Pre-August WASDE Grains from Trilateral
As we anticipate the release of the August World Agricultural Supply and Demand Estimates (WASDE) report, traders, farmers, and investors are closely watching the grains market. Here’s an overview of the current trends and expectations in these key grain markets.
Corn:
Corn futures have been on a downward trajectory, with December contracts hitting new lows for five consecutive days. This decline reflects traders' expectations of a record corn yield, with estimates ranging from 181 to 184 bushels per acre (bpa). The Dow Jones average estimate stands at 182.1 bpa, indicating a robust harvest on the horizon.
A significant factor to watch in the upcoming report is the adjustment of planted and harvested acres, incorporating new data from the Farm Service Agency (FSA). While a reduction of 500,000 harvested acres is anticipated due to adverse weather, some analysts predict a more substantial decrease nearing one million acres. These adjustments, stemming from heavy rains and storms affecting several regions, may not be fully reflected immediately.
The corn basis has weakened as farmers prepare for a bumper crop, potentially exceeding 15 billion bushels. U.S. demand remains strong, with the potential for increased annual corn sales by 25 to 50 million bushels. U.S. corn is competitively priced compared to Brazilian offers, maintaining a significant edge in global markets. Additionally, corn usage for ethanol production remains a bullish factor, with robust production levels despite a recent dip.
Weather forecasts suggest favorable conditions for key states this week, with rain and moderate temperatures predicted. Managed money funds have begun covering their large short positions, reducing their net short position to under 250,000 contracts.
Wheat:
Wheat markets are under pressure, with Paris milling wheat futures and U.S. wheat futures opening lower. This weakness persists despite significant challenges in the EU, particularly in France, where adverse weather has reduced both yield and quality. The French wheat crop is expected to decrease by at least 25%, from 35 million metric tons (mmt) last year to approximately 25-26 mmt this year.
Additionally, losses in the Black Sea region, including Russia and Ukraine, contribute to a potential reduction of 20-25 mmt in global wheat supply from major exporters.
In North America, recent showers may be too late to benefit Canadian spring wheat, which has been adversely affected. However, North Dakota and Minnesota, key U.S. producers, are experiencing excellent crop ratings and could achieve record yields.
On a positive note, global wheat importers are taking advantage of price weaknesses, with Egypt announcing its largest one-day tender for 3.8 mmt. However, restrictive credit conditions may limit commitments from exporters.
Traders expect the USDA report to show increased wheat production, with new-crop ending stocks projected to rise. Despite the sharp drop in global supply, wheat markets have struggled to sustain rallies, with funds holding a combined net short position in Chicago and KC wheat.
Soy Complex:
Like corn, November soybeans have declined for five straight days, falling below the $10 mark. Traders anticipate the report to reveal record soybean yields, with estimates around 52.5 to 53 bpa. While the report predicts a modest drop in planted and harvested acres, some analysts foresee a larger decrease, suggesting potential surprises in the WASDE report.
U.S. new-crop soybean demand has lagged compared to last year. However, U.S. soybeans are now more competitive globally, leading to increased sales to China and other destinations.
Early Monday, soybean oil prices fell due to a decline in palm oil futures, which ended a three-day rally. Palm oil stocks at the end of July hit a four-month low, but August exports are expected to decline due to cheaper alternatives like soybean and sunflower oils.
The end of an oilseed workers' strike in Argentina has eased some shipping delays, with soybean meal futures seeing slight gains. Interestingly, China's agriculture ministry has increased its soybean import forecast for 2023-24, though it remains conservative compared to USDA estimates.
Managed-money funds have reduced their net short position in soybeans, but the market remains in an oversold technical condition as it approaches the WASDE report.
On Monday morning, the USDA reported private export sales of 300,000 metric tons of soybeans to undisclosed destinations, highlighting ongoing demand.