WASDE hangover for commodity values
The much-anticipated August WASDE report saw the USDA raise its projections for US corn production when trade analysts had expected a reduction – the trade consensus was that the July WASDE had underestimated the damage caused by the wet spring across much of the US mid-west that delayed spring crop plantings. But the USDA has reduced its soybean forecasts.
Markets reacted to the higher production forecasts by sharply downgrading corn and wheat values, with soybeans also marked down. But analysts are still debating whether the USDA has called the crop areas correctly. “The corn market was flummoxed by another USDA report, leaving it right now toying with whether to dismiss the USDA’s yield estimates or to grudgingly admit that it was wrong,” said Commonwealth Bank of America’s Tobin Gorey.
The USDA August WASDE forecast a 13.9 billion bushel US corn harvest which is 26mbu up on its July estimate. But the trade had expected a downward revision of some 680mbu.
This caused a 6% fall in CBOT corn futures, with the December position closing at $3.92¾/bu, its lowest value since mid-June. The September position was trading at $3.74¼/bu in early Tuesday trading.
European corn futures followed with a €2.75 markdown in the November position and €2.25 for the Jan 20 contracts, finishing at a respective €170/tonne and €173.50/tonne.
The WASDE has projected a US corn planted area of 90.0 million acres and has also lifted its forecast yield average by 3.5bu/ac to 169.5/bu/ac – the first estimates based on surveys of crop condition on the ground, rather than historical averages.
US corn area and yields down
While the USDA area and yield figures are down on the previous year (91.7m ac and 176bu/ac), the larger production estimate, allied to historically high stocks, has sent values plunging. The WASDE forecasts a 2019-20 season corn carryout figure of 2.18bn bu, which is some 500m bu above trade estimates.
“The analysts’ average estimate before the report was about 165 bushels,” said Mr Gorey. “4½ sounds like a small number but when it’s multiplied by a much larger number of acres it turns into an extra 19m tonnes of US corn - or, more than 1½% of global coarse grain production. Getting rid of that extra corn takes a lot more chewing, distilling and shipping than the market was expecting.”
Despite an expected fall in European production this year, after dry conditions in the growing season, Agritel noted that Ukraine’s production is expected to be a record 36.5m tonnes. This could inventory levels increase. Therefore, prices will be set by the “spread evolution between wheat and corn that will drive the distribution between the two cereals in the feed animal sector”.
“The USDA’s estimates have not moved prospective supply conditions from neutral to easy, just somewhat less neutral,” summarised Mr Gorey. “Nonetheless, we do expect prices to fall some more.”
The WASDE’s increase in the 2019-20 wheat carryout, at 1.01bn bushels was 14m bu higher than July’s figure and also above analyst projections. This figure allows for additional corn feeding with cheaper stocks eating into the feed wheat market.
The Chicago September wheat contract fell 5.4% to $4.71¾/bu and the Kansas City HRW September position down 5.9% to $3.92¼/bu, which marks a three-month low. Early Tuesday trades were running at $4.71¼ /bu.
EU wheat follows CBOT down…
The Euronext September and December contracts both lost €3.25 to close at €167.25/tonne and €172.50/tonne.
The WASDE lifted its estimate of corn use in domestic feed rations next year by 20m bu to 170m bu, the highest for six years. But this was offset by better US wheat export prospects it raised US exports by 25m bu to 0.96bn bu, the highest for three years, with reduced competition from the EU and Black Sea origins.
The August WASDE has reduced its 2019 US soybean production estimate to 3.68bn bushels, which would be the smallest harvest for six years This is a 165m bu reduction on the July figure, and is below the 3.80bn bu analyst consensus.
The lower figure is in line with a 3.3m acres cut in the planted area forecast to 76.7m acres - which would be the smallest for eight years. While the USDA has not lowered its yield estimate, as was expected, it has lifted its 2018/19 ending stocks with main exporters “due to a lesser export activity including toward China,” stated Agritel.
But soya values fell on the day – the CBOT November contract was 1.5% lower at $8.79¼/bu, with the fall constrained by a lower than expected closing stock estimate. Tuesday’s nearby contract saw opening business around $8.62¼ /bu.
…as does EU canola
EU oilseed rape futures also fell – November by €0.75 to €373.5/tonne and Feb 20 by €1.25 to €374.25/tonne. “The steadiness of veg oil prices is bringing a supportive element, even if the rapeseed got back to test its technical support area,” said Agritel.
ICE Canola prices were 0.4% down to Can$452/tonne for November and by 0.3% to Can$461/tonne for Jan 2020, a “modest fall, a sympathy move perhaps to comfort a sharp decline in US soybean prices”, said Mr Gorey.
“The USDA’s updated soybean estimates were not nasty – indeed they were perhaps market‑friendly on a standalone basis. But it is hard to for the bean market to remain unmoved by the carnage in corn,” Mr Gorey concluded. “The problem is that the trade tiff with China means your biggest customer ain’t buying for now.”