On Thursday, July 12, 2018, the USDA released its monthly WASDE report. This report stood out mainly because it gave a pretty healthy indication just how the implementation of a trade war are influencing flows of commodities around the world. While grain prices reacted a bit neutral to the report, the liquidation of grain futures boards continued into the middle of July. With more geopolitcal risk on the table than maybe ever before, many participants are heading for the exits.
For soybeans, the July WASDE report showed the market that American farmers will produce 4.31 billion bushels of soybeans in 2018. This figure is 30 million bushels higher than what the USDA reported in June 2018. Compared to the five-year average of 3.98 billion bushels, 2018/19 American soybean production is 8.2% higher.
The big surprise for American soybeans though was in the ending stocks number. Average trade expectations before the report were 471 million bushels still left in the pipeline as of the end of 2018/19. However, the USDA said there’ll be 580 million bushels available. This is up 51% from the June report and 25% more than where the 2017/18 carryout ended up!
The main thing that stood out for beans though was a big jump in global ending stocks, which is really because of the sharp drop in US exports. From a global carryout perspective, 2017/18 soybean stocks are pegged at 96 MMT. That figure is about 3.5 MMT above the average projection ahead of the report. The agency says that 2018/19 global ending stocks will come in at 98.27 MMT. This is significantly higher than the 88.15 MMT estimate among trade analysts ahead of the report and the 87 MMT seen in the last report. This is because US soybean exports were lowered by nearly 8 MMT to 55.5 MMT.
For canola/rapeseed, US production was increased, but globally, production was felled by 2.63 million tonnes in this July WASDE report from last month’s. The decline of world rapeseed production was mostly attributed to production cuts in EU (down 9% year-over-year), Canada (down 2% year-over-year), and China (down 1.4% year-over-year). Comparably, India’s 2018/19 rapeseed production is expected to increase by 11% year-over-year.
The other notable change in the July WASDE as it relates to Manitoba farmers is the jump in American spring wheat production. According to the USDA, American farmers will produce 584 million bushels of hard red spring wheat in 2018. This figure is about 52% higher than production in last year’s drought-riddled crop year (385 million bushels). Total production of all colours of spring wheat is pegged at 614 million bushels, a 48% jump from the previous year. Thus, compared to the five-year average of 498 million bushels, 2018/19 American spring wheat production is 23.2% higher.
Overall, the market continues to try to figure out where the new price equilibrium should land. Usually, this is just a function of supply and demand, with some currency risk mixed in. However, when governments start to intervene in the markets, the result is usually very negative. When this is the case, trying to understand where the market is headed becomes more difficult. And when that happens, people exit the markets because they’re more likely to lose than win. And when people sell out of their positions, the market drops. Overall, there are definitely some changing trade winds, which the USDA accounted for a bit in this report, but the question I’m asking now is might we see even more changes in the next WASDE report, out on Friday, August 10.
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).