USDA's large yields surprises trade
The wheat market took a big hit with the release of the monthly World Agricultural Supply and Demand Estimates report Aug. 10. U.S. production estimates came in at 1.739 billion bushels (47.33 million metric tons) versus 1.713 billion bushels as the average trade guess. The U.S. Department of Agriculture's July number was 1.760 billion bushels. Spring wheat production is estimated at 402 million bushels versus 393 million bushels for the pre-report average trade guess. This compares to USDA's July number of 423 million bushels. Durum came in at 50.5 million versus the average guess at 56 million. With these production numbers, U.S. ending stocks for all wheat are expected to be 1.184 billion bushels for 2016-17 and 933 million bushels for 2017-18.
The real dagger was a mammoth increase in Russian wheat crop estimates up 8.6 million metric tons to 77.5 million metric tons. The former Soviet Union (FSU-12) including Russia and Ukraine are expected to have record wheat production. The FSU-12 increased to 133.7 million metric tons from 125.1 million metric tons in the July report. The net effect was an increase of world ending stocks for 2017-18 at 264.69 million metric tons. This was much higher than the average trade guess of 256.7 million metric tons. Australia numbers remained unchanged at 23.5 million metric tons despite the ongoing drought.
This summer all attention was focused on the spring wheat problem in the northern U.S. and Canada. It's easy to focus on the bad yield reports locally and lose sight of what's going on in the world. It's even easier to get lost in bushel numbers versus metric tons. We had reports that the Russian wheat crop could be on the high side, but in all my years as an analyst, I have never seen such a large month-to-month increase in wheat production.
While we were all focused on whether the spring wheat number was going to be plus or minus 10 million bushels from the 393 million bushel estimate for the entire U.S. spring wheat crop, the USDA in one month added nearly the equivalent of the entire U.S. spring wheat crop to FSU-12 estimates. Think about that for a minute and let it sink in — 390 million bushels is 10.6 million metric tons. In one month, USDA added 8.6 million metric tons to the FSU-12 estimate, which is 316 million bushels.
For the week ending Aug. 10, September contracts for Minneapolis wheat were down 13 cents at $7.0325, down 14.25 cents at $4.405 for Chicago wheat, and down 11.25 cents at $4.4825 for Kansas City wheat.
USDA yield numbers started a selloff on Aug. 10 after the USDA estimated a higher than expected yield. The USDA only lowered corn yields 1.2 bushels per acre compared to average analyst guesses of a 4.5 bushel per acre reduction. The trade reacted negatively to this thin reduction and large losses in the soybean complex also fueled selling in corn futures.
The USDA did not do producers any favors in their August report. I have a feeling that the data analysts at the USDA will have a lot of explaining to do if the yields turn out to be much lower than these estimates. I know the majority of producers won't believe many of the USDA's numbers, but weather needs to turn negative in order for the USDA to change their tune.
The USDA seems to be being cautious (which is normal this time of year) with any yield reductions as recent cooler weather and a cooler outlook for August is helping limit the damage done by the less than normal rainfalls. New hybrids and genetics may also be limiting yield losses due to the weather extremes we have seen this year.
It remains to be seen how August shapes up and if we will see some weather adversity before harvest to give this market some relief from these low prices. Even though there is still a decent looking crop in much of the Midwest, there is some worry that some corn plants are slow to mature and has been lacking heat units. Most of the U.S. saw a cool, wet spring which put this crop behind from the get-go. So because of a slow start, the northern half of the U.S. still has two months of time for an early frost to hit some of this late planted corn fields.
Tip back and ear weights are also something that will need to be watched in the future, especially in the western Midwest. But for now, these potential issues are not widespread, so if weather continues to shape up for much of the Midwest, these issues won't be prevalent.
Even though U.S. corn is only rated at 60 percent good to excellent versus 61 percent last week and 74 percent last year, the USDA is still expecting this year's corn crop to be the third largest on record. This year's corn crop is also rated 13 percent poor to very poor versus 13 percent last week and 7 percent last year. The pro crop tour at the end of August may give the trade a better idea of what is out there.
For the week ending Aug. 10, September corn was down 11.75 cents and December corn was down 11.5 cents. We closed just below recent support of $3.74 December and if pressure continues, December corn could be aiming for the contract lows of $3.585.
USDA shocked everybody in the Aug. 10 report by increasing U.S. soybean yield to 49.4 bushels per acre, up from 48 bushels in July. This puts U.S. soybean production at 4.381 billion bushels and would be a 2 percent increase over 2016's record crop. The average trade guess was 4.212 and USDA's July estimate was 4.260 billion bushels.
U.S. soybean ending stocks are now estimated to increase to 475 million bushels for 2017-18 up from the July estimate of 460 million bushels. On the world stage, ending stocks for 2017-18 are increased to 264.69 million metric tons, up from 260.6 million metric tons in the July report. Average farmgate prices are estimated to be at $9.30 per bushel.
Outstanding sales decreased to 198.3 million bushels, 2 percent less than the previous year.
For the week ending Aug. 10, August soybeans were down 18.5 cents to $9.3075. November 2017 soybeans were down 16.5 to $9.4025.
For the week ending Aug. 10, November canola futures in Winnipeg were up $5.90 Canadian at $506.20 Canadian per metric ton. The Canadian dollar traded down to .7850. This brings the U.S. price to $18.03 per hundredweight.
• Velva, N.D., $17.49 per hundredweight, new crop $17.13.
• Enderlin, N.D., $18.02 per hundredweight, new crop $17.91.
• Hallock, Minn., $17.52 per hundredweight, new crop $17.34.
• Fargo, N.D., $18.40 per hundredweight, new crop $17.90.
Cash feed barley bids in Minneapolis were at $2.10, while malting barley received no quote. Berthold, N.D., bid is $2, and CHS Southwest New Salem bids were at $2.50
Cash bids for milling quality durum are $8 in Berthold and at $8.50 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.60., and October-November was at $16.60.
For the week ending Aug. 10, soybean oil was up 16 cents at $33.74 on the August contract.