USDA Puts Some Froth Back Into Grain Markets

Happy Canada Day everyone. Today was a rather subdued Canada largely because Covid still stalks our country, and we are living under restrictions. It was also subdued because many parts of the country have canceled any type of Canada Day celebration to recognize the tragedy of the residential school graves documented over the last several weeks. As I’ve said many times, in Canada we try and get it right and that surely needs to continue.

This past week we finally got a glimpse of the June 30th USDA report, which many of have been waiting for since they drew a line in the soil on March 31st. The June report is one of the big ones and although grain futures spreads hold the real clues on what grain markets will do, everybody likes to know the acres in the ground. Last year the USDA dropped corn acres by 5 million between March and June. I was wondering if they were going to walk that back the other way.

I got my answer, and it was no. In fact, USDA upset the turnip wagon on June 30th sending a bullish shiver into the deepest depth of the computer algorithms. USDA pegged US corn acres at 92.7 million acres which is 2% greater than a year ago, but lower than the trade expectations. Ditto for soybeans but in a slightly bigger way. USDA said US farmers planted 87.6 million acres which is the same as they had predicted in March. At that time, I said it wasn’t enough to satisfy soybean demand and now that we’re into July, it still isn’t. The corn number surprised me a bit, but the soybean numbers I was really surprised about. Simply put, we need more American soybeans.

Keep in mind, where we are now, these are still big crops, but they just came in below expectations within a market that had already dialed in bigger acres. The expected corn harvest production is 84.5 million acres at 177 bushels per acre gives us 14.956 billion bushels of production. Corn usage is expected to come in at 14.765, so we are talking some very big numbers. Corn futures exploded on the news, pushing up almost 40 cents on the day.

On the soybean side of the ledger USDA is pegging new crop at 4.335 billion bushels, based on a 50 bushel per acre yield and harvested acreage of 86.7 million. It sounds like a lot of soybeans, but as I said earlier, all things equal, it’s not enough. What was a $1.00 discount in Brazilian soybean on June 1st compared to US supplies at the Gulf is now down to about 25 cents, which means, Chinese demand remains strong and will eventually be coming back in a big way.

June 30th is also an important date as USDA gives us their estimate of old crop grain stocks on June 1st. Corn stocks came in at 4.11 billion bushels, which was 18% lower than last year. Soybeans stocks stood at 767 million bushels, 44% less than a year ago and wheat stocks were the lowest in six years. It all added up to a bullish day for grains, somewhat taking the weather narrative away, for at least day.

As I said earlier, grain futures spreads were basically telling us this story. Grains are bullish and soybean might be the most bullish of all. You must ask a question about US soybeans. With prices spiking earlier this winter leading into spring the thought was of a lot more soybeans. It looks as of July 1st, that hasn’t materialized, and it makes you wonder if the Americans couldn’t boost soybean acres this year, when will they ever?

I had a conversation with a friend of mine today, who I haven’t seen in 33 years. He’s from China, currently living in Seattle Washington, but I met him at graduate school in Guelph. We talked China. He told me that Chinese agricultural demand is going to continue to get stronger. He also mentioned their move to a digital currency is changing the country helping with corruption and the money trail. He emphasized supply chain certainty and the problems of the Trump years. He said “just in time” delivery for things like computer chips is over with. Trust has been broken. I could only wonder after chatting with him how consistently strong that Chinese agricultural demand will be.

It surely will be key, as well as the weather over the next few weeks. After I wrote my column last week, I woke up to damaging rains up to 6 inches on some of my farms. In my local area, there was lots of drowned crops with rains reaching 9 inches in some locales. Meanwhile, the Dakotas and Minnesota are bone dry, where lots of corn and soybeans are grown. What’s it all mean? Well, USDA kind of set the table last week for a way forward. It’s not the big acres we thought, which means we need good yields to satisfy demand. Add some bad weather into the mix in the next few weeks, and it all could go awry.

Wheat harvest starts soon for me. That means many things, but it also means, have those standing grain marketing orders ready. USDA has put some froth back into grain markets. It’s up to us to sell into it.