got planted this spring (as in, the USDA has overestimated acres planted), albeit the market may have already priced in some acreage changes.

USDA August WASDE pre-report expectations

Thus, with supply likely increasing, we then must consider what the USDA will say about demand. Most analysts will agree that corn going into the ethanol and feed is likely capped at this point in our new COVID-19 world, and thus, exports is going to be closely watched. [9] It’s a similar dynamic in soybeans, albeit everyone and their mother knows that the Brazilian soybean balance sheet is almost as important as the American one. That said, CONAB, the USDA equivalent in Brazil, suggested in their own monthly report that Brazilian soybean exports could total 82 MMT in 2020/21!

Outside of the usual headline-focused corn and soybean trade, I’m looking for updated production and export numbers for wheat in the EU and Black Sea. We also are likely to get a bigger wheat production number from Canada, given the relatively decent growing conditions Western Canada has received. That said, of course, there are some anomalies to this “decent conditions” comment, but isn’t that the case with every area?

In that vein, going into the USDA WASDE reports, perhaps our expectations are too flawed. We know what’s happened in the last couple of days could change production potential in various regions (i.e. Iowa), but the USDA can’t account for these factors that quickly, as the report is put together weeks ahead of its publication. Therein, perhaps our expectations for today’s WASDE report should be what we were thinking about markets a few weeks ago. Ultimately, this creates a consistent disconnect from the USDA’s potentially “outdated” data, and what grain markets are trading.

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
help@combyne.ag
@Combyne or @FarmLead on Twitter

At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3321 CAD, $1 CAD = $0.7507 USD)

Sept Corn: unchanged at $3.115 USD or $4.149 CAD
Sept Soybeans: +0.5¢ (+0.05%) to $8.71 USD or $11.603 CAD
Sept Soybean Meal (per short ton): unchanged at $284.10 USD or $378.45 CAD
Sept Soybean Oil (cents per lbs): +0.22¢ (+0.7%) to 30.84¢ USD or 41.08¢ CAD
Sept Oats: -1.5¢ (-0.55%) to $2.623 USD or $3.493 CAD
Sept Wheat (Chicago): -4.3¢ (-0.85%) to $4.908 USD or $6.537 CAD
Sept Wheat (Kansas City): -2.5¢ (-0.6%) to $4.143 USD or $5.518 CAD
Sept Wheat (Minneapolis): -0.5¢ (-0.1%) to $4.923 USD or $6.557 CAD
Nov Canola: -1.4¢ (-0.1%) at $10.963/bu / $483.40/MT CAD or $8.23/bu / $362.89/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.

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