Grain markets are mostly in the green, readying themselves for the 2020 January WASDE report, set to be released today at 11AM CST.
“Second to agriculture, humbug is the biggest industry of our age.” – Alfred Nobel (Swedish engineer)
The January WASDE Report (the Biggest of Them All)
Grain markets are mostly in the green, readying themselves for the 2020 January WASDE report, set to be released today at 11AM CST. The January WASDE report tends to be an important report, given that it’s usually the final numbers in terms of yields, harvested acres, etc. for the crop year in the United States. That said, the market will be closely watching for any commentary about remaining crop out in the field and how the USDA might be interpreting this “late” production.
The other major headlines consuming newsfeeds relates to the Ukrainian International Airlines flight that was reportedly shot down by a surface-to-air missile over Iran.  Intelligence reports from the U.S, Canada, and the UK – namely satellite data – suggests that the plane was shot at, possibly mistakenly, shortly after takeoff. There’s also amateur video footage suggesting a tracking by some object (more than likely a Tor missile) and then an explosion.
There have been some opinions that, with the U.S. deescalating the military situation with Iran, Russia appears best poised to “fill the power vacuum” in the Middle East, not to mention, helping keep oil prices higher.  Coincidentally, Russia continues to deny any involvement in the downing of a Malaysian Air flight over Ukraine in 2014, despite overwhelming evidence and 4 people being charged with murder of all 298 passengers and crew. 
China Ethanol and Pork Woes
It was reported this week that China has suspended its plan to begin a nationwide blended gasoline policy that would contain 10% ethanol.  The main reason for this abrupt about face is that corn stocks in the country have declined considerably, in addition to less-than-ideal production. This is not only a negative for those companies who did built processing plants, but also Brazilian and American ethanol exporters who were hoping to ramp up shipments to the People’s Republic. Rumours from Beijing suggest that they want to ensure food security over cleaner gas (and a hope of a reduction in air pollution!).
The Chinese government also said this week that their sow here grew by 2.2% in December over the previous month, a slow start to a rebuilding of the hog herd in the People’s Republic.  With the Lunar New Year celebrations taking place later this month, pork demand is nearing its annual high, which is probably why you saw Chinese pigs sent to slaughter in December increase by 14% month-over-month. Nonetheless, there’s still a “severe” shortage of fresh pork as the African Swine Fever virus remains imminent, especially with winter weather making washing and disinfecting more challenging.
January WASDE Report Finally Here
Going into today’s January WASDE report, expectations are to see some lower U.S. corn and soybean yields, lower harvested acres, and thus, lower production. Undoubtedly, harvested acreage will continue to be a point of debate.
In November, NASS suggested that harvested corn acres for this year would be 81.815M acres while soybean harvested area would total 75.626M. Immediately, these numbers were challenged by the market, and heading into today’s WASDE report, analysts are expecting to see 81.35M acres of harvested corn and 75.462M acres for soybeans. If realized, this would be a 0.5% or 400,000 acre decline year-over-year for corn and a 14%, or 12.13M acre decline for soybeans. Take a look at some other average guesstimates heading into today’s January WASDE report.
Worth noting is that CONAB, Brazil’s version of the USDA, said that they’re going to be revising their 2018/19 soybean balance sheet, which I think might be a bit bullish. Currently, CONAB is estimating the 2019/20 soybean harvest at 122.23 MT, up more than 1.1 MMT from their previous estimate in December. For corn, the agency is forecasting a 2020 harvest of 98.71 MMT, down about 300,000 from their last estimate. From a demand perspective,
Conversely, Agroconsult is estimating that the 2019 soybean harvest in Brazil will only produce 117.6 MMT, citing dry conditions in northern and southern areas, and too much rain in central regions.  The firm is also expecting the 2019 Brazilian soybean exports to come in somewhere between 76 and 78 MMT, although it’s widely expected China will buy more American going forward. On the flipside, AgroConsult is expecting 2020 corn exports from Brazil to fall to 37 MMT, down from 2019’s expected record of over 43 MMT. That said, this corn export number could fall in the dryness in southern Brazil persists. 
Grain Stocks and Winter Wheat Acres
The other major data dumps we’ll get with today’s WASDE report is the quarterly stocks report for inventories as of December 1st, 2019 and 2020 winter wheat acres seeded. For grain stocks, the market is expecting to see 11.511M bushels still left in the U.S. pipeline as of December 1, 2019. If realized it would be a 3.5% reduction from Dec. 1, 2018 and further distance from the record of 12.567M bushels, set one year earlier in December 2017.
For soybeans, the average guesstimate from analysts is for 3.186M bushels, a drop of 15% year-over-year and last year’s record of 3.746M bushels in December 2018. One of the main reasons for the solid disappearance is the strong pace of soybean crush in the United States lately. Finally, grain markets are expecting to see wheat stocks of 1.917M bushels as of December 1, 2019. This is a small decline from the 2.009M bushels seen a year ago.
In terms of winter wheat acres, Karen Braun of Reuters pointed out this week that in the past 2 decades, only 3 times has the average pre-report estimate of winter wheat acres come in above what the USDA actually reported.  Put another way, the winter wheat acres reported has turned out bullish 17 out of the last 20 years! Today, said analysts are expecting to see the USDA said that 30.664M acres of winter wheat were seeded in the U.S. this fall. If realized, this would be the lowest area for winter wheat since 1909 (for those who have a tough time with math, that’s the smallest area in 110 years!).
If the analysts are right as this number hits, it would be a 3.6% reduction from 2019’s 31.8M acres planted. Breaking it down, the market is expecting see about 22.1M acres of hard red winter wheat, 5.1M acres of soft red winter wheat, and 3.4M acres of white winter wheat. If realized, this would be a year-over-year drop of 600,000 acres (or -2.6%) for HRW wheat, 440,000 (or -8%) less for SRW wheat, and 155,000 (or -4%) for white winter wheat. Ahead of today’s winter wheat acres report, make sure to dive into my 2020 outlook for winter wheat prices.
Specific Outlooks for 2020 Grain Markets
In this past Monday’s FarmLead Breakfast Brief, I gave my general outlook of what’s going to move grain prices in 2020. Throughout the week, I’m been sharing my expectations for specific crops. As mentioned, smaller winter wheat area could help winter wheat prices, but I’m also looking to the wet fall conditions in Western Europe as a driver of the fall crop. Conversely, spring wheat prices haven’t been much to write home about (except for CPS wheat prices perhaps) and so there are a few ideas I have about what’s needed for values to recover. Also, durum prices finished the 2019 calendar year with a sideways trading range, but I have some doubts if 2020 will find higher highs.
In the oilseeds, it’s not hard to understand that the majority of what’s driving soybean prices in China (read: trade war happenings), Brazil, and soon, expectations for the 2020 American soybean harvest. While canola prices will intuitively be correlated to soybean prices, 2020 could be a make or break year for the black gold crop. Conversely, flax prices are currently rewarding those who planted in 2019, and that’s why I’m getting a little more bearish heading into 2020.
Barley prices are pacing behind last year’s values and stronger international demand will be needed to help the cereal in 2020 (be it for malt or feed). Also, oats prices were the “darling” of the market up until early December, but I still think there is a positive opportunity for the high-yielding cereal in 2020. Given the wide speculation around the U.S. corn crop, I wanted to wait until we had more data from the USDA in today’s January WASDE report before finalizing my 2020 corn prices outlook so look for that later today. Also today you should see my expectations for pulses, with forecasts on peas, lentils, and chickpeas. Check out all the 2020 outlooks here on the FarmLead Insights page.
Have a great weekend!
Due to some early morning meetings, I could not include the futures grain prices in today’s FarmLead Breakfast Brief, but you can review them here at your convenience.
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