August 12, 2016

Seasonal Lows on Crop Report?

Well, the market had nervously waited for the August supply/demand report, bracing for big numbers from USDA. And they go them. Prices reacted negatively across the grain complex – for about two hours. Then the reversals higher came for wheat and corn as trading wrapped up for the week.

 

A quick look at the numbers. USDA pegged wheat production at 2.321 billion bushels, 50 million higher than the average trade estimate. Feed usage was increased 30 million from last month to 330 million. Exports were also bumped up 25 million to 950 million, almost 100 million higher than last year. End stocks were lowered by 5 million from last month to 1.100 billion bushels.

 

World wheat numbers saw some notable adjustments. European production was lowered 9 million tons from last month, with their exports down 7 MMT. More than offsetting Europe’s drop was higher Black Sea production by 11 MMT; Russia up 7 MMT with exports up 4.5 MMT, Kazakhstan production up 2 MMT with exports up 1 MMT, and Ukraine production and exports both up 2 MMT. There were minor adjustments in the other major wheat producers.

 

The big story, however, came in corn and soybeans as both are forecast to have record yields and production, well above trade estimates. Corn yields are projected to be 175.1 bu/acre, far above trade estimates and up a whopping 7.1 bu/acre over last month; production is estimated at 15.153 billion bushels. Exports were raised for both old and new crop along with higher feed usage, leaving ending stocks at 2.4 billion bushels, up 328 million from last month and up 700 million over last year.

 

Soybeans yields were up 2.2 bu/acre to 48.9 bu/acre. Production was estimated at a monster 4.06 billion bushels, about 60 million higher than trade estimates and up 180 million more than last month. A record pace of exports pushed both old and new crop export estimates higher, leaving ending stocks for the closing market year down 95 million at 255 million, but new crop ending stocks were raised 40 million to 330 million bushels, about 15 higher than expected.

 

Click here for a summary of the crop report.

 

Prices reacted with a quick push down for wheat, corn and soybeans, but wheat and corn closed higher with beans only slightly lower. It is not unusual for crop reports to stamp highs or lows, and after the extended bear market we’ve seen over the last several weeks there is a very good chance that this bearish report created a major low.

 

Demand has been stellar for corn and soybeans, with virtually no competition from the rest of the world for the next several months. And as corn goes, so will wheat. For all of the feed wheat in the world and the brutal discounts we’ve been seeing for poor quality, if corn has bottomed then we can make the argument that wheat has bottomed as well.

 

Soybeans have basically been in just a major correction in a longer term bull market. World demand for beans has been insatiable lately, with China on a record buying spree these last few weeks.

 

So, despite massive grain production this year in the US, we are also seeing massive demand and prices should at a minimum move in a sideways pattern until we get through the row crop harvest. For wheat, it looks like seasonal lows have been confirmed with Friday’s price action, particularly after Chicago delivery receipt cancellations this week and strong bull spread action even when markets were lower.

 

I look for wheat to follow the normal seasonal pattern of trending higher into late September/early October. By then we’ll have a good idea of what the Southern Hemisphere’s crop will look like.

 

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