Ahead of WASDE, Grains Take Bullish Break

March 6th, 2018


Category: Grains, Oilseeds

(Farm Lead) –  Grain prices this morning are barely in the red as the complex pulls back from yesterday’s gains, despite a weaker US Dollar.

The rest of the broader market is in the green, with most commodity and equities all showing gains this morning. WTI oil is sitting above $63 USD /barrel while Brent crude is above $66, given a hint of a return to levels seen in January.

Despite the cautious tone earlier in the day in grain markets yesterday saw bullish activity pick up towards the end of the trading session. Garrett noted yesterday afternoon in the daily Grain Markets Today that wheat prices were again the leader. Some rains have been falling in the Southern Plains with a bit more in the forecast over the weekend, but generally speaking, it remains dry.

The USDA’s daily market recap noted yesterday afternoon that, “with wheat prices now higher and the rest of the world flush with supplies, U.S. exports have become a difficult sell.” I mentioned in yesterday’s Breakfast Brief though that they’re the best performing of the big three crops, tracking only 6% behind last year’s pace at this time.

We might get a better understanding of what the USDA is thinking in their March WASDE report out on Thursday, but my guess is that there will be some volatility over the next 48 to 72 hours.

Grain Prices Pressured by the Land Down Undaa?

Yesterday, ABARES (the Aussie version of the USDA) came out with its first estimate of the 2018/19 crop in AustraliaMore sorghum, oats, and barley are expected to get planted as pulses fall out of favor on Australian paddocks (their word for fields). Barley production is expected to climb slightly year-over-year to 9 million tonnes. Sorghum will see the most notable jump, with acreage climbing 38% year-over-year from 1.11 million acres to 1.53 million.

Expectations for the 2018/19 wheat crop were pegged at 23.7 million tonnes, which would be nearly a 12% jump from this year’s drought-riddled harvest of 21.2 million tonnes. A return to more normalized yields is the big reason for the increase, but acreage is also seen up a bit.

The thesis is shared with canola as ABARES is pegging the Aussie 2018/19 canola crop at 4 million tonnes, versus the 3.7 million tonnes taken off in 2017/18. Winter-seed canola – which will start going into the ground in about a month – is expected to climb by about 300,000 acres to 7.3 million. This is a six-year high.

As mentioned, with India’s import taxes in place on lentils, peas and chickpeas, interest in growing them is dropping like a baby giraffe falling out of the womb. Specifically, Aussie chickpeas acreage is expected to drop by 26% year-over-year to a four-year low of 1.88 million acres.

Is China the New Wheat King?

With the drier conditions, we know that the protein content of the Australian wheat crop is one of the best. Despite this, we see market share for this higher quality Australian wheat be snapped up (but so is the lower quality Australian wheat). Thus, ABARES is forecasting Aussie wheat exports in 2018/19 to fall to a three-year low, down 540,000 year-over-year.

Of note in ABARES’ forecasts are the expectations for China to hold almost half of all of the wheat in the world in the next five years. Globally, they’re forecasting that wheat’s stocks-to-use ratio will stay above 30%, but this might be false advertising.

If China were to hold half of the world’s wheat, how much of it would be readily available for the world market? Not much. And how much wheat would they import? Again, not much at a couple of million tonnes, and nowhere near Indonesia’s interest in both high protein wheat and low protein wheat So it’s not super relevant to the world (much is the case in terms of China’s impact on the corn market, at least for now…we know that China’s ethanol mandate is coming).

Conversely, ABARES is forecasting that the stocks-to-use ratio of major wheat exporters will start to decline over the next three years or so. I would agree with this, as wheat production should pull back a bit thanks to the lower prices. Higher domestic consumption in markets Southeast Asia and MENA (the Middle East & North Africa) will also support slightly stronger demand.

Specifically, ABARES is forecasting the stocks-to-use ratio of the major players – America, Canada, the EU, Russia, Ukraine, Kazakhstan, Australia, and Argentina – to fall to 15% by 2019/20 (that’s next crop year for those who haven’t had coffee yet).

Soybean Expectations for Thursday’s WASDE

In the Grain Markets Today link above, Garrett walked through some of the estimates that the market is thinking about for this Thursday’s WASDE report. I’ll get into all the estimates in tomorrow’s Breakfast Brief, but the key one to note is South American soybean production.

In February’s WASDE resport, the USDA said that this year’s Argentine soybean come in at 54 million tonnes, a 2 million tonne from January. For Brazil, the USDA pegged the soybean crop there at 112 million tonnes, up 2 million tonnes. The market reacted rather quietly as it was a “production wash,” with Brazilian gains and Argentine losses offsetting one another.

A lot has happened in the past month, so the market holds many different expectations. Specifically, the average guesstimate of analysts is for Argentine soybean production in the March WASDE is 48.5million tonnes. For Brazil, the pre-WASDE average soybean production guesstimate is for 113.8 million tonnes.

While both notable, the clear bullish factor is Argentina. A drop of 5.5 million tonnes month-over-month is certainly interesting. But is the market already pricing this in?

Over the weekend, Garrett looked at just how high soybean prices could go, specifically as it relates to where the USDA landed with their Argentine production estimate in Thursday’s WASDE. As there is a bit of a relationship, a view on where canola prices could go has also been presented.

We’ll know for sure on Thursday at noon EST when the March WASDE is released


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