Post USDA Report: Just Give Me Peace

The January USDA report is one of the most important of the year.  It is one of the big three, after the March 31st report and the June 30th report.  I’m sure many of you might debate which one is the most important.  However, the January report in the past has saw some of the most volatile futures price action as it represents the final estimate for the crop year just past.  This past Thursday morning USDA gave their final estimates on the huge crops from American fields last year.

US corn production for 2016 came in at 15.1 billion bushels, down 78 million bushels from the estimate in November.  US soybean production was also cut to 4.3 billion bushels down about 54 million bushels from November.  174.6 bushels per acre of corn and 52.1 bushels per acre of soybeans are pretty incredible and reflect the benign weather that we had last year in the American corn belt.

The good news might be the disappearance or “demand” which we saw in the quarterly stocks report.  For instance from September to November corn usage was pegged at 4.5 billion bushels an increase from last year when we were sitting at 4.1 billion bushels.  It was the same way for soybeans.  Total usage for soybeans was 1.61 billion bushels from September to November up 15% from last year.  At the end of the day, corn was up only a penny but soybeans had rallied $.28.

An interesting side note on the day was the winter wheat acres.  At 1.8 million acres planted, this was the lowest since 1909 when the Waterloo boy tractor was just seeing the light of day.  Realistically, those wheat acres are still here, just on the other side of the world.

At the end of the day, the January USDA report did not do much.  There was some sentiment that there may be increases in crop production, but this did not come to pass.  Also too, the demand figures remain robust and dynamic.  For instance, US ending stocks for soybeans are projected to be 420 million bushels, which is down 60 million bushels from the November report.  Its likely based on history that by the time we reach September 2017 this figure will be below 200 million bushels.  The USDA continues to underestimate soybean demand.

You could almost make an argument and I know it is a stretch to say this report was slightly bullish.  The stretch is even though we have record crops the market hasn’t fallen apart.  Yes, that is a stretch because I’m sure some people feel it has fallen apart especially in wheat and corn.  However, despite the record crops and somewhat lower prices the elephant in the room continues to be the inauguration of President Trump on January 20th.

Simply put, these are the grain market fundamentals before a possible trade war with China and others.  These are the grain market fundamentals before Trump builds the wall with Mexico, the second largest buyer of American corn. The question is what happens next?

The focus will soon turn to the new crop year and the number of acres that the American farmer will plant.  We might have the lowest winter wheat acres since 1909, which will free up more production for corn and soybeans.  We will dance that jig on the market going into the next big USDA report, which will be on March 31st.

Of course we cannot ignore some of the noises coming from the Trump transition team about China, Mexico and other countries.  The American farmer has become used to big US agricultural exports without any threat of political action constraining that effort.  President elect Trump has threatened action against China and others, which may result in collateral damage to some of this agricultural trade.  Nobody wants to wake up in the future to see some political black swan event whacking the futures prices of soybeans.  Unfortunately, that’s been on the radar screen ever since the Trump election.

Of course, this is all fluid and the Canadian dollar is as fickle as ever.  Where one time we had the Trump post election rally and the US dollar rose and the Canadian dollar went down.  We now have something sort of called the “Trump dump” and the loonie has hiked itself up to 76 cents US.  Two weeks ago it was in the 73 cents range.  Oh, how marketing is a challenge with foreign exchange.

So give me peace, lots and lots of peace.  Leave China alone, along with Mexico and of course Canada.  The grain markets almost acts as if it wants to give us a chance going into 2017.  We don’t need any more surprises.  November 8th was enough.