USDA misses the mark — this week in the grain markets


Grain markets ended the week mostly lower, as hiccups surrounding the release of the November WASDE report put a damper on things.

On Friday, November 8th, the USDA was supposed to release their monthly estimates of world agriculture supply and demand at 12PM EST. Instead, their website crashed and the actual report wasn’t released until nearly 20 minutes later. The delay caused further angst amongst grain markets participants, and added another dark spot to a year of poor reporting from the American government agency.

When the November WASDE report did come out, the USDA had lowered U.S. corn yields by 1.4 bushels per acre (bpa) from their October estimate, but soybean yields were stayed at 46.9 bpa. Harvested wheat acres were lowered by 900,000, meaning total U.S. wheat production decreased by 42M bushels (all in spring wheat). Also on the wheat front, the USDA lowered their estimate of Argentina’s wheat harvest by 500,000 to 20 MMT, while Australia’s fell by 2 MMT down to 18 MMT.

As I said in the FarmLead Breakfast Brief on Friday morning before the report was released, I would be shocked if we saw a reduction in the harvested acres in this November WASDE, as it’s a safer play for the USDA to maintain (read: explain) the status quo than create more questions with a new number.

Indeed, that’s exactly what happened, as the USDA kept harvested acres at 81.82 for corn and 75.63M for soybeans. With one-fifth of the soybean harvest and one-third of the corn harvest not yet in the bin, it would be quite speculative of the USDA to say what final harvested acres will be.

Also from the Friday Breakfast Brief, I posited that the 167.3 bpa average corn yield the market was expecting to see wasn’t all that realistic. Of course, you could say that the market is just pandering to what they think the USDA will say in a specific report, and not what the actual numbers will come in at by the January WASDE report. But, at this point, we should be debating if the yield is there or not, not the safe bet on what the USDA’s reporting number will be.

Backing me up in this disappointing folly of a report is that basically two-thirds of the U.S. corn crop was planted after May 15th, the usual cut-off date for optimal yield potential. This included more than one-third of the crop that was planted after June 1st. If a significant amount of corn was planted after optimal yield dates, and now most of those crops are still standing in snowy or wet conditions, how can the USDA justify corn yields that are less than 10 bushels below last year’s corn yield of 176.4 bpa (which was second place to only 2017/18’s record of 176.6 bpa)?

Here’s the tough talk: they probably won’t move the needle on corn yields that much and they won’t account for massive amounts of unharvested corn acres until the January report. Also worth mentioning is that in 5 of the last 6 years, the final WASDE report in January has a corn production number that’s 118M bushels, on average, lower than the number in the November WASDE. This means that the bullish push that you’re looking for on corn prices likely won’t happen quickly. Instead, it’ll more likely be a gradual crawl to that January 2020 WASDE report. On that date, Friday, January 10th, we’ll likely be disappointed, and the corn market will pull back.

Also weighing on corn prices is just the plain fact of weak demand. For example, currently, the U.S. has exported less than 4 MMT of corn through week nine, down 57% year-over-year. Comparably, the USDA is currently forecasting 48.26 MMT of U.S. corn exports in 2019/20, which would be an 8% drop year-over-year. Keep in mind that the USDA did decrease their estimate of American corn exports by nearly 5 MMT from the September WASDE to October WASDE report. Seeing them downgrade exports again in the November WASDE would be a win for the bears.

Looking outside the USDA’s November WASDE, this week we heard China has lifted its ban on Canadian beef and pork imports. After a four-month ban, it’s becoming clear that China is scrambling to deal with a reduced supply of pork and the subsequent explosion of meat prices there. In addition to re-approving Canadian pork and beef, China also approved the imports of Brazilian offal, which includes byproducts like organs and is potentially a $2 Billion USD/year market in China.

New Chinese ambassador and former managing director of McKinsey & Company, Dominic Barton is clearly working on repairing relations between Ottawa and Beijing, and this removal of the import ban on Canadian meat is a good first step.

While there were some canola discussions between Canadian and Chinese officials at the WTO in Switzerland last week, it’s more likely that China will continue to import canola through third parties, notably the UAE.

That said, domestic Canadian canola crush volumes are cruising along with 2.46 MMT processed through Week 12 of the 2019/20 crop year. That’s up 28% year-over-year and 30% above the five-year average. Comparably, Canadian canola exports are in line with last year and the five-year average with just over 2 MMT so far.

To conclude this week’s grain markets recap, I look towards next week, specifically Monday, November 11th, which is Remembrance Day in Canada and Veterans Day in the United States.

Since World War 1, roughly 113,000 Canadians have died in military combat, with the majority of lives being lost in the 1914-1918 and 1939-1945 periods. At the time, these numbers represented about 1-2% of Canada’s total population. A 2% sacrifice so the other 98% (and their subsequent lineage) could enjoy freedom. Not to be forgotten, nearly 230,000 other Canadians were wounded in military combat since World War I.

Comparably, in the United States, nearly 600,000 men and women have given their lives since World War I to the pursuit of freedom against the tyranny of evil. Almost another 1.2 million people were wounded in this same quest. The bottom line here is that we are incredibly indebted to these individuals. And while remember those from decades ago, I believe that those veterans who have recently returned home from military conflicts need to be better supported and recognized too.

Lest we forget the fallen, nor stop honouring the returned brave.

Categories: Grain Markets / Markets

Please register to read and comment.


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