Feb 12 – WASDE Report Adds More Bearish Sentiment

Grain markets are mixed this morning after a neutral-to-bearish February WASDE report washed over the complex like a luke-warm shower.

“Public sentiment is everything. With public sentiment, nothing can fail. Without it, nothing can succeed.” – Abraham Lincoln (16th President of the United States)

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WASDE Report Adds More Bearish Sentiment

Grain markets are mixed this morning after a neutral-to-bearish February WASDE report washed over the complex like a luke-warm shower. Wheat prices are taking the biggest hit on the market being more concerned about the amount of supplies and higher wheat exports competition from the Black Sea and European Union.

Some snow is expected to start falling the United States today, with a winter weather advisory in place literally from the Texas Panhandle all the way up through New England. [1] Speaking of things slowing down the commute, CN Rail has closed “significant” parts of its railroad network as pipeline protests are taking place in/around Belleville, ON and the Wet’suwet’en First Nations community in Northern B.C. [2] While the right to protest is an important function of a good/free democracy, the large majority of impacted Canadian First Nations communities want these pipelines built (i.e. 120 out of 129 communities voted “yes” for the TransMountain pipeline to be built on their lands). [3]

Speaking of open and free, our next-generation cash grain marketplace, Combyne, is built on three main pillars: trust, communication, and efficiency. This is why we’ve made uploading photos a critical piece of the tool, be it from adding a selfie in your profile page so others can see who they’re dealing with, or adding a picture of your grain in a new Listing.

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Yesterday’s WASDE Report Broken Down

Unlike how the January WASDE report played second-fiddle to the U.S.-China Phase One trade war deal getting done, this month’s WASDE report only had the coronavirus to contend with. That said, going into yesterday’s February WASDE report, there was a lot of speculation as to how the USDA would represent a trade deal finally being in place, especially as it related to the soybean market. The USDA did somewhat acknowledge this by raising U.S. soybean exports by 50M bushels, help drop ending stocks. However, most of the market is expecting Brazilian soybeans to be cheaper than U.S. soybeans until April/May, which is usually the bottom of Brazil’s seasonal harvest lows.

In other oilseeds, the USDA lowered its estimate of Chinese rapeseed / canola imports by 200,000 MT to 2.9 MMT. However, the USDA also raised its forecast of EU rapeseed / canola imports by 200,000 MT to 5.2 MMT (some of which, we know is coming from Canada). Overall, global oilseed ending stocks were raised in this WASDE report by 1.5 MMT to 113.81 MMT, mainly because of China rebuilding their stocks and the Brazilian soybean harvest coming in bigger than what was thought a month ago.

U.S. corn exports were lowered by 50M bushels while ethanol demand was increased by the same amount, but otherwise, its balance sheet remained quiet. That said, traders were talking after the WASDE report about they expect to see strong feed/residual use in the coming months.

While I’ll dig into more wheat market activity later on, the USDA dropped its forecast of HRS wheat ending stocks for the seventh consecutive WASDE report, this time by 15M bushels, to now sit at 249M bushels (or 6.78 MMT if converting bushels to metric tonnes).

February 2020 WASDE report from the USDA

The bottom line though? This report was relatively a non-event with most of the grain market continuing to monitor (1) Chinese demand, (2) South American growing season/harvest conditions, and (3) any broader issues related to the coronavirus. Given the expected uptick in buying from China, at least one grain markets analyst thinks that the lows are in and “today might be the best buying opportunity seen in 6 years.” [4] Perhaps the bearish sentiment has indeed peaked? I’m not sold yet though on that idea. I expect a few more pushes lower before the gradual rebound starts in late March/early April as the Plant 2020 picture and northern hemisphere weather becomes the focus again.

The next report from the USDA that we’ll be watching for will come in the form of their annual outlook forum, which takes place Feb 2021 in Arlington, Virginia. Joel Karlin of Western Milling shared some great analysis in DTN last week, noting that, over the past 20 years, corn ending stocks for the upcoming crop year tend to be 6.2% higher than what the USDA says in their outlook forum. [5] Comparably, soybean ending stocks usually end up 3% lower than the February Outlook estimate, while wheat’s carryout is 4.7% higher.

Wheat Exports Revolving Door

Wheat prices on the CBOT fell to fresh seven-week lows as adequate supplies shown in the February WASDE report clearly led to technical selling. Compounding the selling activity was Egypt buying wheat at $6 USD/MT less than what it paid two weeks ago. [6] I said back in my winter wheat prices outlook that that the wheat market seemed to be living on borrowed time as heavy supplies “will likely keep any major rallies for winter wheat prices in check”. Admittedly, I was expecting the pullback in wheat prices to start “sometime in February, maybe early March”, but it really started once the trade deal was signed in mid-January.

That said, there’s plenty of wheat moving around. AgriCensus reported last week that wheat futures on China’s commodity futures markets hit their highest level in nine months due to a recent surge in wheat-based products since the spread of coronavirus is negatively impacting food movement. [7] On a related function, Chinese wheat buyers bought some French wheat, bringing the total of shipments between the two countries to 1.3 MMT since July 2019. This is a massive bump compare to the five-year average for the same period of just 29,000 MT.

As the February WASDE report told us, European wheat exports are performing much better, as are those shipments from Ukraine; the USDA said wheat exports would improve year-over-year by 37% and 28%, respectively. Comparably, the USDA did drop their forecast of American wheat exports by 680,000 MT, while Canadian shipments were also dropped, but by 500,000 MT. Specifically for U.S. wheat exports, total shipments are tracking 14% above last year’s pace through Week 35, with 16.12 MMT of all types of wheat sailed.

Conversely, Canadian non-durum wheat exports are tracking 15%, or nearly 1.4 MMT halfway through the 2019/20 crop year. Comparably, Canadian durum exports are up 43% year-over-year with nearly 2.5 MMT sailed. This is also a notable increase from the five-year average as Italy has seemingly come back to the Canadian market a bit more this year. Unsurprisingly, there continues to be optimism in the durum market and accordingly, we expect to see more durum planted by Canadian farmers in Plant 2020. [8] Unfortunately, that’ll likely mean that durum wheat prices will pull back from the $7.50 CAD/bushel level that hand-to-mouth buying has been influencing.

Canadian 2019/20 weekly durum exports through Week 26

Average Canadian durum wheat prices for spot movement through February 7, 2020

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne on Twitter

At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3262 CAD, $1 CAD = $0.7541 USD)

Mar Corn: -0.5¢ (-0.1%) to $3.793 USD or $5.03 CAD
Mar Soybeans: unchanged at $8.848 USD or $11.733 CAD
Mar Soybean Meal (per short ton): -$0.60 (-0.2%) to $290.20 USD or $384.86 CAD
Mar Soybean Oil (cents per lbs): +0.27¢ (+0.9%) to 30.99¢ USD or 41.10¢ CAD
Mar Oats: +0.3¢ (+0.1%) to $2.99 USD or $3.965 CAD
Mar Wheat (Chicago): +0.5¢ (+0.1%) to $5.425 USD or $7.194 CAD
Mar Wheat (Kansas City): -2.5¢ (-0.55%) at $4.658 USD or $6.177 CAD
Mar Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.305 USD or $7.035 CAD
Mar Canola: +2¢ (+0.2%) to $10.439/bu / $460.30/MT CAD or $7.872/bu / $347.09/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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