USDA sacks grain trade
Much of the South experienced good to heavy rains from Tropical Storm Gordon over the weekend of Sept. 8-9, which led to selling pressure to begin the week on thoughts of replenished soil moisture in the Southern Plains.
The Australian Bureau of Ag Resources reduced its estimate for wheat production by 2.8 million metric tons from a previous estimate to 19.1 million metric tons. The U.S. Department of Agriculture was at 22 million metric tons when this was announced. The French ag minister lowered wheat estimates by half a million metric tons to 34.6 million metric tons due to the heat encountered this summer.
Russian wheat exports at 9.5 million metric tons as of Aug. 30 are up 60 percent from a year ago. SovEcon raised their wheat production estimate slightly from 68.8 million metric tons to 69 million metric tons. The Russian ruble showed some signs of life late week after languishing to new contract lows in the Sept. 6-10 sessions. The recent drop in the ruble has led to a roughly $10-per-metric-ton drop in Black Sea region prices for 12.5 percent protein in the last week. Prices are now $215 per metric ton free on board.
Selling pressure continued on the week with the release of the Sept. 12 World Agricultural Supply and Demand Estimates report. U.S. wheat production of 1.88 billion bushels and new crop ending stocks of 935 million bushels were left unchanged from last month. Global ending stocks for 2018-19 were increased 3.4 million metric tons to 261.29 million metric tons. The average guess for 2018-19 world ending stocks was 257.2 million metric tons, compared to USDA's August number of 258.96 million metric tons. The increases came primarily from Russia and India, which offset losses in Australia and Canada. The Russian wheat crop was increased 3 million metric tons to 71 million metric tons. Australia was reduced 2 million metric tons and Canada 1 million metric tons. Overall, trade was anticipating a 5 million metric tons to 7 million metric tons cut in world production, so the 3.4 million metric tons increase was almost as bearish as the U.S. corn yield number.
Weekly Commodity Futures Trading Commission data showed the funds reducing their net long to 42,000 in the Chicago contract and 61,460 in the Kansas City contract. Weekly export sales were 387,600 metric tons. Total shipments plus outstanding sales of 358 million bushels are 24 percent less than a year ago. Weekly shipments of 15.8 million bushels put total shipments down 31 percent from the previous year.
I'm not sure anybody saw this month's corn production report turning out quite like this. The USDA came out with an astronomical yield of 181.3 bushels per acre this month compared to the USDA estimate of 178.4 in August and average pre-report estimates of 177.8 bushels per acre. This was a bushel and a half larger than the highest pre-report estimate of 180 bushels per acre. When the majority of the private analysts expected for yield to decrease slightly, the USDA is going off on their own again and raising yields. Corn prices crashed after this news and gave up about 15 cents after the report.
December corn futures broke through the contract lows ($3.5025) that were set on July 12 but did close a quarter cent above the old lows. New support is the lows set on Thursday of $3.4875. Now the big question is, are the lows in as the trade is digesting another bearish USDA report? If demand stays strong like it has been, the market should start factoring in those numbers more than it has the last three months.
The worst part is we have to take the USDA at their word, even if we don't agree with it. They may end up being right, but it seems early to raise the yield number that much above the previous yield record of 176.6 (last year) this early into harvest. There used to be a common-sense slow approach to estimating these crops, but the USDA has thrown that game plan out the window. Now they throw a huge number out there and see if it sticks. They got lucky last year (even though it seems like they overestimated it compared to crop ratings), so why not try it again this year before 95 percent of the combines are in the field?
U.S. crop production is estimated to be 14.827 billion bushels versus 14.604 billion bushels in the August USDA report and 320 million bushels more than pre-report average estimates. 2018-19 U.S. ending stocks are estimated at 1.774 billion bushels compared to 1.684 billion bushels in August and pre-report average estimates of 1.59 billion bushels. 2018-19 world ending stocks were lowered and are estimated at 157.03 million metric tons, up from 155.5 million metric tons in August and 3 million metric tons higher than the average trade expectation.
Soybeans yields came in close to pre-report estimates and are expected to yield 52.8 bushels per acre. Pre-report estimates were all over the board ranging from 51 to 53.8 bushels per acre. Timely rains and cool weather in August made this crop, and many areas are looking better than they were a month ago. The trade pushed November soybean futures to new 10-year lows ($8.2125) ahead of the report before seeing a small recovery after the numbers came out at 11 a.m. Soybeans were the only grain to come out of the report unscathed so far.
Production was raised to 4.693 billion bushels versus pre-report estimates of 4.659 billion bushels and 4.586 billion bushels in the August report. 2018-19 ending stock numbers are expected to be 845 million bushels versus 785 million bushels in the August report and 10 million bushels larger than pre-report estimates. The USDA raised crush 10 million bushels and kept exports the same after lowering them sharply in the August report. They lowered the 2017-18 final ending stocks (2018-19 beginning stocks) number 35 million bushels due to a 20 million bushels increase in exports and 15 million bushels increase for crush. 2018-19 world stocks were raised roughly 2.3 million metric tons from the August report to 108.26 million metric tons and larger than the pre-report estimates of 107.5 million metric tons.
Progressive Ag surveyed our Big Iron farm show attendees about when they thought a trade agreement between the U.S. and China would transpire. By far, the two most popular answers were 1) after the midterm elections in 2018 and 2) the pessimistic answer of "never." More than half of the responses showed some optimism that the two countries will come to an agreement in the next six months.
It is interesting that the majority of the farmers are still somewhat optimistic that an agreement will be reached in the short term, knowing that farmers are taking the brunt of this trade war and are the ones getting hurt with both future prices and basis levels. There are less optimistic people (35 percent of people surveyed) who don't think anything will get done until 2020 or don't think an agreement will get done on paper at all. To us, something needs to and will be done before next February because that is when South America will have their next harvest of soybeans ready for China to buy. If not, we could be looking at a long spring and summer in 2019. The only thing we know for sure is that nobody knows when this tariff war will come to an end. We only have our own personal hopes and guesses.
For the week ending Sept. 13, November canola futures were down $5.60 at $489.90 Canadian per metric ton. The Canadian dollar was up 0.0096 to 0.7691. This brings the U.S. price to $17.09 per hundredweight.
• Velva, N.D., $15.10 per hundredweight, October at. $15.31.
• Enderlin, N.D., $16.04 per hundredweight, October at $16.04.
• Hallock, Minn., $15.70 per hundredweight, October at $15.87.
• Fargo, N.D., $16.05 per hundredweight, October at $16.30.
Cash feed barley bids in Minneapolis were at $2.60, while malting barley received no quote. Berthold, N.D., bid is $2.50 and CHS Southwest New Salem, N.D., bid is $2.75.
Cash bids for milling quality durum are $4.75 in Berthold and at $4.85 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.30, with October at $17.30.
For the week ending Sept. 13, soybean oil was down 53 cents at $27.52 on the October contract.