USDA Worksheet and Market Momentum
Update for October 6, 2020
The USDA will release the monthly WASDE and Crop Production reports this Friday, October 9th. There will be several adjustments needed to align their data to last Wednesday’s quarterly stock numbers. Many expect that we will see the 53 million bushel adjustment in soybean stocks attributed to a larger than expected crush and increased exports. Estimates for key report numbers are shown in the graph below.
Source: USDA, Reuters, Stone
Jerry Gulke of the Gulke Group gave his insight regarding last week’s USDA reports on Farm Journal Radio on Friday. Gulke explained to listeners that the book of exports exceeded most projections. “We haven’t had these kinds of times in a long time.” “The market psychology is such that it’s going to be kind of difficult to put this new bull market that we’ve had to bed, without a shock the other way again.” Gulke does not expect that we will see any further reductions to soybean yields going forward even though, “We’ve been hearing lots of reports of yields that are good, but not as good as people thought they would be” as far as corn yields are concerned he said “I think we reduce the corn a little bit, but not by much.”
Today we saw impressive gains in the corn and soybean markets. This type of price rally is rare during harvest but right now prices adjusting to increased demand from the Chinese, dry conditions in many important growing regions of the U.S. as well as late planting in Brazil. Typically Brazil has over 4% of their soybean crop planted but this year progress remains just over 1%. Not a serious situation at this time in Brazil but it is certainly worth watching. Also important to note is that despite of the fact that harvest in full swing and China is basically out of the market this week during their national holiday, price have not dropped off, instead the soybean market has remained strong. The U.S. map shown below details the dry conditions that have developed or intensified during the past month across the country.
The South China Morning Post ran an article regarding the current balance sheet on Phase 1 commitments. Data reviewed by the news group found that while China has increased purchases of “some politically important” U.S. goods including corn, soybeans and cars, over-all their analysis indicates that Chinese purchases have “failed to significantly move the needle” toward meeting the Phase 1 purchase agreement. They reported that through the month of August China had actually purchased less than one-third of the goods they had agreed to. The U.S. Census Bureau began to track official monthly trade deals in June and found that despite a 513% increase in domestic Chinese corn prices between June and August, imports of U.S. corn were not as large as would be expected. During this same time though Chinese purchases of U.S. soybeans surged by 432% and car sales were up 97%. As of August, the data shows that while imports have increased substantially, China has only met 43% of the ag purchase targets, 60% of the targets for manufactured products and 27% of targets for energy products. As for the overall commitment China made to purchase $200 billion more in U.S. goods than it did in 2017, the report said China is still “miles away” from reaching that level.
The market intelligence firm Vortexa Ltd which is based in London has found that U.S. exports of energy products-specifically crude oil accounted for 7% of the total Chinese crude imports through mid-September. Imports of Saudi Arabian crude oil, China’s traditional supplier fell from 19% to 15% during the same period. According to tanker data, The Wall Street Journal reports that U.S. exports to China are expected to climb up to 700,000 barrels a day by the end of October. There is optimism that this increase will continue beyond the end of the trade agreement and regardless of who is elected in November because Chinese refineries have now retooled their plants to process U.S. grades.
The Midwest has benefited from ideal harvesting weather for several days and currently the first chance of precipitation in that region arrives Monday. The map below shows the expected rainfall totals through Sunday. Hurricane Delta is building strength in the Gulf of Mexico and will begin to impact the U.S. Gulf Coast on Friday. If it remains on the current track the Eastern Corn Belt may see some of the remnants of the storm system next week.
The 6 to 10 day outlooks are shown below.