Market Insider

September WASDE, Harvest Activity Pressures Wheat Prices

Grain markets ended mostly red last week as, despite some buying after a somewhat expected bearish USDA WASDE report, tempered bullish activities throughout the week kept the complex down. Going into the September report from the USDA, most analysts expected bigger corn acres, higher yields for corn and soybeans, and therefore, a bigger harvest and carryout. Similarly, with harvest in the northern hemisphere picking up the pace, global wheat supply and ending stocks were raised by the USDA, easing the recent bullish concerns about just how much there is to go around in the 2021/22 crop year.

Digging into the September WASDE, average U.S. corn yields came in above both pre-report expectations and the August WASDE to now sit at 176.3 bushels per acre (bu/ac), the 2nd largest average yield ever. Combined with harvested area expanding by nearly 700,000 acres, total U.S. corn production was pegged at just under 15 billion bushels (or just under 346 MMT if converting bushels to metric tonnes). For U.S. soybeans, average yields were raised by 0.6 to 50.6 bu/ac (the 3rd-best ever), but the harvested area was lowered by 300,000 acres for a new total haul of 4.37 billion bushels, or just over 119 MMT, up a bit from the August estimate. With the bigger harvests, 2021/22 ending stocks of U.S. corn was raised to 1.4 billion bushels (or just under 36 MMT) and to 185M bushels for soybeans (or just over 5 MMT). So you’re aware, these carryout levels for both U.S. corn and soybeans are historically very tight.

Specific to wheat, U.S. 2021/22 wheat ending stocks were lowered by 12M bushels 615M (or 16.73 MMT), largely due to HRS wheat and durum carryouts both dropping to 111M and 18M bushels respectively. While this change in domestic U.S. inventories was largely expected by the market going into the report, the global carryout of 283.2 MMT was well above the average pre-report guesstimate. The bigger supply was largely attributed to the USDA raising production in China and Australia, with the latter seeing a 1.5 MMT bump to 31.5 MMT. Accordingly, Australian wheat exports were also raised to match the 2020/21 crop year record of 23 MMT. On the flipside, 2021/22 Canadian wheat production and exports were both lowered, which helped increase new crop wheat ending stocks to 4.41 MMT. As a heads up, this is way above Agriculture Canada’s estimate of 2.6 MMT that I wrote about 3 weeks ago.

It’s also worth mentioning that the USDA dropped old crop, 2020/21 Canadian total wheat exports (including durum) by more than 1 MMT to now sit at 26.4 MMT, which helped push ending stocks up by nearly 1.9 MMT to now sit at 5.71 MMT. This new carryout forecast from the USDA is a healthy margin above Agriculture Canada’s August forecast for total wheat ending stocks of 4.93 MMT to end the 2020/21 crop year.

A better comparison, however, might be with Statistics Canada, which released their stocks report last week, which suggested that Canada still had 5.7 MMT of total old crop wheat at the end of July, or the 2020/21 crop year. Specific to the StatsCan data, it’s worth noting the amount of non-durum wheat still held in Alberta, as well as the significantly lower amount of durum still held by farmers in the Canadian Prairies. It is also worth noting that the StatsCan suggestion that old crop Canadian barley stocks of 711,000 MT carried over into the new crop year is basically half of the seasonal average (more on this later, but as a heads up, AAFC suggested a carryout of just 500,000 MT in their August report).

As the chart below shows, Alberta feed wheat prices have climbed considerably over the past year, but leveled off this past week as harvested crops head to market but also the reality that these recent September rains usually results in milling quality issues, and thus, more wheat and barley going into the feed market. This is important to China since, their need to import more feedstuffs for their rebuilding hog herd was the government there putting a ban on using food waste to feed animals a year ago, which means about 30 – 34 MMT of feed materials needs to be substituted with something else (i.e. corn, wheat, barley, soymeal, etc.). With stocks-to-use ratios of key corn exporters around the world pretty tight as is, China might have to import something other than Brazilian or American supplies, especially since the USDA dropped Brazilian 2020/21 corn production to 86 MMT (it was estimated as high as 93 MMT as recently as July).

Overall, the market is settling in a little bit as harvest in the northern hemisphere cruises along. Nonetheless, we should expect daily volatility to continue as the market digests varying yield reports, South American weather as they start to seed their soybeans this month (read: concerns of a second consecutive La Nina), and export sales reports, namely demand from China. Filling contracts (if able), testing your grain’s quality, and staying on top of cash flow needs for the coming 6 – 12 months should continue to be priorities for this time of year.

To growth,

Brennan Turner