Nov 13 – USDA Serves Crop Progress, Disappointing November WASDE

Grain markets are recoiling this morning after a few bearish USDA reports have offset recent cold weather and the delayed state of Harvest 2019.

“We must all suffer one of two things: the pain of discipline or the pain of regret or disappointment.” – Jim Rohn (American author)

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USDA Serves Crop Progress, Disappointing November WASDE

Grain markets are recoiling this morning after a few bearish USDA reports have offset recent cold weather and the delayed state of Harvest 2019.

The CEO of Tyson Foods says that pork prices rising at this time of year is extremely unusual as demand usually falls off in the fall. However, with more hogs than ever, and processors slaughtering 4% more hogs than a year ago at 2.7M pigs per week, it’s clear that demand has strengthened, mostly due to the African Swine Fever issue in China. [1] Ensuring that they have pork seems to be China’s most important focus, with it receiving special attention in trade war deal talks. [2]

That said, I’ve talked about pork prices in China continuing to climb many times in the FarmLead Breakfast Brief, so it’s unsurprising that consumer inflation in the People’s Republic is now at an 8-year high. [3] Also weighing on markets is the uncertainty around a trade war deal between the U.S. and China will get done, as there seems to be some disagreement from both sides in terms how much of the tariffs implemented by the U.S. will be removed. [4]

USDA Disappoints with November WASDE

On Friday, November 8th, the USDA was supposed to release their monthly estimates of world agriculture supply and demand at 12PM EST. [5] Instead, the UDSA’s website crashed and the actual report was released until nearly 20 minutes later. The delay caused further angst amongst grain markets participants, further putting a dark spot on a year of poor reporting from the American government agency. In the Friday FarmLead Breakfast Brief going into the November WASDE, I explicitly expressed my doubts about what the USDA would present and those doubts were confirmed.

When the November WASDE report did finally come out, the USDA lowered U.S. corn yields by 1.4 bushels per acre (bpa) from their October estimate, but soybean yields were stayed at 46.9 bpa. The USDA did lower wheat harvested acres by 900,000, meaning total U.S. wheat production was lowered by 42M bushels (all in spring wheat). Also on the wheat front, the USDA lowered their estimate of Argentina’s wheat harvest by 500,000 to 20 MMT, while Australia’s was felled by 800,000 MT down to 18 MMT. This follows the USDA’s 2 MMT reduction for the Aussie wheat harvest in the October WASDE.  As I mentioned in my weekly Wheat Market Insider column for the Alberta Wheat Commission, I posit that the wheat market will mostly be looking at production numbers from the southern hemisphere going forward.

USDA November WASDE report final numbers

Staying in wheat numbers, the USDA dropped both American durum and spring wheat production numbers, citing the wet/delayed harvest in the Northern Plains. U.S. hard red spring wheat production was lowered by 1 MMT to 14.2 MMT (down 11% from 2018/19) while the USDA felled American durum output by 110,000 MT to 1.47 MMT (31% below 2018/19). This production reduction in mind, the USDA is saying that U.S. HRS wheat ending stocks for 2019/20 are now expected to come in at 7.6 MMT, 1.2 MMT below the initial estimate back in July. For durum, the USDA is expecting a carryout of 1.25 MMT, down nearly 400,000  MT from their first guesstimate in July.

USDA November 2019 WASDE report estimate of the wheat market

The other dynamic that was largely overlooked in the Friday publication from the USDA was global ending stocks for vegetable oils falling to roughly 18 MMT, the lowest they’ve been in 40 years. [6] This has helped canola prices a bit but subdued exports to China and the significant carryover of 2018/19 canola stocks continues to weigh on the complex.

Coming back to the corn market, the drop in production by 118M bushels was largely offset by a 100M bushel reduction in demand. Feed usage was dropped, despite the aforementioned large livestock herd in the U.S., but corn exports continue to lag. Todd Hubbs from the University of Illinois thinks that whether or not American corn exports pick up will be largely impacted by what happens with the crop from South America this year.  [7] As I mentioned a few weeks ago, apart from some seasonal strength, any significant improvement in corn prices will be a function of better corn exports.

As Jerry Gulke of the Gulke Group reminded us in his weekly recap, “the problem is that once you grow it, it’s there (and) the crop probably isn’t going to change much from here”. [8] Indeed, corn yields might fall a little bit further, but yield loss won’t be as great as it will be for the remaining unharvested soybean fields. That said, I’d have to agree with Mr. Gulke that we’ll need to see ending stocks push closer to 1.6 Billion bushels to get the market going, which basically means we’ll need to see more demand (i.e. corn exports).

USDA Crop Progress vs Cold Temperatures

The USDA also released its weekly crop progress report yesterday   after offices were closed for Veterans Day on Monday. [9] The national corn harvested average came in at 66%, slightly above expectations but still 19 points back of the five-year average of 85% complete. For soybeans, things are a little bit better with 85% of fields harvested, just slightly behind the five-year average of 92%, but again, slightly above markets’ expectations. Further, every major producing-soybean state has its harvest up above 70% complete.

Coming back to corn briefly, it continues to be abundantly clear that harvest is a long ways away from being finished in many states in the Western Cornbelt and U.S. Northern Plains. For example, the North Dakota corn harvest is at just 15% complete, way behind the five-year average for this time of year of 76%. In South Dakota, the corn harvest is 39% complete, also well behind the seasonal average of 82%. As you get further south and go east, things pick up though with Minnesota at 63% (87% average), Iowa with 64% of corn fields cut (86%), Illinois at 71% (93%, an Indiana at 72% (85%). With corn harvest behind in these areas, combined with weak corn yields in the Great Lake sates, corn basis continues to be pretty strong and shouldn’t be ignored.

The good news is that the recent cold and snowy weather is over for most of North America’s growing regions. [10] Temperatures are expected to warm up to freezing levels, and while the below-zero dynamic is in play, the ground is still frozen and the warm weather makes trying to finish harvest a bit easier. That said, the warmer window might be brief as meteorologists are expecting temperatures to be colder than normal for the second half of November, before average temperatures return in December, then below-normal again in January. [11]

The cold days of late is a bit of a concern for the American winter wheat crop that is still working on emerging. While the percentage of the crop emerged is pretty close to its seasonal average, the problem is that for major winter wheat-producing states like Texas, Oklahoma, and Kansas, the intensity of the cold is pretty, well, intense, not to mention a bit early. Accordingly, soft red winter wheat prices on the futures board in Chicago gained 11¢ yesterday as concerns of some burn or winterkill pushed speculators to propel the market higher. As mentioned though, wheat harvest numbers out of Australia and Argentina will likely be the biggest catalyst for the complex going forward.

To growth

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

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 = $1.3258 
CAD, $1 CAD = $0.7543 USD)

Dec Corn: -2.3¢ (-0.6%) to $3.755 USD or $4.978 CAD
Jan Soybeans: -1.3¢ (-0.15%) to $9.153 USD or $12.141 CAD
Dec Soybean Meal (per short ton): unchanged at $304.40 USD or $403.58 CAD
Dec Soybean Oil (cents per lbs): -0.20¢ (-0.65%) to 30.83¢ USD or 40.88¢ CAD  
Dec Oats: +0.5¢ (+0.15%) to $3.083 USD or $4.087 CAD
Dec Wheat (Chicago): -4.5¢ (-0.85%) to $5.125 USD or $6.795 CAD
Dec Wheat (Kansas City): -4.8¢ (-1.1%) at $4.34 USD or $5.754 CAD 

Dec Wheat (Minneapolis): -3¢ (-0.55%) to $5.188 USD or $6.878 CAD
Jan Canola: -0.5¢ (-0.05%) to $10.476/bu / $461.90/MT CAD or $7.901/bu / $348.39/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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