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USDA report perplexes

We are not to new crop estimates from the U.S. Department of Agriculture yet and the fall-harvested crops are known. So the monthly World Agricultural Supply and Demand Estimates (WASDE) Reports from the USDA in the winter tend to be more focused on demand and production in South America. The March report was released on March 8 and while some changes made sense given recent market trends, there were a few estimates that made us scratch our heads.

For context, the corn balance sheet was tightened up with greater demand estimates for exports and ethanol production. This one makes sense, as sales abroad from the U.S. have been good in recent weeks given the expectation for a dropoff in production from Argentina. For ethanol, even if any changes are made to the Renewable Fuels Standard mandates due to recent discussions in Washington, these changes would likely not impact the 2017-18 crop year.

So for soybeans, Argentina's production loss (now down to 47 million metric tons from 54 million in the February report) should lead to higher U.S. exports, right? Wrong; exports from the U.S. are 35 million bushels lower than the February estimate. Well the next argument is that Argentina tends to export more product than soybeans alone, so surely exports of soybean oil from the U.S. would be higher, right? Wrong again; export demand was unchanged from February. In fact, soybean oil stocks increased significantly with greater production and a 300 million pound drop in biodiesel demand.

And for all the noise in the U.S. wheat markets, one would expect a sizeable drop off in export demand. But only 25 million bushels were cut from exports, so stocks were not up a huge amount for U.S. wheat from the February WASDE report.

All this does is point more to the Prospective Plantings Report that will be released at the end of the month by the USDA. This report will give total farmer expectations for spring plantings. And data for this report is survey-based, not reliant on trend analysis or market expectations. Look for the markets to position themselves ahead of that report based on pre-report estimates released by a variety of analysts.

Wheat

Minneapolis wheat futures have stayed fairly steady despite ongoing strength for Chicago and Kansas City contracts. Drought is still an issue for the U.S. winter wheat crop, and with spring just days away, time is basically up in terms of avoiding major crop impact of the lack of rain. Through the winter, the dormant crop can deal with a lack of soil moisture. But as temperatures rise in the spring, good precipitation is required to climb back from poor winter conditions in order to avoid eventual production losses. With little rain in the forecast through the next couple of weeks, do not expect that to happen. Large U.S. stocks will cushion the production drop, but the balance sheet will notice the drop. But for Minneapolis futures, a healthy premium was already in place above the Kansas City and Chicago markets. Therefore, the recent rally in the latter has not been much of a support for Minneapolis contracts; the premium has simply eroded.

Durum

Durum prices have been steady for several weeks. The market is waiting for spring, and will be watching for planting conditions.

Canola

Canola prices had climbed for 11 consecutive sessions due largely to support from the soybean oil market. While demand has been good, there has not been much canola-specific information in the news to drive prices. The two-week run was based more on the higher outside fats markets as Argentina's crops continue to struggle. The last few days have seen prices fall, again without any canola-specific news. The turn suggests that buying interest has waned, and a small correction is taking place.

Peas and lentils

Again, India is dominating the pulse market's attention. India increased import duties on desi chickpeas from 40 percent to 60 percent last week. There have been major fears that a similar increase would be announced for lentils and other pulses. Though this has not come to pass, record pulse production in India would suggest the government would step in and try to limit imports to keep with their charge of supporting local farmers.

Mustard

Mustard seed spot markets have backed off in recent weeks, but only modestly. Despite the recent weakness, planted area in Canada is still expected to increase this spring. Total area in 2017 was 385,000 hectares, and should rise to over 550,000 hectares in 2018.

Barley

The U.S. barley estimates from the USDA in the March WASDE were mostly unchanged from February. One small change was an increase in export demand totaling one million bushels. A corresponding drop in ending stocks was also reported in the WASDE. Greater demand from China has been noted in recent months, and this is the primary destination of those increased exports.

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