Bullish surprises in stocks report
The Quarterly Grain Stocks report pegs spring wheat at 600 million bushels versus 585 million bushels expected. Durum is 58 million bushels versus 56 million bushels expected.
Both winter wheats were lower than expected with soft red at 239 million bushels versus 256 million bushels expected and Kansas City at 833 million bushels versus 844 million bushels expected. Factoring in all classes, the report was considered neutral with U.S. all wheat stocks as of Sept. 1 at 1.962 million bushels versus pre-report estimates of 1.971 billion bushels. This is higher than last September stocks of 1.884 billion bushels. The big problem however, was the trade viewing the increased corn feed usage number as detrimental to wheat feed usage, putting pressure on wheat contracts the entire week.
Weekly export sales were within low expectations of 329,000 metric tons (12.2 million bushels). Commitments now total 474 million bushels up 14% from last year. The wheat export pace has slowed considerably in the last five weeks after running 25% ahead of pace in early August. Interestingly, the U.S. Department of Agriculture reported a 130,000 metric tons of white wheat to China for 2019-20. Weekly inspections were in line with expectations at 467,000 metric tons (17.1 million bushels). Inspections are up 23% from last year.
Spring wheat harvest is 90% complete vs. 92% expected and 99% average. Another wet week last week and this week is causing further harvest delays. Winter wheat planting is 39% complete versus 36% expected and 38% average.
A private weather forecaster shows three quarters of the Australian wheat and Canola belt dry with increasing heat in the next 10 days as wheat is in the late heading and early fill stages. There is an increasing chance of rains in the eastern third of the belt in the seven to 10 day range but it is viewed as too late to aid in filling; 16 to 30 day forecasts show rainfall potential over the western third of the wheat belt which would be a benefit to that area's wheat fill and development.
Half of Argentina wheat areas saw forecasts showing less chances of rainfall in both the six to 10 and 11 to 15 day models. The European Union and former Soviet Union show beneficial rains in the next seven days.
It appears that the Pacific Northwest was bidding more favorable freight rates while the Chicago markets were being a bit complacent assuming a large incoming spring wheat crop. The Pacific Northwest could be anticipating better demand for spring wheat into the Asian markets as a result of continued dryness in Australia. The eastern markets are going to have to improve their bids, otherwise the Pacific Northwest will get all the spring wheat in this area by default. I would view this recent development as friendly for good basis opportunities through the winter and the spring. We didn't really see much of a basis improvement last winter as we typically do for spring wheat. The weather situation this fall totally changes that narrative. The Canadians are also fighting snow on standing wheat, so the best thing for now is to store and wait.
For the week ending Oct. 3, December contracts for Minneapolis wheat were down 17.5 cents at $5.295, up 1.5 cents at $4.8875 for Chicago wheat, and down 1.75 cents at $4.0575 for Kansas City wheat.
The Sept. 30 quarterly stocks report was considered bullish as corn stocks came in 322 million bushels below average trade expectations. USDA states that the U.S. has 2.114 billion bushels of stocks on hand as of Sept. 1 compared to pre-report estimates of 2.436 billion bushels. This was the largest decline in the September stocks report since the 2012 drought. They were off 125 million bushels then.
June to August 2019 disappearance is 3.09 billion bushels compared to 3.16 billion bushels last year. So disappearance was less than last year, yet stocks went up. The "leftover" is always figured as implied feed demand. So did the U.S. feed 1.142 billion bushels of corn in the last quarter vs. 706 million bushels for the same quarter last year? That seems like a stretch. But traders trade the information the USDA provides and the sentiment was more corn feed usage means less feed wheat usage which cast an overall negative on the wheat complex for the week.
Back in 2017, I made the comment that USDA undercounted the large 2016 crop as stocks toward the last quarter kept piling up. It seems that the role is reversed and USDA overcounted the 2018 crop by as much as 3.0 bushels per acre. In any event, we will take some positive news out of USDA for a change. The bigger issue is that if USDA overcounted a relatively good production season in 2018, what kind of confidence will the trade have in the October yield estimates of a challenging 2019 weather season that will be released next week?
Export pace remains dismal. Weekly corn export sales were 563,000 metric tons (22.1 million bushels) which was in line with low expectations. Total commitments of 382 million bushels are down 51% from last year. Weekly inspections were at the bottom end of expectations at 400,000 metric tons (15.7 million bushels). Inspections are running 66% below last year's pace. This extremely poor export pace reiterates my thought that we had to have had a smaller crop last year.
An article from Bloomberg stated that the White House has agreed on a plan to offset previous small refinery exemptions. According to the article, the Environmental Protection Agency will use a three-year rolling average of exemptions and factor that in to new annual biofuel quotas. The EPA is legally required to finalize 2020 blending quotas by Nov. 30 so time is short if this is in fact going to be implemented. The article also stated that the administration rejected a proposal by the oil lobby to place a cap on RIN (renewable identification numbers) prices. RIN prices jumped 12% on the announcement to 19 cents, which is the largest one day gain since September 2016.
Weekly ethanol production was 6.706 million barrels, up 1.6% from last week's 3½ year low but down 5.62% from last year's same week level. Despite the slowdown in production vs. last year, ethanol stocks rose to 23.219 million barrels, the second highest on record for late September. U.S. calendar year gasoline demand is running 0.2% less than last year.
Corn conditions remained unchanged at 57% good to excellent. Corn is 11% harvested compared to 14% expected and 19% for the five-year average. In looking at the charts, the next upside target would be between $3.96 and $4.02 December.
The northern Corn Belt shows a risk of frost for Oct. 11 stretching down into northern Illinois.
The USDA gave the trade a bullish surprise as they revised last years production numbers down lower than expected. Soybean futures were seeing some strength going into the report on Sept. 30 but pushed even higher after the quarterly stocks report came out at 11 a.m. The USDA gave us a bullish surprise, but the problem is they did it a year too late and limited top end pricing opportunities and lowered the floor for last year's crop. The USDA will update the 2019 crop and ending stocks in the WASDE report on Oct. 10.
Warming weather this coming week may get the combines rolling and then we can see how the yields will fare this year. Early reports are farmers are more disappointed in their soybean yields than corn yields, but this is based on limited data. China has bought more than 2.1 million metric tons of the expected 6 million metric tons of U.S. soybeans since resuming purchases in early September, according to USDA data. It is a good start, but this is still well behind the pace that China was buying soybeans before the trade war started.
The USDA on Sept. 30 said soybean stocks as of Sept. 1 was at 913 million bushels, well less than the pre-report estimates of 982 million bushels and 92 million bushels less than the 1.005 billion bushels in the Sept. 12 WASDE report for 2018-19. This was up 108% from the stocks number for Sept. 1, 2018.
In this report, 2018 soybean production was revised down 116 million bushels from the previous estimate to 4.428 billion bushels. Pre-report estimates were at 4.528 billion bushels vs 4.544 billion bushels in the last update. 2018 planted area is revised to 89.2 million acres, and harvested area is revised to 87.6 million acres. The 2018 yield, at 50.6 bushels per acre, is down 1 bushel from the previous estimate.
As of Sept. 30, soybeans dropping leaves was well behind pace and was at 55% vs 76% for the five-year average and 81% last year. Soybeans dropping leaves was at 34% last week. Soybeans harvested was 7% complete versus 20% for the five-year average and 22% last year.
Soybean ratings were raised 1% to 55% good to excellent compared to 68% good to excellent last year; 32% of the crop is rated fair and 13% is rated poor.
November soybeans major resistance is at $9.3125 on the weekly chart. On the daily charts, resistance is $9.365 and then the five-month high of $9.48 for new crop soybeans that was set on June 18.
Support is $8.525 that was the recent low set on August 28. The November contract low of $8.155 set on May 13 recovery is major support after this. For the week ending Oct. 3, November soybeans saw gains of 28.75 cents.
For the week ending Oct. 3, November Canola was up $13.40 to $459.20 Candian per metric ton. The Canadian dollar was at .7551. This brings the U.S. price to $15.46 per hundredweight in U.S. dollars.
• Velva, N.D., $14.49 per hundredweight, November at $14.70
• Enderlin, N.D., $14.25 per hundredweight
• Hallock, Minn, $14.66 per hundredweight, November at $15.17
• Fargo, N.D., $14.60/per hundredweight, November at $14.75
Cash feed barley bids in Minneapolis were at $2.50, while malting barley received no quote. Berthold, N.D., bid is $2.75 and CHS Southwest New Salem, N.D., is $3.00
Barley stocks in all positions on Sept. 1, totaled 192 million bushels, up 10% from Sept. 1, 2018.
On-farm stocks are estimated at 118 million bushels, 30% above a year ago. Off-farm stocks, at 73.1 million bushels, are 12% below September 2018. June to August indicated disappearance is 66.3 million bushels, 9% below the same period a year earlier.
Cash bids for milling quality durum are $5.75 in Berthold and at $6.00 in Dickinson, N.D.
Durum wheat stocks in all positions on Sept. 1, totaled 92.9 million bushels, up 3% from a year ago. On-farm stocks, at 54.1 million bushels, are up 4% from Sept. 1, 2018. Off-farm stocks totaled 38.8 million bushels, up 2% from a year ago. June to August indicated disappearance of 19.8 million bushels is down 14% from the same period a year earlier.
Cash sunflower bids in Fargo were at $18.60; November at $17.40.
For the week ending Oct. 3, Soybean oil was up $1.18 cents at $29.80 on the Oct. contract.
Old crop sunflower stocks in all positions on Sept. 1 totaled 286 million pounds, down 26% from a year ago. All stocks stored on farms totaled 65.7 million pounds and off-farm stocks totaled 220 million pounds.
Stocks of oil type sunflower seed are 216 million pounds; of this total, 60.8 million pounds are on-farm stocks and 155 million pounds are off-farm stocks. Non-oil sunflower stocks totaled 70.4 million pounds, with 4.92 million pounds stored on the farm and 65.4 million pounds stored off the farm.