USDA reports show mixed reactions from grain markets

We have seen mixed market responses coming out of the United States Department of Agriculture’s big report release on Jan. 12, the most significant data dump of the year from the agency which includes final 2017 crop production numbers, updates monthly U.S./world supply/demand, grain stocks as Dec. 1 and winter wheat seeding reports. 

Soybeans

The USDA’s reports did not deliver the bearish blow to the soybean market that many traders feared. Response as of Jan. 16 from soybean futures into was a bullish reversal higher. 

While the USDA did lower its bean export forecast for 2017-2018 bushels, trade skepticism persists that the annualized export tally will erode further in the future. That, in turn, will add to building soybean ending stock prospects, which now is projected at a burdensome 470 million bushels.

 Continuation of soybean carryover projections approaching 500 million bushels will dampen soy rallies and encourage managed funds to add to existing net short futures positions.

While bean price charts posted an impressive reversal higher, I doubt there will be enough lasting support to spark an extended recovery unless South American weather concerns come back into play.

Brazilian weather remains mostly favourable aside from dryness in far southern and far northeastern growing areas. Dryness is a bit of a concern across Argentina, but it appears every bushel potentially being lost in Argentina is being gained in Brazil. 

We suspect the Brazilian soy farmer will step up sales on price rallies, while Chinese oilseed crushers will patiently wait for retest of recent price lows before initiating a demand reload.

With respect to the Canadian canola market, March canola futures still have reason to base in the $480 to $490 per tonne zone. 

Corn

Friday updates for U.S. corn and wheat (be it acreage, September to November usage or gains in 2017-2018 carryover) were mildly bearish relative to trade expectations. 

The USDA’s ending estimate for corn rose to a burdensome 2.48 billion bushels - the highest in 30 years. 

The stable/sideways/steady/boring price trend for the corn market remains intact. South American watch remains a high market priority. Uncertain forecasts are likely giving corn some support, along with a falling U.S. dollar, but it's nothing more than a mixed price outlook for now.

Deferred carries in corn futures are unlikely to be earned if the trade embraces a continuation of ample corn stocks through the 2018-2019 marketing year.

Wheat

According to the USDA, farmers seemed more inclined to seed winter wheat this fall than anyone believed. Acreage estimates came in above trade expectations. The agency pegged winter wheat seedings this past fall at 32.61 million acres, which is down 288,000 acres from last year and the smallest in over 100 years - but the number was at least 1.3 million acres more than what the trade expected. 

The fact that winter wheat acres were not drawn down as much as expected had a bearish impact on the futures markets, with all three U.S. wheat contracts tumbling in reaction to the numbers. 

This sets the stage for March contract Chicago and Kansas City winter wheat futures to test down December lows toward $4.10 and Minneapolis March spring wheat down to $6.05 per bushel.

The USDA offered no major changes in the world wheat balance sheet that wasn’t already expected. World wheat ending stocks totaled 268.02 million tonnes, down 0.4 million from December, but still record large.

The key price driver for the broader wheat market will continue to be wheat production prospects in Russia, which is capturing a majority of the growth in world wheat trade in recent years. 

There remains the protein supply deficit on wheat which gives high protein hard red spring wheat pricing its confidence, but demand at notable price premiums over other wheat classes has been waning somewhat since November. There is still a protein deficit to address over the next few months, but the calendar is ticking closer to accessing the next hard red winter wheat crop in four months. 

Meanwhile in Canada

The broader wheat market will be challenged to sustain a price uptrend until a weather wreck somewhere emerges.

Here in Canada, 2018 spring wheat and durum acreage is likely headed higher. Mediocre price and good yield nets a decent-enough margin versus commodity peers. The broader wheat market will be challenged to sustain a price uptrend until a weather wreck somewhere emerges.

Bottom line

The latest USDA reports brought mixed reactions from the grain markets. In Canada, average prices and a good yield mean price margins are decent.


Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.