With respect to commodities, difficult to find anything more pressing in the financial markets than the moves in various currencies over the last several weeks. To wit, the Brazilian Real rallied to 3.6166 on Wednesday, the weakest trade against the USD since June 3rd, 2016. The Argentine Peso fell to 23.2507 against the USD this week, the weakest trade on record. The USD itself hit 93.4160 on Wednesday, the strongest trade since December 22nd, and is now firmly above its 50/100/200-day moving averages. The weakness in the South American currencies obviously pays South American farmers more for each bushel of corn and soybeans they sell, and with a fairly steady Chinese Yuan, it isn’t difficult to see which beans look more attractive when priced in their local currencies.
More rain across the Upper-Midwest this morning, keeping fields wet and planters idle. Rains this week have been heaviest in S-MN/NE-IA/WI, while lighter amounts have fallen across E-SD, E-ND, N-MN and the rest of IA. Rains will continue on and off for the next 24-36 hours, before moving out to the east. More rain comes in at the beginning of next week, impacting IA/S-MN/IL/IN/OH. Most areas will welcome the rain, although S-MN needs a stretch of open weather to catch up on corn and soybean planting. Extended maps keep things mainly warm and wet during the 6-10 and 8-14 day, especially for the Northern Plains which will be welcome assuming progress can be made before the wetter weather arrives.
Easier markets overnight, led lower on a percentage basis by soymeal and wheat. Yesterday’s WASDE report had to be construed as bullish for corn and soybeans, and bearish for wheat, but the muted reaction in row crops to fairly bullish data seems to be giving off two conclusions: 1) the supportive factors have already been priced in, or 2) the bullish conjectures from the USDA have yet to be realized and weather the next 6-weeks is more important than these balance tables. The US wheat balance sheet was not nearly as bullish as the corn and soybean S&D, but the major exporter balance sheet is interesting. Many of the bullish talking points came from assumptions made about China, especially the world corn balance sheet which sees ending stocks drop precipitously thanks to China ramping up their ethanol program. As mentioned earlier, many of these assumptions have yet to be realized, but if they come to fruition could be long-term bullish. Getting the corn and soybean crops planted will take precedence the next 2-3 weeks, and we would argue progress is well ahead of what the USDA showed on Monday. Final acreage will remain a talking point until June with the unsettled weather.
Going to focus on the most important aspects of yesterday’s WASDE, instead of going through the entire report line item by line item. The full report can be found here https://www.usda.gov/oce/commodity/wasde/ . In corn, the world balance sheet saw production come in at the second highest on record at 1,056,066TMT. Global corn yield would be the highest on record at 5.80MT/ha. The demand side of the balance sheet is where things get interesting, however, with feed/residual implied up 16.9MMT, and FSI Consumption up 5.785MMT. With total supplies down 7MMT from last year, ending stocks fall to 159.1MMT, down from 194.8MMT last year and the record corn ending stocks at 227.525MMT from two years ago. Ending stocks for 18/19 are implied at the lowest level since 2012/13, while the stocks/use ratio of 12.79% would be the smallest on record going back to at least 1980/81. There is no way to spin this except supportive, and much of it is due to China. Chinese corn production is forecast at a record 225.0MMT, but total supplies would be down 11MMT from last year due to lower carry-in. Feed/residual use is implied up 5MMT, and FSI consumption up 3MMT. This drops Chinese ending stocks to 60.5MMT vs. 79.5MMT last year and the record 110.7MMT stocks from 2015/16. The Chinese stocks/use ratio on corn of 24.29% would be the lowest on record after being the highest since 2000/01 just two years ago. This is a massive fundamental shift, and helps remove the large supply of stocks hanging over the market. Now, all of this still has to be realized, but one can begin to understand the long-term implications this could have on the corn market. Major exporter stocks (ARG/BRAZ/EU/RU/UKR/US) sees ending stocks fall to 68.4MMT from 80.3MMT this past year, but would still be above the level from two years ago. Stocks/use ratio for this group at 10.57% is down from 12.70% last year but still above the stretch from 2010/11-2013/14 when the ratio was 7.68-9.98%.
Also a lot going on in the world wheat balance sheet which sees production slip to 747.7MMT in 2018/19, down from the record production last year of 758.3MMT. Total supplies would still be a record, however, thanks to the burdensome carry-in. Feed/residual use is flat, but FSI consumption is up another 7MMT thanks to expanding global GDP. Ending stocks are seen declining by 6MMT, the first y/y drop in ending stocks since 2012/13. That, in and of itself, is a major fundamental shift for the wheat market as we will finally see a decline in stocks as opposed to the relentless upward trajectory we’ve been subjected to for the past 6-7 years. Much of the focus in the wheat market was on Russia which the USDA sees producing a 72.0MMT crop vs. 84.992MMT this past year. This would still be the third largest wheat crop on record for Russia, and allow them to export another 36.5MMT, the second largest amount on record. Ending stocks would halve in 18/19, and the stocks/use ratio would drop to 7.29% which would be the lowest since 2000/01. The world’s largest wheat exporter will remain the world’s largest wheat exporter in 18/19, but the world will also be much more reliant on them with smaller crops elsewhere. Major exporter wheat stocks fall to 55.65MMT in 18/19, down from 68.2MMT last year and the lowest since 2013/14. The stocks/use ratio for this group at 13.52% is the smallest since 2007/08, and everyone remembers what happened in 2008 right? Fidel Castro retired as President of Cuba, so just let that one sink in.
We will dig into the US balance sheets and the Global Soybean balance sheet next week, as covering everything is beyond the scope of this letter today. Other data worth noting yesterday included export sales which were abysmal for wheat, and ho-hum for corn and soybeans. Wheat sales totaled 1.3mbu of old crop sales and 1.8mbu of new crop wheat sales. These sales are so bad they aren’t really worth talking about, and should tell one everything they need to know about the level of rationing we need to do for the short HRW crop this year. Huge board carries are ruining our demand, and that looks like it will remain the theme in 18/19. Corn sales totaled 27.4mbu vs. the 11.0mbu needed weekly, taking total commitments to 2.032bbu which is down just 1% from a year ago. Zero concern about hitting the USDA’s export forecast, and the agency could be prompted to raise that forecast on subsequent WASDE’s. Soybeans ales totaled 13.0mbu of old crop sales vs. the 3.8mbu needed weekly. Total commitments now stand at 2.025bbu vs. 2.094bbu a year ago, just a 3% deficit vs. the USDA calling for a 5.0% decline.
Bottom Line: Easier markets into the weekend as the trade puts this WASDE behind them and focuses on planting weather and final acreage changes. The changes from the WASDE board presented yesterday will hold long-term implications for the corn and wheat markets, and point toward moving away from a period of burdensome stocks around the world. This does not mean $5.00 corn and $7.00 wheat are here at last, but it does mean our markets will be more sensitive to weather issues in the upcoming year, especially in the US corn belt. If the US produces another 176-178bpa crop, we have no issues and ending stocks go back over 2.0bbu. However, anything south of 174bpa will require the trade to retain premium. Feels to us like the HRW production estimate has upside if weather forecasts verify.
Good Luck Today.
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