Yesterday WASDE report released by USDA, prompted a rally despite cuts were mostly below expectations.
Indeed, after the news that global wheat stocks are now projected at a five-year low, with an outlook for 2021-22 of lower supplies, higher consumption and an increased trade, which was added the annunced cuts to production estimates for South America’s row crops, all US farm markets closed higher in overnight trading.
Indeed, corn trended 2.29% higher.
Soybeans rose 1.64%.
Soymeal ended the session with 1.72% gains.
Soybean oil rallied 1.18% on the day.
Wheat gains ranged between 0.80% and 1.7% by the close.
Particularly, Chicago SRW futures were 0.8% higher.
KC HRW futures gained 1.72%.
Spring wheat futures went home with 1.41% gains.
In energy market, oil prices fell on this morning, the day after a rally trigghered by an unexpected drop in U.S. crude inventories of 4.8 million barrels, in the week to Feb. 4.
US crude invetories, indeed, dropped to 410.4 million barrels – their lowest for commercial inventories since October 2018, the Energy Information Administration said.
Analysts in a Reuters poll had forecast a 369,000-barrel rise.
U.S. product supplied, peaked at 21.9 million barrels per day (bpd) over the past four weeks due to strong economic activity nationwide, EIA data showed.
Also, robust demand recovery from the coronavirus pandemic has kept global oil supplies snug, with inventories at key fuel hubs globally hovering at multi-year lows.
However, investors are closely watching the outcome of U.S.-Iran nuclear talks which resumed this week.
A deal could lift U.S. sanctions on Iranian oil and ease global supply tightness.
Thus, Brent crude futures slid 28 cents, or 0.3%, to $91.27 a barrel at 07:14 GMT, while U.S. West Texas Intermediate crude was at $89.47 a barrel, down 19 cents.
In the freight market, the Baltic Exchange’s dry bulk sea freight index posted its biggest daily percentage gain since February 2021, boosted by stronger rates across vessel segments.
The overall index, which factors in rates for capesize, panamax and supramax vessels, indeed, rose 208 points, or 13.8%, to 1,711 — its highest level since Jan. 17.
Particularly, the capesize index jumped 301 points, or 25%, to 1,503, its highest level since Jan. 14.
Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, increased by $2,499 to $12,468.
The panamax index gained 182 points, or 9.2%, at 2,153.
Average daily earnings for panamaxes, which ferry 60,000-70,000 tonne coal or grain cargoes, rose by $1,637 to $19,377.
The supramax index rose 177 points to 1,911.
In equities markets, U.S. stock indexes on Wednesday settled moderately higher for a second day in a row.
Lower T-note yields Wednesday gave technology stocks a boost, as the 10-year T-note yield fell -3.0 bp to 1.933%.
Microsoft rose 2.2% and Google’s parent company, Alphabet, rose 1.6%.
Stocks extended their gains Wednesday afternoon on dovish comments from Cleveland Fed President Mester and Atlanta Fed President Bostic.
The quarterly earnings reporting season was bullish for stocks as 76% of the 317 S&P 500 companies that have reported results beat earnings estimates, with profits coming in more than 6% above projected levels.
In this context, the S&P 500 rose 1.5% to 4,587.18.
The Dow Jones Industrial Average gained 0.9% to 35,768.06 and the tech-heavy Nasdaq composite rose 2.1%, to 14,490.37.
The S&P 500 and Nasdaq 100 indexes posted 1-week highs, and the Dow Jones Industrials posted a 3-1/2 week high.
Small company stocks also notched gains.
The Russell 2000 rose 1.9% to 2,083.50.
Wall Street will get another update on this morning, on rising prices when the Labor Department releases its report on inflation for January.
Economists are forecasting that consumer prices rose 7.3%, a four-decade high.
Meantime, Asian shares mostly rose Thursday as investors are trying to gauge U.S. inflation, tensions between Russia and Ukraine and the impact of the pandemic.
Thus, Japan’s benchmark Nikkei 225 rose 0.4% to finish at 27,696.08. Australia’s S&P/ASX 200 gained 0.3% to 7,288.50.
South Korea’s Kospi added 0.1% to 2,771.93.
Hong Kong’s Hang Seng edged up 0.4% to 24,924.35, while the Shanghai Composite edged up 0.2% to 3,485.91.
On the weather side, most of the Midwest and Plains will see at least some measurable moisture between today and Sunday, per the latest 72-hour cumulative precipitation map from NOAA.
The agency’s 8-to-14-day outlook predicts seasonally wet conditions for the central U.S. will extend to February 16-22, with warmer-than-normal conditions persisting along the Northern and Central Plains.
On the demand side, meantime, ethanol production took a bearish turn for the week ending February 4 amid shrinking margins, falling to a daily average of 994,000 barrels, per data from the U.S. Energy Information Administration out this morning.
That’s the first time since early October that weekly production failed to top the 1-million-barrel-per-day benchmark.
Ahead of today’s export report from USDA, analysts think the agency will show corn sales ranging between 500,000 t and 1 million tonnes for the week ending February 3.
As for soybena, analysts expect to see soybean sales ranging between 1,15 million and 2.3 million tonnes.
Analysts also think USDA will show 200,000 to 500,000 metric tons of soymeal sales, plus 5,000 MT to 25,000 MT of soyoil sales.
As for wheat, analysts think the agency will show wheat sales ranging between 125,000 and 700,000 tonnes for the week ending February 3.
Meantime, private exporters reported yesterday sales of 240,000 metric tons of soybeans for delivery to China during the 2022/2023 marketing year.
In this context, corn basis bids were mostly steady to weak after fading 1 to 3 cents lower at four Midwestern locations.
An Ohio elevator bucked the overall trend after firming 5 cents.
Soybean basis bids were steady to slightly firm, after trending a penny higher an Illinois river terminal and 2 cents higher at an Ohio elevator.
The funds were net buyers yesterday for 15,000 lots of corn, 12,000 lots of soybeans and 4,000 lots of wheat.
From South America, farmers planting Brazil’s second corn crop are struggling to find available supplies of the herbicide Atrazine, noting that shipments are largely being delivered late.
Atrazine is the primary herbicide applied to corn in Brazil, used to kill off broadleaf weeds and volunteer soybean plants.
“The shortage of products in the Brazilian market puts the second corn crop at risk”.
Brazilian soybean growers had already struggled with delayed arrivals of the herbicide Diquat earlier this year.
Multiple Brazilian row crop farmers have struggled to manage unexpected herbicide cancellations this year as supply chain issues continue to foil the global chemical market.
Despite these problems and the water deficit in southern Brazil, the USDA has estimated the country’s maize harvest at 114 million tonnes, compared to 87 million last year.
In soybeans, the harvest for Brazil is estimated at 134 million tonnes, compared to 139 million estimated last month and 144 million in December.
In Argentina, corn production is expected at 54 million tons against 51.5 last year, while soybean production is expected at 45 million tonnes against 46.5 estimated last month.
In Europe, on Euronext, only rapeseed prices rebounded after the sharp decline at the start of the week.
Wheat, in contrast, trailed corn in negative territory, despite Chicago’s strong performance.
A rise in the euro capped Euronext, underscoring concerns about short-term European exports, although a run of shipments to Iran was boosting export sentiment in Germany.
About this, in Germany, traders highlighted more loadings for Iran, an active importer this season.
“One ship is currently loading 65,000 tonnes of wheat in Germany for Iran”.
“Two more vessels are scheduled to start loading wheat for Iran in Germany in the coming days, one 65,000 tonnes and one 67,000 tonnes.”
Shipments to Iran could give fresh impetus to Germany’s export campaign after strong sales to Algeria earlier in the seasons.
“Iran is shaping up to be a large buyer of German wheat this year, despite heavy competition for sales from Russia, and may overtake Algeria as Germany’s largest export customer in coming months”.
Meantime, financial investors trimmed their net long position in Euronext’s wheat futures and options last week, data released by the exchange on Wednesday showed.
Particularly, non-commercial participants, which include investment funds and financial institutions, dropped their net long position to 120,292 contracts from 129,801 a week earlier, the data showed.
Commercial participants similarly reduced their net short position to 130,046 contracts from 143,267 a week earlier.
Commercials’ short positions accounted for 64.1% of the total short position, while commercial long positions accounted for 42.8% of total long positions.
Non-commercial short positions represented 35.9% of total short positions, while non-commercial net long positions accounted for 57.2% of the total longs.
In Euronext’s rapeseed futures and options, non-commercial market participants cut their net long position to 2,999 contracts from 5,677 a week earlier.
Commercial participants lowered their net short position in rapeseed to 4,100 contracts from 6,349 a week earlier.
From the Black Sea basin, wheat was down US$0.50/t.
Russia’s grain export quota begins February 15th through June, and officials have granted 206 traders a share of the limited quantity.
Meantime, since the start of 2022 and as of February 6, Russia exported agricultural products at the general sum of 2.092 bln USD, down 15% y/y, informed Agroexport Center at the Ministry of Agriculture of Russia.
Particularly, Russia decreased export of grain by 49% to 508 mln USD, while the export of fat&oil products increased by 15% to 529 mln USD, products of food and processing industry up by 25% to 245 mln USD, meat and dairy products up by 19% to 96 mln USD.
The EU remained the leading importer of Russian agricultural products (17.6% in the overall structure).
It increased import of Russian products by 34% to 368 mln USD.
Supplies to Turkey (13.8%) decreased by 26% to 289 mln USD.
The export to China (11.4%) decreased by 57% 238 mln USD.
TOP-10 importers of Russian agricultural products included South Korea (8.4%), Egypt (6.9%), Ukraine (3.5%), Uzbekistan (3.3%), Pakistan (3.2%), Saudi Arabia (2.9%) and Norway (2.6%).
Meantime, according to the preliminary estimation, Russia harvested 121.4 mln tonnes of grain (in weight after processing) in 2021, down from 133.5 mln tonnes in 2020, informed Rosstat.
Wheat production totaled 76 mln tonnes (85.9 mln tonnes in 2020).
Previously, Rosstat estimated grain production at 120.7 mln tonnes, including 75.9 mln tonnes of wheat.
Barley production declined from 20.9 mln tonnes in 2020 to 18 mln tonnes in 2021, rye – from 2.4 mln tonnes to 1.7 mln tonnes, oats – from 4.1 mln tonnes to 3.8 mln tonnes, rice – from 1.142 mln tonnes to 1.076 mln tonnes.
At the same time, production of corn increased from 13.9 mln tonnes to 15.2 mln tonnes, buckwheat – from 892 thsd tonnes to 918 thsd tonnes.
Production of pulses increased from 3.4 ,;m tonnes to 3.8 mln tonnes.
Sunflower seed crop grew from 13.3 mln tonnes to 15.7 mln tonnes, sugar beet – from 33.9 mln tonnes to 41.2 mln tonnes.
On the other hand, Ukrainian grain exports have slowed over the past eight days due to unfavorable weather conditions which had disrupted shipments at Ukrainian ports.
According to data from the Ministry of Agriculture, as of February 9, weekly exports of all grains were posted at 1.37 Mt (compared to 1.76 Mt the week before) most of which concerns corn with 973 000 t exported (vs 1.3 Mt the week before).
Nevertheless, the country’s total exports are still up compared to last year with 39.89 Mt of all grains exported (vs 29.83 Mt in 2020/21). Finally, 16.62 Mt of corn have been exported since July, ie 4 Mt more than last year.
From the Middle East, Saudi Arabia’s barley imports for the first six months of Marketing Year (MY) 2021/22 is estimated at 2.36 million metric tons (MMT), a 41 percent decrease compared to the same period last year.
According to local importers, the decline in barley imports thus far for this marketing year was caused by a shortage of vessels delivering competitively priced barley as well as a decrease in overall domestic demand.
Over the past several months, numerous farmers have departed the livestock sector due to increasing costs thus lowering demand.
As a result, USDA attaché current projection for total Saudi barley imports for this MY is 5.2 MMT, down 16 percent compared to the USDA official estimate of 6.2 MMT for MY 2020/21.
From the Middle Kingdom, China has suspended imports of beef from Lithuania since Wednesday, the General Administration of Customs said, amid a growing trade spat with the Baltic nation and its Western allies centred on Chinese-claimed Taiwan.
Customs did not give a reason for the suspension.
The agency typically halt imports of meat if exporting nations report outbreaks of disease in livestock.
Lithuania has not reported any animal disease to the World Organisation for Animal Health (OIE) recently.
The move comes, however, after Britain said on Monday it will join the United States and Australia in backing an EU trade case against China at the World Trade Organization over Beijing’s alleged trade curbs on Lithuania.
Meantime, the European Commission said Lithuanian exports to China fell 91% in December compared to the same month in 2020.
From Australia, forecast remains dry still for the next eight to 10 days.
That will allow sorghum to be harvested and delivered.
While some sorghum-growing areas had more than 100 millimetres of rain on the cusp of harvest, those crops are holding at SORG1 quality, and yields continue to outperform.
Accumulation of new-crop sorghum for export has seen its market lift by a few dollars this week, but feed barley and wheat prices have softened as domestic consumers settle into their ration mix for 2022.
As exports out of Victorian ports and Port Kembla in New South Wales hit maximum capacity, the focus on milling wheat, pulses and canola cargoes has reduced the exporter appetite in the near term for feed barley and downgraded wheat.
That means domestic consumers are getting a longer look at offers from growers and the trade, and SFW wheat appears to be increasing its share in domestic rations at the expense of barley.
Meantime, IKON Commodities sees Australian wheat output reaching a record 39 MMT for the 21/22 season.
That left 25.5 MMT for their export program.
In this context, local markets were steady yesterday.
Barley was on the quiet side as bid-offer spreads remain wide through the track markets, delivered east coast values were a touch stronger
Canola values in VIC and NSW pulled back $10/t while some more interest sparked up in SA.
On the international trade scene, South Korea’s Major Feedmill Group (MFG) purchased around 68,000 tonnes of animal feed corn in an international tender which closed on Wednesday.
The corn was bought in one consignment at an estimated $341.89 a tonne c&f plus $1.75 a surcharge for additional port unloading.
Seller was said to be trading house Sierentz.
The tender had sought up to 140,000 tonnes but offers for a second consignment were rejected and no purchase made.
The consignment bought was sought for arrival in South Korea around May 18.
Shipment was sought between April 14 and May 3 if sourced from the U.S. Pacific Northwest coast, March 25-April 13 if sourced from the U.S. Gulf or Black Sea region/east Europe, March 20-April 8 from South America or March 30-April 18 if from South Africa.
Meantime, South Korean importer group KFA is believed to have rejected all offers and made no purchase in a separate tender on Wednesday to buy up to 68,000 tonnes of corn.
Jordan’s state grains buyer has issued a new international tender to purchase 120,000 tonnes of animal feed barley.
The deadline for submission of price offers in the tender is Feb. 22.
A new announcement had been expected by traders after Jordan bought 60,000 tonnes in its previous tender for 120,000 tonnes of barley on Tuesday in which three trading houses participated.
Shipment in the new tender is sought in a series of possible combinations in 60,000 tonne consignments.
Possible shipment combinations are between July 16-31, Aug. 1-15, Aug. 16-31 and Sept. 1-15.
February WASDE summary
As for corn, USDA made no domestic changes to their monthly S&D forecasts.
The 16.375 bbu supply (15.115 production, 1.235 bbu carryin, and 25 mbu import), is forecasted to have 1.540 bbu leftover after 2.425 bbu of exports, 6.750 bbu FSI (5.325 for ethanol), and 5.650 feed and residual.
The trade was looking for a lighter carryout ahead of the report.
Globally, USDA went with a 1.205 billion MT 21/22 corn production figure.
That was down 1.61 MMT from Jan.’s production, as Brazil was cut by 1 MMT to 114 MMT.
The trade was looking for a slightly larger cut on average.
Argentina was unchanged at 54 MMT, with the pre report average estimate expecting a 1.9 MMT trim.
Brazil is still forecasted to ship 43 MMT of corn, which was unchanged again despite the lower output.
Chinese imports were also left at 26 MMT, despite the Attache taking 6 MMT off earlier this month.
Global corn stocks were then figured at 302.22 MMT, which was above the trade average guess but still down 850k MT from Jan.
The U.S. season-average farm price for corn was unchanged at $5.45 per bushel.
As for soybean, global bean S&Ds showed a 8.7 MMT cut to production, a 5.71 MMT lighter trade, and a 2.37 MMT smaller stockpile compared to Jan – of 363.86 MMT, 165.03 MMT, and 92.83 MMT respectively.
The trade had expected a 91.4 MMT stockpile to be reported.
Brazil’s output was reduced by 5 MMT to 134 MMT, in line with the average pre report estimate. 3.5 MTM of that was taken from their export program.
For Argentina, the USDA reported soybean output at 45 MMT flat.
The trade was looking for a 44.5 MMT figure going in, and Jan’s estimate was for 46.5 MMT.
China’s S&D was largely unaffected, with just a 3 MMT lighter import of 97 MMT, and a 3 MMT lighter domestic use.
For products, WASDE data showed a 25 mbu increase to the domestic soy crush, now seen at 2.125 bbu.
That translated to a forecasted 400k ton increase to meal output and a 295m lb increase for soy oil.
For meal, the additional output was expected to be shipped, for a now figured 14.4m ton program and a steady 400k ton carryout.
For soybean oil, 135m lbs of the extra production is expected to be used domestically, raising stocks to 2.076b lbs.
The rest of the domestic soybean balance sheet was unchanged for a 25 mbu lighter carryout of 325 mbu.
Traders were looking for a 315.7 mbu stock figure on average.
Meantime, USDA raised the expected average bean cash price by 40 cents to $13/bu flat.
USDA Soymeal’s new cash price is $410/ton.
USDA’s new cash price for soy oil was a penny higher to 66 cents/lb.
As for wheat, USDA’s monthly S&Ds trimmed back 5 mbu from the domestic food and seed categorical usage, and 15 mbu from exports.
10 million bushels of that was trimmed form HRW, now at 325 mbu, and the other 5 was durum.
That was a 20 mbu bump to carryout which is now forecasted at 648 mbu.
The trade was looking for a 5.8 mbu bump to 633.8 mbu ahead of the report.
Global wheat stocks were reported 1.74 MMT tighter than the Jan figure at 278.21 MMT.
The average pre report estimate was to see 280.3 MMT.
Most major global players were left UNCH with a 500k MT export boost to Argentina, a 200k MT boost for Canada, and a 200k MT cut for Ukrainian shipments.
Chinese imports were left UNCH at 9.5 MMT.
Meantime, wheat’s cash price from the report was 15 cents higher to $7.30/bu.
Looking at USDA’s WASDE numbers, we would be right to assume the outcome should have been slightly bearish across the main ag commodities.
However, the market sees this as the report that tightens from here and, as we have seen in the past, USDA is being slow and conservative. Add in a drier South American outlook and the buyers turned up.
Consequentially, WASDE report days are more about the result versus the expectation rather than the reality of the fundamental number.
The February report has historically been a snoozer but, in this environment, every release matters.
That’s all.
Author: Sandro F. Puglisi
