October 12 – Where Will WASDE Report Take Grain Prices

FarmLead Breakfast Brief
Thursday, October 12th, 2017

“I find that a man is as old as his work. If his work keeps him from moving forward, he will look forward with the work.”
– William Ernest Hocking (American philosopher)

Good Morning!

At 7:20 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2461 CAD, $1 CAD = $0.8025 USD)

Dec Corn: +0.3¢ (+0.05%) to $3.463 USD or $4.315 CAD
Nov Soybeans: +2.5¢ (+0.25%) to $9.783 USD or $12.19 CAD
Dec Soybean Meal (per short ton): +$0.30 (+0.1%) to $315.20 USD or $392.77 CAD
Dec Soybean Oil (cents per lbs): +0.18¢ (+0.55%) to 33.33¢ USD or 41.53¢ CAD  
Dec Oats: +1.8¢ (+0.7%) to $2.545 USD or $3.171 CAD
Dec Wheat (Chicago): +1.3¢ (+0.3%) to $4.345 USD or $5.414 CAD
Dec Wheat (Kansas City): +1.3¢ (+0.3%) to $4.295 USD or $5.352 CAD
Dec Wheat (Minneapolis): unchanged at $6.19 USD or $7.713 CAD
Dec Canola: +2¢/bu / +$0.90/MT (+0.2%) to $8.998/bu / $396.76/MT USD or $11.213/bu / $494.40/MT CAD

Yesterday’s Winnipeg ICE Close
Dec Barley: unchanged at $2.586 USD or $3.222 CAD
Dec Durum Wheat: unchanged at $6.137 USD or $7.821 CAD
Dec Milling Wheat: unchanged at $5.111 USD or $6.368 CAD

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Where Will WASDE Report Take Grain Prices?

Grain prices are slightly higher as we prepare for one of the most important USDA reports of the year: The October WASDE report.

The WASDE report will be released at 12 p.m. EST, and farmers across North America will see cash and futures prices for their grain swing based on the numbers. Just a reminder: the WASDE report tracks the October 2017 estimates for global agricultural supply and demand figures. The big numbers that will affect grain prices today are yield expectations.

What to Watch in the WASDE Report

Analysts across the United States have set an average corn yields forecast of 170.1 bushels per acre.

On soybean yields, they anticipate the USDA WASDE report to register at 50.0 bushels per acre.

Both of these numbers are important because these estimates are higher than what the USDA estimated in September. These numbers would be bearish for corn and soybean prices because they would signal the likelihood of greater supply across the country.

You can learn more about what we expect in today’s WASDE report, right here.

It’s important to look at a little bit of history to understand what we can expect today.

As Garrett mentioned yesterday in Grain Markets Today, the USDA has increased its average yield figure for the soybean crop in 4 out of the last 5 October WASDE reports.

For corn, the USDA has raised average US yields 2 out of the last 3 years. Conversely, the most significant cut was in 2010 when yields were felled by 6.7%. If we saw a reduction similar to that… it would be a shocking event and one that would drive corn prices sharply higher. Unfortunately, one shouldn’t get their hopes up.

There is a good reason to expect that yields will remain the same or swing to the upside. Our Doug Kirk has predicted that we could see an increase of one bushel to one-and-a-half more bushels in this WASDE report’s corn yield estimate.

What’s Up With Russian Wheat?

As you may have seen in our recent Insights report, Russia is dominating the global wheat export market right now. They’re massive production increases, and infrastructure growth are bearish indicators for global wheat prices…

But are they making customers happy?

That question is worth exploration…

A recent report by the USDA suggests that Venezuela isn’t very happy with the wheat that they’re receiving from Russia. [1] Venezuela is facing a significant economic crisis, and many of their citizens are going to extreme measures to obtain food and causing unrest in the street. In a desperate attempt to feed their people, the oil-rich but now impoverish country is looking outside of North America to obtain food commodities.

Of the 1.05 million tonnes of wheat that Venezuela is expected to import in 2017/18, 300,000 to 600,000 tonnes could come from the Black Sea. Here’s the problem: the protein levels (and thus the quality) of the last load from Russia wasn’t high enough to make bread or pasta.

All Venezuela food producers could make were crackers.

Venezuela may have to wring its hands of Black Sea wheat if this happens again.

If so, we could see a battle for the country’s business.

Is NAFTA on the Ropes?

Venezuela may need to return to its former options for its wheat demand.

But could we see friendly trade partners turn rivals?

Right now, Canada, Mexico, and the United States are attempting to renegotiate key provisions of the North American Free Trade Agreement. While US President Donald Trump is calling Canadian Prime Minister, “a great friend of mine,” the tension is still palpable. [2].

There are growing doubts that renegotiations of the 23-year-old free trade agreement will make its 24th birthday. [3] There are plenty of Canadian, Mexican, and U.S. farm groups who are speaking up in favor of the trade pact. [4]

Moving forward though, should a new deal receive approval, it would hurt all economies. The trade barriers that were scrapped back in 1994 would likely return.

The most important group who would likely take a hit are U.S. corn producers. Although Mexico has purchased more corn in recent weeks, they have threatened to turn to South America for the key staple and procure less corn from U.S. producers over the NAFTA infighting.

European Grain Exports Update

While Russian wheat has dominated the headlines, we also have to keep an eye on France.

FranceAgriMer says that French soft wheat exports within the European Union will hit an 11-year high of slightly more than 8 million tonnes. [5] While that would signal more supply on the global markets, we this trend is more likely due to smaller and poorer quality harvests in places like Germany and Spain.

Total French wheat exports within the EU and abroad will hit come in almost at 18.5 million t0onnes.

Thus far, French wheat exports are cruising. More than 1.3 million tonnes of wheat were shipped to other EU countries in July and August. That’s a 63% bump compared to last year’s pace which was slowed by heavy rains that impacted crop quality.

France has also shipped out 1.25 million tonnes of soft wheat to non-EU countries. Technically, that’s just a 4% increase year-over-year.

The French Ag Ministry says that this year’s soft wheat harvest will come in at nearly 38 million tonnes. [6] Rapeseed production in the country came in a little over 5.5 million tonnes, which would be close to the record set in 2009.

Moving forward, Strategie Grains thinks that total rapeseed planting of the 2018 crop will hit 16.4 million acres. [7] That’s technically a small drop from 2016, echoing smaller corn acres in Europe in 2018. Strategie thinks that EU barley and wheat acres will also be up.

Overall though, the changes aren’t that large. This being said, it likely means more sideways action for European grain prices.


Are Lentils Losing Ground?

As mentioned in Tuesday’s Breakfast Brief, exports of Canadian pulses remain suppressed compared to a year ago.

Chuck Penner of Left Field Commodity Research suggests that Canadian red lentils production could be down about 25% year-over-year. [8] For greens, the output could end up about 10% more than 2016.

Chuck says that small red lentils prices in India & Turkey – the two main importing markets –are continuing to weaken. This trend contrasts the activity of the last 2 years.

Comparably, green lentils carryout is relatively tight.

However, the good quality of the Canadian crop plus a relatively decently-sized American green lentils crop is keeping the pressure on prices. As per a recent USDA report, the bottom end of the range for green lentils prices in the US has been weakening. [9]

I agree with Chuck – who I consider one of the best pulse market analysts in the game – that the current levels for green lentils should be considered for another block sale. For small reds, new price equilibriums are being found in the low 20s cents CAD/pound.

What’s clear is that we shouldn’t be expecting prices of the last 3 years. As such, if you’re looking to move something, put it on FarmLead in front of the 70+ financially-verified lentils buyers.

Post your next block of either color lentils on the FarmLead Marketplace.

India is certainly holding its own regarding production. The Asian nation is expected to take off 8.7 million tonnes of pulses in its Kharif (summer) crop. [10] Last year was a record 9.4 million tonnes.


South American Crop Concerns Continue

Rosario’s Grain Exchange recently updated its Argentinian wheat estimate.

With half the country’s acres extremely wet and the other somewhat parched, they dropped their forecast by 1 million tonnes to 16 million.

AgResource is estimating that Brazilian soybean planting will top 10% by the end of the week. [11]

This figure still drags behind the 5-year average of nearly 12% by mid-October and the incredible 18% pace set a year ago.

Total rainfall in Mato Grosso since September 1st through October 10th is just above 1.5 inches. A year ago, it was nearly double that.

Over the next 2 weeks, it’s expected another 1.5 inches will fall in Mato Grosso. This 2-month total in Brazil’s largest grain-growing state would be very similar to what was seen in 2015. That year, soybeans production estimates across the country topped 100 million tonnes.

However, drier conditions led to a crop of 96.5 million tonnes. It also led to one of the smallest corn crops in recent memory in Brazil.

On the demand front, the USDA reports that the Brazilian government is expected to approve a biodiesel blending mandate in the country of 10% by March 2018. [12] This would potentially increase biodiesel production year-over-year by 25%!

The one positive for the second-crop / safrinha corn season is that crop input prices are lower thanks to the strength of the Brazilian Real. Cheaper inputs are nice to have but looking forward to better prices is always nicer.


What Else to Look For Today?

Finally, the USDA of Australia, ABARES, is cautioning that they may be downgraded the crop in the Land Down Undaa once again. [13] There is more sentiment though that the recent rains in areas that badly-needed it is reviving some crop prospects.

In addition to today’s Grain Markets Today, look for our monthly instant reaction to the October WASDE report. Toward the end of the day, we’ll have charts and a deeper dive into the numbers and help you get a better sense of where grain prices go from here.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

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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