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The grains had much to process as we closed out September. Not only did the U.S. Department of Agriculture release two important market moving reports (Small Grains Summary and Quarterly Grain Stocks), but Sept. 30 also brought us end of month and end of third quarter position squaring. On the bright side and to everyone’s surprise, Congress was functioning enough to at least kick the can down the road by passing a continuing resolution to fund the government through Dec. 3.
On Sept. 30, USDA did release a few important reports that were expected to give the market direction. The Small Grains summary report was friendly wheat, as production was cut more than expected. All wheat production was estimated at 1.646 billion bushels, 34 million bushels lower than expected by the trade and 51 million bushels lower than the previous estimate. All winter wheat production was estimated at 1.277 billion bushels, 44 million bushels below expectations and 42 million bushels below the previous estimate. Other spring wheat production was estimated at 331 million bushels, 4 million bushels above expectations but 12 million bushels below the previous estimate. The trade was not expecting to see a reduction in winter wheat production.
Other spring wheat saw planted acreage decrease 160,000 acres, harvested acreage drop 1.05 million acres, and yield increase 2 bushels. North Dakota saw the biggest drop in acreage with planted acreage dropping 450,000 acres to 5.5 million and harvested acres dropping 540,000 acres to 5.2 million.
The report did what was expected. It showed a sharp increase in spring wheat abandonment by decreasing harvested acreage by 1.05 million acres. This brought the harvested acreage to 89% from the previous estimate of 97%, or in other words abandonment went from only 3% of planted acres to 11% of planted acres. And as is always the case when abandonment increases, yield also increases.
The decrease in production spilled over to cut stocks enough to make the Quarterly Grain Stocks estimate friendly wheat as well. Stocks were estimated at 1.78 billion bushels, 72 million bushels below expectations and 378 million bushels below last year, a decline of 18% year over year. With stocks being trimmed 72 million bushels and only 34 million of that coming from a lower production estimate, USDA will likely increase some demand source for wheat by 38 million bushels.
The Quarterly Grain Stocks was neutral corn. The stocks estimate was negative putting stocks at 1.237 billion bushels, 82 million bushels above expectations but 682 million bushels below last year, a cut of 36% year over year. But what was friendly was USDA trimming 2020 production. USDA reduced corn’s 2020 planted acreage 167,000 acres to 90.82 million, cut harvested acreage 154,000 acres, putting harvested acreage at 82.47 million, and cut yield 0.6 bushels to 171.4 bushels. The net result was a 71 million bushel cut in production, 62 million bushels more than expected. It is likely corn demand will decrease in the October report. Thoughts are USDA will lower feed demand 120 million bushels.
The soybean estimate was the shocker of the day. The Stocks estimate put soybeans stocks at 256 million bushels, 82 million bushels above expectations but 269 million bushels below last year’s estimate, a 51% decline. USDA increased soybeans’ 2020 production, which is what lead to the increase in stocks. Soybean planted acreage was increased 270,000 acres to 83.08 million, harvested acreage was increased 285,000 acres to 82.32 million, and yield was increased 0.8 bushels to 50.2 bushels. This put 2020 soybean production at 4.14 billion bushels, 80 million bushels above expectations and 81 million bushels above the previous estimate.
So now with the reports out of the way the market has to figure out where to go from here. Technically wheat had a good day Thursday as did corn as both remained in the upper end of their trading ranges. Soybeans on the other hand dropped from the upper end of its range to the low end and is actually testing support.
To add to the uncertainty in the soybean market, U.S./China tensions are starting to increase again as the administration starts to talk of possible actions against China for not following through with the requirements of the phase one trade deal. Rumors has the administration looking at reimplementing tariffs. China remains on holiday this week, so there has been no response from China.
China has been visibility absent from the U.S. soybean market this year. Soybean exports are holding their own but well off of last year’s record-breaking pace. It does not help that China has closed over 50% of the soybean crush plants in the northern regions of the country in an attempt to conserve power. It seems China is more likely attempting to clean up their country ahead of the summer Olympics. This was the same scenario that played out when China hosted the winter Olympics a few years back. They shut down a lot of factories to improve the air quality.
Wheat is trying to test their recent contract highs with most of the activity centered around tight world supplies and production uncertainty. Supplies remain tight and appear to be getting tighter as Russia is looking at trimming planted acreage by 500,000 to 1 million hectares due to dry conditions. Planting progress continues to move forward in the U.S. as 47% of the nation’s winter wheat crop is now in the ground, 3% less than expected. Rain is in the forecast for the Southern Plains, which should help aid in emergence and crop improvement.
Corn is playing a follower to wheat. Harvest progress continues to advance. As of Oct. 3, harvest progress was estimated at 29%, 2% above expectations. This is adding a little pressure to corn, but production concerns continue to limit the selling pressure as yields continue to be variable enough that no trend has been established. Corn seems to be stuck between the stronger wheat complex and lower soybean market. Look for corn to continue to trade choppy, at least until harvest reaches 50%.
Soybeans took a good hit the past few sessions, pushing soybeans under major support. Another close below $12.40 in the November contract could open the soybean complex up to test the $11.85 level. With China out of the market for another week due to holiday and reports that Brazil has started to plant soybeans, and with rain in the forecast for Brazil next week, it appears that soybeans seem content in taking the path of least resistance. Seasonally soybeans form a bottom the first week of October, let’s see if that theory holds.
Bean oil and cotton have grabbed a lot of the attention of traders and news services, as both posted solid gains the past few days. Cotton closed limit up for two straight sessions. World vegetable oil production has been sharply reduced and stocks are at decade low levels. This will help keep a floor under soybean but the technical picture for soybeans and rapid harvest progress will all try and keep soybeans humble. The real problem for soybeans is a lack of Chinese buying and rumors that the U.S. Trade office is going to step up pressure on China for not completing the terms of the phase one trade deal.
Wheat and corn are both in uptrends but are both in an overbought conditions and in need of a correction. Corn harvest continues to advance at a good clip, but, unlike soybeans, corn has not seen any more yield improvements. Rain delays in the central and eastern Corn Belt added to the support in corn. But forecasts are calling for a break in the rain, which will help get combines back into the fields. Demand has been decent for corn with Mexico buying U.S. corn this week.
Cattle closed out the last week of September on a sour note with a sloppy cash trade and declining boxed beef prices causing most of the pressure. A negative Cattle on Feed report added to the selling pressure. But cattle were finally able to find some strength the first week of October. A steady cash trade and ideas that feedlots are current (due to lower slaughter weights) helped to give cattle strength. Seasonally cattle struggle the fall due to increased marketing, but with the recent $10 decline in prices, maybe cattle are due for a recovery.
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