Bearish UDSA report
The U.S. Department of Agriculture on Sept. 12 released its monthly World Agricultural Supply and Demand report. The September report typically doesn't have too much revision for wheat, but analysts were paying attention to world numbers.
2016-17 world ending stocks came in at 255.8 million metric tons, slightly below the 258.5 million metric tons average trade guess. 2017-18 world ending stocks came in at 263.1 million metric tons, also slightly below the 263.9 average trade guess. U.S. ending stocks remained unchanged from the August report at 933 million bushels.
The largest revisions on the world scale came from a 3.5 million metric ton increase in Russian production due to good weather, a 1 million metric ton reduction from Australia and a 700,000 metric ton reduction from the European Union. Expected exports were thus increased 1 million metric tons for Russia, 500,000 metric tons for Ukraine and 300,000 metric tons for Turkey. European Union and Australian exports were decreased 1 million metric tons and 500,000 metric tons, respectively.
Spring wheat harvested acreage came in estimated at 10.497 million acres, with no revisions for this summer's drought affected areas of the Dakotas and Montana.
Breaking down the 2017-18 stocks to use ratios from the Sept. 12 report by class: hard red spring (Minneapolis) 27.8 percent, hard red winter (Kansas City) 51.7 percent, soft red (Chicago) 74.6 percent, white 23 percent and durum 22.2 percent.
If we take a snapshot from the April 2017 report, the two largest drawdowns were Minneapolis, which was over 32 percent, and durum, which was over 45 percent before this summer's northern drought. Although Kansas City trimmed off about 9 percent due in part to lower plantings, Chicago slightly increased. These ratios will make it that much more difficult to break resistance areas in Kansas City and Chicago.
The Chicago December $4.48 level was exceeded a few times during trade this week, but failed to close above that level. This is the most important number right now in the wheat complex. If Chicago can manage to close above this level, it would spark additional short covering. The September contracts are now off the board, so it's just as realistic that December contracts now as the front months could sag to those levels. That could mean 20 cent hits in all contracts just based on the carry.
Some winter wheat areas are experiencing rain, which together with large world stocks is keeping a lid on upward price momentum. Weekly export sales were a non-starter at 11.6 million bushels.
For the week ending Sept. 14, December contracts for Minneapolis wheat were down 14.25 cents at $6.325, up 5.25 cents at $4.43 for Chicago wheat, and up 0.5 cents at $4.42 for Kansas City wheat.
USDA raised expected yield to 169.9 bushels per acre, up 0.4 bushels per acre from the August report. This increased expected production by 31 million bushels to 14.184 billion bushels. This would be the third highest U.S. corn crop on record, higher than most trade expectations. The largest crop on record in 2016 followed by the third largest crop does make for burdensome supplies in the 2.3 billion carryout range.
USDA increased 2017-18 U.S. ending stocks by 62 million bushels to 2.335 billion bushels compared to the August estimate of 2.273 billion bushels. Corn usage was lowered 50 million bushels. Feed and residual was raised 25 million and ethanol usage was decreased 25 million bushels. World stocks are estimated at 202.47 million metric tons (7.97 billion bushels) versus 200.87 million metric tons in August. Farm gate expected prices were lowered by 10 cents per bushel to $3.20.
December corn traded close to the contract low of $3.4425 after the USDA report Sept. 12. Current support would be $3.4425, with resistance at $3.605. September contracts expired and December could sag to those levels in a full carry market. The September contract traded as low as $3.285 on Aug. 30. For the week ending Sept. 14, December was down 2.5 cents at $3.5425.
China announced plans to increase ethanol usage to E-10 in its markets by 2020. As many as 10 new ethanol plants are planned for the northeastern corn producing provinces. The plan looks to clean up air quality and increase internal demand for corn. This announcement was enough to spark corn contracts in Sept. 13 trade but enough selling pressure came in to keep contracts in check.
Ethanol production for the week ending Sept. 8 averaged 1.047 million barrels per day. This is down 1.23 percent from last week and down 4.28 percent from last year. Stocks as of Sept. 8 were 21.132 million barrels. This was up 0.8 percent from last week and up 4.58 percent from last year. Corn used in last week's production was 109.94 million bushels. Corn needs to average 104.776 million bushels per week to meet USDA's estimate of 5.475 billion bushels.
Soybeans closed double digits higher for two consecutive days midweek as commercial buying came into play as traders and end users continue to digest the bearish USDA numbers. The USDA also announced new soybean sales for five consecutive days on the daily wire, which provided support. As of Thursday's close, November 2017 soybeans were up 12 cents and January soybeans were up 12.25 cents.
It has been a long time since the USDA has given farmers some news to give them relief from lower prices. This report had the same theme as the past reports. The USDA is predicting that big crops get bigger.
The USDA went against the average analyst's lower yield estimates and raised the soybean yield 0.5 bushels to 49.9 bushels per acre. If realized, this would put soybean production at a new record of 4.431 billion bushels, which is up 50 million bushels from the August estimates. The USDA left 2017-18 ending stocks the same at 475 million bushels after shifting demand and beginning ending stock numbers.
There is not much belief by farmers in the yield numbers the USDA provided, and nobody will get a clear picture what is actually out there until we get to the last half of the U.S. harvest. The type of variability we have seen in the weather this year is definitely causing uncertainty in this year's crop. Different areas 30 miles from each other are showing polar opposite crop conditions. Some analysts do not agree with some of the "I" states yields that the USDA left unchanged or raised, considering the wet spring they had. But early yields have not been disappointing so far in the south.
The Dakotas saw a bump of two to four bushels per acre compared to the August report because of timely rains. Many of these crops were on the brink of disaster and held on longer than many thought they would in the drought conditions. Are genetics and farming practices getting that much better that we don't need perfect weather to get optimum yields?
It is hard to look at these global numbers and get excited about seeing a higher ceiling this winter than we saw this summer. Realistically it will come down to the question of if demand will continue to grow every year and how South America's growing season is. Global production numbers for 2017-18 increased 1.08 million metric tons from last month to 348.44 million metric tons (12.8 billion bushels). 2017-18 global ending stocks declined slightly to 97.53 million metric tons (3.58 billion bushels).
The focus will turn back to early U.S. harvested yields. We will start seeing combines in the Midwest rolling in a couple of weeks. The trade will also start paying attention to South American weather as it starts the 2017-18 planting season. Parts of Argentina are too wet while Brazil is in their seasonal dry pattern, although it is a little early for them to be concerned yet.
Soybeans broke through $9.505 for resistance; after that $9.80 is both chart support and the 200 day-moving average. Soybeans have not been able to break through this resistance the past few tries. The pre-August report highs of $9.88 November futures last resistance before $10.00.
November 2017 support is $9.58 and then $9.20 is support before we get to the recent lows of $9.07 we saw on June 23.
For the week ending September 14, November canola futures in Winnipeg were down $1.10 Canadian at $488.6 Canadian per metric ton. The Canadian dollar traded around .8200. This brings the U.S. price to $18.18 per hundredweight.
• Velva, N.D., $17.43 per hundredweight, October $17.06 per hundredweight.
• Enderlin, N.D., $17.99 per hundredweight, October $18.07 per hundredweight.
• Hallock, Minn., $17.36 per hundredweight, October $17.63 per hundredweight.
• Fargo, N.D., $17.85 per hundredweight, October $18.05 per hundredweight.
Canola prices continue to chop around as harvest is ongoing. Cooler and wetter conditions across most of western Canada are causing harvest delays in some areas, which is giving this market underlying support. However, the forecasts look more favorable going into next week, which is keeping upside limited.
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 $6.75 in Berthold and at $7 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.45. October-November were at $16.70. For the week ending Sept. 14, soybean oil was up 12 cents at $34.85 in the October contract.