Bearish Supply/Demand Report – August 14, 2017

August 14, 2017

Bearish Supply/Demand Report

USDA has a way of putting the hammer down, and boy did they have a doozie with this Supply/Demand report. Eye-popping bearish numbers for all of the grains created a wave of selling across the complex. Apparently, dryness in the northern plains and western Midwest was offset by better weather and stellar corn and soybean yield estimates from the south and east US.

 

For all wheat, USDA estimated average national yield at 45.6 bu/acre, down 7 from last year. Winter wheat yield was raised .3 to 50.0, the increase coming from soft red. Spring wheat yield was down 2.0 to 38.3, down 9 from last year. Montana spring wheat yield was 22.0, down 14 from last year; North Dakota spring wheat yield was pegged at 36.0, down 10 from last year.

 

Spring wheat production was estimated at 402.5 million bushels, 12 million above the estimate. Durum was pegged at 50.5 million, 6 million below the estimate. All wheat production is estimated at 1.739 billion bushels, 26 million higher than the estimate but down 21 million from last month and down a hefty 571 million from last year (a drop of 24%).

 

World wheat production was up 6 MMT with ending stocks up 4 MMT. Most of the increase was from a 8 MMT bump out of the Black Sea, with most of that from Russia who will see another record crop this year.

 

The numbers for corn and soybeans were even more bearish. Corn yield at 169.5 bu/acre was about 3.5 bu/acre higher than expected, with the key states of IA, IL, MN, NE, MO all getting higher yield estimates than anticipated. Total corn production was pegged at 14.153 billion bushels, 300 million higher than the estimate; ending stocks were 2.273 billion, 273 million higher than expected.

 

Soybean yields were 2.0 bu/acre higher than expected at 49.4 bu/acre. Total production was pegged at 4.381 billion bushels, 180 million higher than estimated; ending stocks were 475 million, 51 higher than the average trade estimate.

 

As the Northern Hemisphere growing season draws to a close, the market will focus on the Southern Hemisphere. Australia appears to be the trouble spot so far, with precip lacking in most of the country. Planting conditions were poor and it is expected that acreage will be down as a result.

 

The Australian wheat crop was off to a poor start but recent rains in Western Australia and the southeast region of the country, Victoria and southern New South Wales, will be huge in helping the crop recover. The continuing dry region of northern New South Wales and Queensland are taking a bigger toll. Moisture during August sets the stage for the rapid growth and reproductive stages during September. So far, most of the country is still behind for normal moisture, but especially so for the highly productive east/central region.

 

Argentina, on the other hand, has had a near normal start to their season and production prospects are holding up so far. Their crop development will get aggressive in September and adequate moisture should be available to get the crop going as it breaks dormancy.

 

Price action for the grain complex has seen quite a deflation from just a month ago as weather conditions in the Midwest turned on a dime. Wheat production was still a disaster, but corn and beans barely dodged a major disaster themselves. I expect we will see seasonal lows for wheat before the end of August, when markets will look toward Australia and Argentina production prospects.

 

Prices will likely find general support at the spring lows, just slightly below where we are now. That said, the improving corn crop and the huge wheat crop coming out of Russia will likely keep prices in check throughout the marketing year. So, it looks like we are headed for another trading range year with the lows probably being carved out within a couple of weeks.

 

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