While the focus going into Thursday’s March WASDE report was all about South America, the attention quickly turned to the American balance sheet for the remainder of the week.
Speculators sold off their positions in most crops as prices fell hard on the Friday. Based on the reaction from social media and conversations with many FarmLead users, there were a lot of frustrated farmers who were still holding out for better prices when soybean speculators took their profits and ran.
In the WASDE, U.S. ending stocks came in at 555 million bushels, which was 25.6 million bushels higher than trade estimates and 25 million more than February’s WASDE. More notably, if realized, this would be the second-largest carryout ever, and an 80% jump year-over-year. This has been the bigger story that the market is focusing on compared to the decrease in production estimates in Argentina. Most fo the private market is forecasting somewhere between 39-42 million tonnes. This is well below the 47 million-tonne number that the USDA put out in the March WASDE last week. That being said, check out the chart of canola and soybean prices back in 2008 when Argentina really saw some dry conditions.
Conversely, corn prices have been improving! The USDA said that global ending stocks came in at 199.2 MMT. That figure is about a 3.9 MMT decline from the February estimate of 203.1 MMT, and thus slightly bullish. There was also a bullish cut in U.S. corn inventories: US ending stocks figure was felled to 2.127 billion bushels. That figure is down 225 million bushels (or about 10%!) from the 2.352 billion-bushel estimate in February. The average trade analyst figure was 2.312 billion. This was thanks to ethanol use increasing by 50 million bushels and hiking exports by 175 million bushels to 2.225 billion bushels for the 2017/18 crop year. All in all, traders have been increasing their corn positions (see chart).
For wheat prices, the majority of headlines you’re reading are all related to the drier conditions in the US Southern Plains. The most recent US winter wheat crop ratings from the USDA show that prospects remain subdued compared to years past. Here’s a breakdown of the major hard red winter wheat-producing states, how much of the US winter wheat crop they product, their good-to-excellent rating this week, change from previous week, and change from good-to-excellent readings a year ago.
- Kansas: 48% of total US crop; 12% G/E this week; +1 from last week; and -28 year-over-year;
- Oklahoma: 13%, 7% G/E; +1; and -35; and
- Texas: 9%; 13% G/E; +3, and -22.
It’s easy to get bullish about these numbers but keep in mind, this is low protein wheat, and there is a lot of wheat still available in the US (over 1 Billion bushels) and around the world (a record 268 million tonnes). Thus, expecting hard red spring wheat prices to go to the moon is not really a healthy strategy.
At this point, the direction of grain prices will likely come down to psychology. The market could interpret some rains in the forecast for Argentina’s corn and soybean crops as bearish but what’s done is done. Put another way, there doesn’t seem to be a lot of yield salvation for even the later-seeded fields. For North America, the conditions in the US are still a bit dry but the recent dump of snow we got has grain buyers and farmers alike feeling less concerned about soil moisture for the 2018/19 crop.
Brennan Turner is the President & CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Turner was named to Fast Company’s List of Most Creative People in Business. He is originally from Foam Lake, Sask. where his family started farming land nearly 100 years ago (and still do to this day).