Bearishness and bills — This week in the grain markets


Grain markets the first full week of January were highlighted by the first World Agricultural Supply and Demand Estimates (WASDE) report of the calendar year on Friday. The report was generally viewed as bearish, but soybeans were able to catch a bid and rally more than a dime thanks to a smaller American yield estimate. For the week though, March 2018 soybeans lost 1.1%.

The significant rally on Friday was also catalyzed by smaller soybean stocks than what the market was expecting (by about 24 million bushels). To be fair (and put it in perspective), U.S. soybean stocks as of December 1 were up 9% year-over-year. Forecasted ending stocks in the U.S. are up 56% year-over-year though. This is 25 million bushels more than the last WASDE. But this is because U.S. soybean exports are losing market share to Brazilian product.

That being said, the United States Department of Agriculture (USDA) raised soybean production in Brazil to 110 million tonnes, matching more private estimates. Next door in Argentina, they lowered production 56 million tonnes, and many analysts think there are further downgrades to come as the weather forecast continues to look dry there.

March corn lost 1.4% for the week, mainly because of the 2.5 cent drop on Friday. Specifically, U.S. corn yield was raised by 1.2 bushels per acre to 176.6 bushels per acre — another new record. However, slightly smaller harvested acres only pushed up U.S. corn production by 26 million bushels. Add in more imports of corn by the U.S. and weaker feed use, and American corn saw ending stocks pushed up to 4.48 billion bushels (more than 40 million bushels more than what the market was expecting).

Globally, a bigger carryout in Brazil and the U.S. were the main reason ending stocks around the world were raised. Other than that, there wasn’t too much that changed on the corn balance sheet.

Wheat prices took a nosedive on Friday after the WASDE showed that there were substantially more winter wheat acres planted this past fall in the U.S. than what the market was expecting. While 32.6 million acres of total winter wheat acres planted is still a record low, the trade was expecting just 31.31 million acres. The extra 1.3 million acres of potential production was interpreted as very bearish by the market.

March 2018 Kansasi-traded hard red winter wheat futures lost 3.1%, closing at $4.24 USD / bushel. Its compadre, Chicago-traded soft red winter wheat futures lost 2.4% on the March 2018 contract, closing at just above $4.20. Despite its lower correlation, spring wheat futures on the Minneapolis grain exchange dropped over 16 cents on Friday, to close at $6.12 for the week. That’s a 2.4% drop week-over-week.

Before the WASDE, the Australian Bureau of Statistics (ABS) came out this week and said that the 2016/17 Australian wheat crop was only 30.36 million tonnes. While still a record wheat crop for Australia, it is not the official 35-million-tonne forecast pegged by ABARES, or the 33.5 million-tonne harvest that’s been estimated by the USDA.

The biggest reason for the difference is in acres. ABS believes just under 29 million acres of wheat were harvested in 2016/17. Conversely, ABARES pegged acres at 30.7 million. It’s tough to say if 750,000 acres can produce 4.6 million tonnes of wheat or not.

That being said, the USDA followed the lead of ABS, and also downgraded the Australian wheat crop from 2016/17 to 30.36 million tonnes. Conversely, they kept the 2017/18 Aussie wheat crop at 21.5 million tonnes. Previous estimates were for closer to 20-21 million tonnes, but even grain handlers like Nidera, CBH Group, and Viterra are all indicating that the size of this year’s, 2017/18 wheat crop is bigger than once thought.

Globally, 2017/18 wheat production was pegged at a new record of 757 million tonnes (technically the December WASDE number of 755.2 million tonnes was also a record). The reason for the bump was mainly attributed to Russia, who went from 83 to 85 million tonnes of wheat production in 2017/18. This matches most private estimates of what Russian wheat farmers harvested in 2017/18.

With no real new demand to report, global wheat ending stocks for the 2017/18 crop remain around the record of 268 million tonnes. Thanks to the decrease in the 2016/17 carryout, Australia’s wheat ending stocks will drop 1 million tonnes to 3.22. However, this drop doesn’t make up for Russia’s 5.5 million-tonne increase in carryout for 2017/18 compared to the year prior. They’re expected to end 2017/18 at 16.3 million tonnes of wheat.

For canola, futures prices in Winnipeg were able to catch some of the momentum of soybeans to end $2.20 for the day, but did end the week a bit lower. A slew of bearish data out of Malaysia isn’t helping.

Data out from Malaysia shows that available palm oil stocks in December hit 2.73 million tonnes. This is a 7% jump from the month prior, the sixth consecutive month of gains, and the highest since November 2015. Production of palm oil in Malaysia in December also dropped 6% from November to 1.83 million tonnes, but that’s more than what the market was expecting.

Exports of Malaysian palm oil in December touched 1.42 million tonnes. That’s still a 5% jump from November, but less than the 9% the market was anticipating. There is certainly some bearish headwinds in the vegetable oil markets and canola/rapeseed oil stocks being the tightest they’ve been in the last seven years isn’t necessarily going to help us.

Overall, the USDA presented us another bearish WASDE, so many farmers will keep the bins locked, kicking the sales can down the road for better prices. This isn’t necessarily the best plan of attack from a risk management standpoint, especially when there’s likely some bills coming due within the next 8-10 weeks. Keep this in mind as we move through the middle of January.

Categories: Grain Markets / Markets

Please register to read and comment.


Register for a RealAgriculture account to manage your Shortcut menu instead of the default.