Bearish WASDE report sends grain prices lower

Colleen Kottke
Wisconsin State Farmer

Farmers have been besieged by a lot of bad news lately. From gloomy weather forecasts that have delayed the planting season to stalled trade deals and falling commodity prices that have left producers hanging on for dear life.

The release of the bearish 2019 World Agricultural Supply and Demand (WASDE) report from the USDA was another blow to grain farmers. Weaker demand, declining exports, a growing supply of end stocks sending prices lower and news that crops are flourishing in South America and overseas while planters sit idle across the Corn Belt and the Midwest made for a dismal news last Friday.

Todd Hultman

"I think the trade environment for all of our U.S. ag products is very concerning right now and keeping pressure on prices. So, it's a very tough environment, no doubt, for all our grain and other ag products," said DTN Lead Analyst Todd Hultman during a recent webinar.

In this month's report, the USDA provided updated numbers for the current crop season as well as an outlook for the 2019-20 crop year, which begins on Sept. 1. 

More corn on horizon

The USDA projected 2019 corn yield at 176 bushels per acre with the crop expected to reach 15.0 billion bu., which Hultman says would be the second highest on record. Ending stock are also expected to increase 2.485 million bu.

The USDA projected 2019 corn yield at 176 bushels per acre with the crop expected to reach 15.0 billion bu., would be the second highest on record.

"The USDA is picking a planting estimate of 92.8 million acres, which is an increase this year. But as you know, we have a very precarious planting situation going on right now with a lot of excessively wet conditions across the Midwest. We're in the heart of when planting progress usually explodes and yet we have a lot of planters still sitting in the shed," Hultman said. "I'll be very surprised if those (planting estimates) hold up over the next several months."

Higher forecasted production outpacing forecasted demand growth resulted in lower average farm price projection of $3.30 per bushel for the 2019-20 market year, down 20 cents from the year prior.

U.S. corn will also be facing competition from countries like Argentina and Brazil which are experiencing a productive growing season this year. Hultman said Brazil's current corn price is $3.89 per bushel is probably one of the "toughest things U.S. corn growers are competing against".

"It's the lowest corn price we've seen in over a year, and right now that price is $0.31 cheaper than the corn price we're offering here in New Orleans," Hultman said. "At the moment Brazil corn prices are more competitive and attractive comparatively and that isn't great news for the outlook of our U.S. corn price."

While Brazil is looking to produce a corn crop of 100 million metric tons this year, Argentina is looking to add 49 million metric tons to the world market.

Beans, beans everywhere and not a good price in sight.

Overabundance of beans

Global soybean beginning stocks for 2019-20 are forecast to increase 14.1 million tons compared to 2018-19, leading to higher supply despite lower production. The soybean crop is forecast at 4,150 million bu., down 394 million from last year's bumper crop.

"We're looking at ending stocks of very close to a billion bushels, something we've never seen before here in the U.S.," said Hultman, attributing the gain to a 100 million bushel reduction in the export estimate. "I think for a long time there was hope that some kind of trade deal would be struck, and maybe China would buy some soybeans in the near term and we're not seeing that."

While the USDA is anticipating a big increase in corn plantings, the agency is expecting a significant drop in soybean acres, down to 84.6 million.

"The export estimate of 1.95 billion bu. seems a little optimistic to me, given the situation with China right now" Hultman said. "But we have to acknowledge the trade situation could change on a dime. But right now it's not looking good, and obviously the markets have been making soybean prices pay for that."

The USDA is expecting less than 4.2 billion bu. of demand in the new crop season, a modest increase from 4 billion bu. this year. Ending stocks are projected at 970 million bu. for the new crop year.

"Even though we plant less soybeans and possibly have a smaller crop, we're still going to have roughly the same amount of ending stocks which is burdensome to the prices," said Hultman, pointing out that the soybean index closed last week at $7.28 per bushel, $0.85 below July contracts on the futures board.

"That's the lowest in about 10-11 we continue to contend with an extra hit to cash soybean prices on top of the low futures prices," he said.

To date, U.S. soybean demand is down 18 percent from a year ago. Last month, the USDA predicted that China would import 88 million metric tons of soybeans due to the prevalence of African Swine Fever, and the impact on feed demand.

Brazil’s soybean production is projected at a record 123.0 million tons, up 6.0 million on higher area and trend yield. The South American country is also selling soybeans $0.14 cheaper than the U.S., boosting the country's export market share.

Hultman says the soybean market is "very dangerous" and much of the activity is due to the breakdown or lack of progress in talks with China.

"If we don't have a trade agreement with China by harvest time this fall, the price outlook will be especially gloomy," he said. "And I think traders are feeling the impact of that now. There's no way to sugarcoat it, we're in a very tough market."

U.S. soybean farmers are growing more frustrated over what they see is lack of progress between the U.S. and China in resolving the trade war, which continues to send soy prices downward, threatening the viability of producers.

“The U.S. has been at the table with China 11 times now and still has not closed the deal. What that means for soybean growers is that we’re losing. Losing a valuable market, losing stable pricing, losing an opportunity to support our families and our communities," said Davie Stephens, soy grower from Clinton, Ky., and American Soybean Association president.

Once again we're facing a very bearish world outlook for wheat supplies.

Worldwide Wheat

If analysts were expecting lower wheat supplies for the new crop season, the USDA is not giving them much confidence of that happening. The 2019-20 U.S. wheat crop is projected at 1.897 million bushels, up less than 1 percent from last year as a higher yield more than offsets reduced harvested acreage.

This year, ending stocks are estimated at 7 billion bu., up 40 million from April's projections. Wheat planting this year is expected at 45.8 million acres, on course for the lowest harvest in over a century, Hultman said.

Conversely, the USDA is looking for big crop increases from nearly all the major wheat regions: Australia, the European Union, Russia and the Ukraine. The world wheat production is expected to increase 6 percent. Russia is projected as the leading world wheat exporter for the third consecutive year with exports at 36.0 million tons.

Exports are projected at 900 million bushels, down 25 million from the revised 2018-19 exports. However, the 2019-20 global export situation is expected to be highly competitive for the United States with all of the other major exporters projected to have larger supplies.

The projected season-average farm price is $4.70 per bushel, down from last year’s estimated $5.20 on the expectation of greater export competition and lower U.S. corn prices.

"Once again we're facing a very bearish world outlook for wheat supplies," Hultman said.

Planting season doubts

Hultman says USDA estimates may change as the crop planting progress picture becomes more clear in the ensuing weeks.

"Just 23 percent of the corn (across the U.S.) was planted as of May 5, which is the slowest planting pace for corn that we've seen since 2013," he said.

Many farmers across the state of Wisconsin and the Midwest are seeing the planting window growing narrower with each passing rain shower that keeps the soil saturated.

According to the USDA's most recent Wisconsin Crop Progress and Condition report, corn planting across the state was just 14 percent complete, 7 days behind last year and 11 days behind the average.

Some state farmers may opt to take some acres out of corn to plant more alfalfa and spring forages to make up for a smaller, later first cutting of hay. Others have seen almost a complete winterkill for alfalfa.

"If you recall in 2013, we had a huge jump in planting progress basically during a two-week window in May, and I think that's a possibility in people's minds," Hultman said. "But the difference this year is that across much of the Corn Belt and Midwest it's much wetter conditions than we saw in 2013."

Hultman said a scenario of 4 to 5 million prevented planted acres could draw some attention from the market as well as the announcement of a trade deal.

"Weather is always the king of surprises and a trade agreement with China would help too," Hultman said. "Our best window for gaining China's business is October to February when Brazil soybeans run out. So we really need to have some encouraging hope along with an actual agreement."