WASDE fails to move markets off lower path

The USDA’s supply and demand report failed to offer any insights into a market illuminated only by a Chinese lantern

The world’s grains and oilseeds markets seem solidly stuck in sideways, with the only light forward coming from the fragile glow of a Chinese lantern.

World Agricultural Supply and Demand Estimates by the United States Department of Agriculture cast little more illumination on where prices might be headed, other than more of the same. The American furlough that put the USDA’s reporting on hold this winter didn’t hide any surprises when the February report came out, and despite some farmers’ and traders’ hopes, the March report didn’t announce any new uses for the crops or any smaller supplies.

From its delayed or furloughed ending stocks estimate in February wheat rose three million tonnes, to 270.53, corn was down slightly more than one million tonnes to 308.53, while soybeans rose slightly, to 107.17 from 106.72.

Brennan Turner, chief executive officer of grain marketing service Farmlead said in his post-WASDE analysis for customers that despite the bearish position the grain markets have been in, some increased inventory estimates weren’t enough to push the market much lower because there is little room to move on that side in most cases.

“For me, corn markets saw the most surprising changes. U.S 2018-19 ending stocks were raised 100 million bushels thanks to exports being reduced by 75 million bu. and ethanol demand by 25 million bu.,” he said.

This happened despite American corn exports running almost 40 percent higher on a year-over-year basis.

When the U.S. and China are removed from the calculation of days of supply for corn globally, USDA estimates it is about 39. That is similar to 2011 and 2012 when record prices were being paid for the crop. However, at that time, when Chinese and American inventories were added, the global supply was 50 to 60 days. At this point, it is about 100 days, down from 115 to 120 over the past three years, but still a third greater than in 2012, on the heels of a severe American drought.

Because of this, and a few other factors, economist Arlan Suderman of INTL-FCStone feels corn might be the best prospects for price in the coming year.

“These supplies, outside the U.S. and China, are at just in time levels. The charts are bearish and the markets are building up big short positions at planting time, when they tend to build in some risk. For now, it’s bearish and no one is willing to step in front of this train yet,” said Suderman.

The USDA projects that, if China stays on track with its current production and use of corn, it will run out of inventories in about two years. Demand inside China is exceeding production by 47 million tonnes annually. In addition to falling inventories, the Ukraine is expected to decrease its corn area this year, cutting its exports.

“Producers might want to keep their options open for some upside-pricing (in corn) in the next year, said Suderman.

If China were to come into the U.S. market with a large purchase, as the U.S. Agriculture Secretary has said there might be, new-crop corn prices could be as high as US$6.85 per bu., said Suderman. However, that is his most bullish estimate. His most bearish shows a $4.35 per bu. price.

Without a large Chinese deal he projects a potential high of $5.45 per bu. and a low of $3.70. However his feeling is that without a deal, $4.85 per bu. is likely, and with one $6.15. Old crop will hover in the mid-$4.50 area with a deal and at about $3.63 per bu. without.

When it comes to predictions for soybeans, Suderman said he isn’t going to price them because there is no cash price history at these supply levels.

Winter wheat stocks are higher than expected, at 1.05 billion bushels and Suderman suggests the only wheat upside could be for hard red spring wheat, if the Northern Plains shift acres to soybeans due to cold, wet conditions and still reasonable returns for soybeans versus wheat.

When it comes to wheat, Turner too wasn’t optimistic.

“Despite the WASDE report being mostly categorized as bearish, and given the short position that speculators have been building up, it didn’t seem like there was much room to go lower,” said Turner.

Another bearish move for wheat, including the March WASDE was a 1.4 million tonne shift from wheat to rice by Indian consumers.

Turner suggested to his clients that often the best marketing opportunities in the past five years for corn have been short-lived and producers should plan accordingly.

Suderman suggested that farmers look to the skies to deliver the next round of markets news as the Northern Hemisphere’s growing season will be the next big factor, along with potentially a new Sino-American deal.

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