The monthly March WASDE report by USDA this week, from a news standpoint, really, did not provide much news.
USDA does Grain Stocks reports on a quarterly and of month cycle and in the months where those occur, the government analysts tend to make few to no changes in the WASDE numbers.
Indeed, USDA increased its global wheat consumption estimate by 7.0 million metric tons (MMT) to 776 MMT on increased feed wheat use in China.
In fact, USDA now expects China’s 2020/21 domestic wheat consumption will reach a record 145 MMT, up 5.0 MMT from the February estimate, 15% more than last year and 19% more than the 5-year average on record wheat feed use at 35.0 MMT.
USDA, indeed, thinks China’s feed sector will use more U.S. corn and wheat this year due to comparatively high domestic corn prices.
However, meantime, they have pegged total global production in 2020/21 at 777 MMT, so up from the February estimate, on increased production estimates for Australia.
Australian wheat output in 2021, indeed, jumped to a record 33.0 MMT, said USDA, up 10% from the February estimate on favorable growing conditions.
In this context, Aussie wheat export are expected to more than double last year’s volume at 22.0 MMT, up 56% from the 5-year average, if realized.
So, even if the global ending stocks estimate fell 3.0 MMT this month to 301 MMT, still continue to be a world record and is up 9% from the 5-year average, if realize.
About corn, USDA made no changes to the US supply/demand corn balance sheet, so, the projected world ending stocks went up when the average trade guess had them shrinking.
Finally, USDA to complete also increased projected Brazilian bean production to 134 MMT, finding more acreage while they cut Argentina 500,000 MT.
So, for the most part, we have had a quite calm market reaction to WASDE report.
Thursday’s Export Sales report showed improved weekly corn sales of 395,500 MT for old crop and 287,300 MT for 2021/22 crop delivery.
The USDA total of shipped and unshipped export sales (i.e. commitments) is 112% of year ago at 59.519 MMT.
That’s 2.343 billion bushels!
Commitments are 90% of the full year WASDE forecast.
They would typically be 73% by now.
About wheat, the weekly report showed improved wheat sales of 329,500 MT for the week , for delivery in 2020/21.
This was up near 50%, from last week’s 219,000 MT and was on the high end of trade expectations of 150,000 MT to 350,000 MT.
Year-to-date sales of 24.3 MMT are 2% ahead of last year’s pace.
USDA, indeed, forecasts total U.S. wheat exports will reach 26.8 MMT in 2020/21.
However, compared to the USDA projected 20/21 export total, that would put shipped and unshipped sales at 91% compared to the average pace of 95% for this date.
About soybean the weekly Export Sales report showed 350,600 MT of old crop sales through March 4.
Another 213,200 MT was sold for new crop delivery.
Total soybean export commitments for the MY now total 60.432 MMT.
That is 99% of the USDA full year forecast, compared to the 5-year average pace of 85% for this date.
Shipments are moving along, at 87% of that projection vs. the 70% average.
The weekly Commitment of Traders report showed spec funds adding 7,968 contracts to their net long position in corn, taking it to 356,514 contracts as of March 10.
In add, report showed managed money shedding 4,227 contracts from their net long in CBT wheat just a week after adding 4,893 contracts, while they pruned another 4,060 contracts from their much larger KC HRW net long, taking it back down to 47,664 contracts.
Finally, the large spec funds added 4,040 contracts to their CFTC net long in soybeans last week.
That meant they were net long 159,601 contracts (futures + options) as of March 9.
Winter wheat crop condition ratings declined slightly in KS, OK and TX vs. the previous week.
However, the much-needed precipitation are coming, and will replenish soil moisture levels across much of the country’s wheat growing regions.
Indeed, moderate to heavy precipitation is expected over the weekend across most of the US Southern to Northern Plains.
While several feet of snow are expected in some areas, even if temperatures are not expected to reach levels that could damage winter wheat.
On the other hand, the lower US wheat basis values, ample commercial ownership and increased export elevation capacity pressured Pacific Northwest (PNW) HRW export basis for nearby and deferred deliveries, while, lower futures prices pressured soft white (SW) prices for all delivery periods.
In this context, wheat futures were all lower.
Chicago SRW was down 2.2% for the week, and KC HRW was down 3.6%.
MPLS spring wheat was down 1.8%, trying to limit the number of acres switching to oilseeds.
Also corn futures were lower again this week, losing 6 ½ cents per bushel or 1.2%.
Finally, also soybean futures were down 1.2% for the week, but still 9 cents above two weeks ago.
Particulary, CBOT May soft red winter (SRW) futures prices fell 14 cents to end at $6.38/bu.
KCBT hard red winter (HRW) futures slipped 23 cents to close at $6.03/bu.
MGE hard red spring (HRS) futures dropped 11 cents to end at $6.34/bu.
CBOT corn futures fell 6 cents to close at $5.39/bu.
CBOT soybean futures slipped 17 cents to end at $14.13.
Meal was under significant sell pressure, losing 4.2% or $17.50/ton.
Most of that was on Thursday.
While soybean oil continued to rise, up another 356 points (6.9%) to trade at the highest prices since 2012.
Palm oil and canola also set either multi-year or all-time highs.
About the European scenario, good climatic conditions in the northern hemisphere and declining demand for some origins, have weighed on all grains prices.
The climatic conditions in fact remain generally favorable to crops throughout the northern hemisphere and thus rule out any risk of production for the moment.
France Ag, meantime, has maintained the rate of wheat “good to very good” at 88% this week, against 64% last year and 82% on a five-year average.
Stratégie Grains, a other European agriculture consultancy, forecasts total European soft wheat production will reach 130 MMT in 2021, up 9% from last year, if realized.
While on March 11, Cocereal, a European grain trade association, reduced its European soft (non-durum) wheat production estimates for 2021 by 1.50 MMT to 127 MMT on excessive rainfall during February.
Coceral, also confirmed that new crop European rapeseed production that reduced in 2021, to only 17.7 Mt .
At the same time, we note that the international demand for West European regions, remains relatively low-key, as is covered by Black Sea and Southern Hemisphere exporters very well.
Indeed, around 98% of Ukrainian winter wheat crops and 100% of winter barley were in good condition, according to the latest data of the Ukrainian state weather centre.
The regrowth of crops, as sampled by meteorologists on February 20, showed weak and rare seedlings on 2% of winter wheat fields and 7% of winter rape areas, the centre said in a report published late on Friday.
Rare seedlings of winter wheat were registered mostly on fields in western Ukraine, it noted.
Ukraine’s national agrarian academy said last week most winter grain crops are in good or satisfactory condition and only limited areas in central parts of the country were damaged by frost.
Ukraine’s economy ministry has said it expects that the area under all grains could increase to 15.7 million hectares this year, up from 15.2 million hectares in 2020.
The favourable weather could help farmers to increase their grain crop to 75 million tonnes this year from 65.5 million tonnes in 2020.
In add, about corn, went in negative territory, also after the upward revision of the Brazilian harvest by Conab last Thursday even if it should be noted, however, that the Buenos Aires Stock Exchange, on the other hand, reduced its estimate of the Argentinian harvest by one million tonnes, to 45 Mt, a drop of 6.5 Mt compared to last year.
In this context, all european grains widened their losses on Friday evening after a particularly hectic week and Matif May wheat futures prices fell 5 euros to end at €223,25/t.
Matif corn June futures slipped 5,75 euros to close at €215,50/t.
Matif rapeseed May futures, on the contrary, gained 3,50 euros to end at €522/t.
The Baltic Dry Index (BDI), an assessment of the average cost to ship raw materials like grains, coal and iron ore, jumped 11% on the week to end at 1,970, the highest since October 2020 on increased Chinese demand for global corn and grain imports and significantly higher crude oil prices.
Watching to the next week market, everyone gets an “early” start on Monday, with the switch to Daylight Savings Time occurring over the weekend.
The weekly USDA Export Inspections report is expected on Monday, along with a few scattered state crop condition reports.
The monthly NOPA crush report is also due for release on Monday.
The Fed open market committee will be meeting on Tuesday and Wednesday.
No change to short term interest rates is expected, but there will be interest in their attitude about rising long term rates.
The weekly EIA ethanol production and stocks report will be out on Wednesday, and USDA’s weekly Export Sales data will be released on Thursday morning at 7:30 am CST.
The USDA monthly Cattle on Feed report will be released on Friday afternoon.
Attention next week will be on actual rainfall amounts that are forecast for Argentina.
Forecast models removed some of the expected precip and forecasters warn the system will feature pop-up rains, which means coverage levels and amounts are likely to vary rather significantly by region of the country.
In add, we’ll have results of the first spring acreage survey at the end of next week.
USDA will give us its March planting intentions at the end of the month.
U.S. and China meet next week.
This will be the first official meeting between the two nations since President Joe Biden took office.
Top officials from each country are meeting in Alaska on March 18 and 19.
They will cover a variety of topics: climate change, Hong Kong, COVID-19, intellectual property theft, and human rights.
The grain trade will be eager to hear if any talk is made about the Phase I deal or any new commentary about Chinese demand for U.S. agricultural goods.
According to the CFTC (commodity trading’s governing body), starting March 15, 2021, the traders and funds will be able to trade more grain contracts.
The funds, or any trader, will now have more ability (because they can trade more contracts) to add length to their long positions, or when the fundamental tide turns, they could sell more contracts and push prices lower.
Indeed, an individual fund group in the past has only been able to buy/sell 33,000 total contracts of corn, but starting Monday, that position limit will grow to 57,800.
NEARLY DOUBLE.
For soybeans, the limit was 12,000 contracts, and now will be 19,300. For wheat, it was 15,000 contracts, and now will become 27,300, also nearly double the original amount.
With these new expanded limits, the funds now have the possibility to create an even longer position (or short position over a brek time)!
So, price volatility in the coming months has the potential to be extraordinary!
That is where, the $1.9 billion stimulus bill come in.
A small part of that is for COVID relief and expenses.
The rest is intentional pump priming, putting money in people’s hand so they can spend it during the “Grand Re-Opening” of the US economy.
Since the economy is already recovering, handing out that kind of cash has stirred concerns about inflation.
Too much money chasing too few goods.
Commodities often “benefit” from inflation, with higher prices.
Usually, inflation would weaken the dollar and it takes more dollars to buy the same amount of soybeans, pork, etc.
However, higher interest rates (due to inflation fears) attract foreign investors chasing yield.
They sell euros, yen, etc and buy dollars.
That fund flow tends to strengthen the dollar (and puts downward pressure on commodities priced in dollars).
Throw a trillion dollars into that uncertain balance, and you have price volatility.
It should be even more pronounced for commodities where the too few goods definition is most applicable.
We would argue soybeans and hogs/pork fit that description, while wheat does not.
Cryptocurrencies and NFT’s (like the digital art piece by Beeple that sold for $69 million this week) clearly participate when there is surplus cash in circulation.
To note that we focused on volatility, and that is two directional.
It’s better to buckle dear friends.
We might have some wild markets next week.
It’s going to be an interesting spring!
