Brushing off the WASDE report — This week in the grain markets

Grain markets ended mostly in the red this week as the market dealt with some full-tilt planting progress and a few reports. There were some bullish ideas in Thursday’s May World Agricultural Supply and Demand Estimates (WASDE) report from the USDA, but it didn’t seem like the market believed it! (much like other grain reports, no?)

More specifically, old crop corn prices lost nearly a dime this week, or more than 2% to close back below USD $4/bu in Chicago. New crop corn remains attractive, above $4. Soybean prices also lost some lustre, dropping more than 3% or 33.5¢ to close just a hair above USD $10/bu in Chicago. New crop soybeans lost almost a quarter, or down 2.2% to close at USD $10.14.

For corn, the USDA projected that production would total 14 billion bushels in 2018/19, with an average yield of 174 bu/ac. That’s a nice shave off the 176.6 bpa that we saw last year. The agency said that U.S. exports will decline in the new year by 125 million bushels. However, the agency did say that exports are also expected to fall in Brazil and Argentina.

While falling South American exports will provide a boost to U.S. market share, the agency expects that exports out of Ukraine and Russia will increase by 265 million bushels. After this WASDE report, it was somewhat surprising to see corn prices press downward. Global stocks are poised to decline at a time that U.S. ethanol policy will likely provide an added boost. The late selloff this week in corn prices is seemingly tied to profit taking and concerns about other sectors.

For soybeans, the USDA cut 2017/18 ending stocks from 550 to 530 million bushels, which easily beat trade expectations (546). The agency also cut 2018/19 stocks all the way down to 415 million bushels.  In addition, the USDA projected a decline in production and an increase in U.S. exports by 225 million bushels. But reality set in when we looked at the global complex. The agency increased 2017/18 bean carryout by 50 million bushels to 3.386 billion bushels, where trade analysts had expected a cut of about 37 million bushels.

The USDA says that global stocks will decline in 2018/19 by 4.5% to 3.186 billion bushels. But the agency was aggressive on both U.S. exports and global imports. That is especially true in China. The biggest contradiction in this month’s report centred on Chinese imports. The USDA projects that Chinese imports will increase by 6.2% to 103 million MT.

China disagrees.

The nation’s agricultural ministry projected that higher prices and difficulty securing supply (especially during the U.S. trade spat) will cause imports to fall for the first time in 15 years. Data shows that the price of soybeans flowing into China is up 16% in price this year. And that’s before a potential 25% tariff on the U.S. This is a staggering difference of opinion, and one that is going to create a lot of uncertainty and potential volatility in the soybean market. Even though China plans to consume about 111.2 million MT, the country says imports will decline slightly to 95.7 million MT.

This added some volatility to old crop canola prices. but they did end up gaining 1% for the week to close at CAD $532.30/MT. New crop canola prices sank though, as the USDA said world rapeseed production in 2018/19 is expected to increase by 1.1 million tonnes or roughly 2% to 75.4 million tonnes. This is a new record and mainly attributed to bigger acres in Australia, the EU, and India.

However, canola is expected to enjoy some strong demand in 2018/19 as well. The net result is 2018/19’s ending stocks pegged at 6.5 million tonnes, unchanged from the year before and 3% down from the 5-year average pegged at 6.75 million tonnes.

The Statistics Canada Stocks report (as of March 31st, 2018) weighed on canola prices on Friday. According to the report, there is still 9.08 million tonnes of canola available as of the end of the first calendar quarter. This is up 14% year-over-year and 17% above the five year average. Canola sitting on farms is still at 7.5 million. This is 18% more than last year’s 6.36 million tonnes held by farmers through the end of March, but also 20% higher than the five-year average. Comparatively, canola held in commercial storage as of March 31st came in at roughly 168,000 tonnes.

Specific to wheat (all wheat excl. durum), there is still nearly 13 million tonnes available as of the end of the first calendar quarter. This is 7.6% less than the five year average Wheat held on farm is sitting at 9.77 million tonnes, 3.3% more than last year’s 9.45 million tonnes, but nearly 8% lower than the five-year average. Comparatively, wheat held in commercial storage as of March 31st came in at 3.21 million tonnes. Right now though, there’s a lot of uncertainty over the size off the 2018/19 Canadian canola crop and so farmers are reluctant to sell.

That being said, La Nina is gone, and this means that the pendulum swings back to the El Nino side of the cycle. There are some suggestions that late 2018 weather could trend to more of an El Nino state, though that is very speculative at this point. In the short-term that are some rains in the forecast that are slowing planting progress down in the American Midwest. Conversely, limited rainfall is expected in Western Canada, which means seeding should be hitting full-tilt this weekend.

The question for Western Canada though, is when will the rain show up? After last year’s drought, the question of precipitation (and thus, soil moisture) is a pretty important one. At least one forecaster, BAMWx, is seeing weather models similar to 1986, 2001, 2006, and 2012 for the Canadian Prairies and sees the forecast as trending drier than usual again. This doesn’t mean you should lock your bin doors just yet, but it’s something to be cognizant of.

In the meantime, let’s continue to focus on this year and get the crop in!

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