Stacking Up Quarters

January 1, 2018 06:00 AM
Pile of corn

1st Qtr 2018

Two big report days in the first quarter: January 12 and March 29.

On Friday, January 12, USDA will release the Annual Crop Production Summary with the “final” estimates for 2017 corn, soybean, sorghum and cotton crops (among others). The big 2017 corn crop has gotten bigger in each Crop Production Report since September and odds are USDA adds a bit to the national average corn yield in the final report. However, some believe the November cut to Nebraska’s corn yield was a preview of USDA’s January estimate with enumerators in the Husker state catching more of the field loss in November than the rest of the Midwest. Don’t count on it. If the U.S. national average corn yield does shrink, it likely won’t be by enough to have an impact on prices.

Jan. 12 will also bring the Quarterly Grain Stocks Report with its Dec. 1 stocks levels for corn, soybeans and wheat. If USDA has been too optimistic (or pessimistic) in its usage estimates, this is where it will start to show up. This is the mid-way point for the wheat marketing year, so some real clues on usage (and even if 2017 wheat production was over- or underestimated) can be taken from this update. The data is just one quarter into the marketing year for corn and soybeans. It’s tough to take longer-term price direction from this report for corn and soybeans.

And the Jan. 12 report that won’t get much preview attention but might have the greatest potential to move prices is the Winter Wheat and Canola Seedings Report. It will be the first survey-based acreage report of the year, potentially providing a look at how responsive producers will be to market signals in 2018.

A “sleeper” USDA report comes on January 31 in the Cattle inventory update. The fresh look at the breeding herd and feedlot inventory and producers plans to expand (or contract) the breeding herd will provide some longer-term guidance for producers, packers and traders. These numbers will also be incorporated into the U.S. and Canadian Cattle and Sheep and the U.S. and Canadian Hogs Reports released on March 6, 2018.

March 29 will feature the March 1 Quarterly Grain Stocks Report, giving analysts more clarity on the size of the 2017 soybean crop and provide the mid-year update on corn and soybean use. But the headliner will be the Prospective Plantings Report. The acreage debate has already started and it will be hashed and rehashed in several different versions between now and March 29. And as soon as the 2018 corn and soybean acreage intentions are released, there will be multiple warnings (and yes, one of those will probably come from me) that these estimates are intentions and that intentions often change. Nonetheless, traders are already getting focused on 2018 acres and this report will have a major impact on price action leading into the second quarter.

Of course, there are monthly Supply & Demand Reports released on January 12, February 8 and March 8. All will include USDA’s latest thinking on South American crop potential, which means each of these reports could trump what’s learned on Jan. 12 and March 31. If the Brazilian and Argentine corn and soybean crops inch higher through the first quarter of 2018, it will be difficult to generate much upside momentum in corn and soybean prices.

And while this isn’t an “official” USDA report, USDA’s Annual Ag Outlook Forum is February 22-23. The highlight will be the 2018-19 supply and usage tables from USDA’s Chief Economist. It’s nothing “official” from USDA, but it is a glimpse into what USDA’s team of economists expects in the year-ahead.

2nd Qtr. 2018

Crop Progress Reports start April 2, 2018 and winter wheat crop condition ratings will be a feature. However, many crop- and market-watchers feel scarred by 2017 conditions ratings on corn and soybeans and will be hesitant to build yield models (expectations) for wheat, corn and soybeans based on these observations in 2018. They come every Monday… always something “fresh” for the market to digest.

Another weekly dose of information that gains in importance in the third quarter of the 2017-18 marketing year is the Weekly Export Sales Report. The weekly tally of sales will tell us if we have a chance of hitting USDA’s export forecasts that will be updated in the April 10, May 10 and June 12 Supply & Demand Reports.

The S&D Reports will also give us updates on South American production estimates – and, as mentioned, those estimates and the competition coming from Brazil and Argentina will be a primary driver of U.S. price action. Soybean competition is “a given” – we know that’s coming. How much corn the South American producers will put on the market is a bigger, more unknown variable that could push prices harder than their bean crop.

The second quarter of the year is a waiting game for “big data” from USDA. Yes, the weekly Crop Progress and Export Sales Reports are fodder for debate, but there are just two dates that really pop off the calendar in the second quarter: May 10 and June 29.

On May 10, USDA’s World Board will add a new column to the S&D balance sheets with their first official projections of the 2018-19 supply and usage estimates for corn, soybeans, wheat and cotton. Other commodities also get a fresh look at the new-crop marketing year, but traders will pay closest attention to the corn and soybean projections with trendline yields, assumed harvested acreage and the economists’ best guesses at total use.

On June 29, the Acreage Report will get most of the pre-report hype. USDA’s National Ag Statistics Service will deliver its survey-based estimates of actual planted acres in 2018. We’ll also get the June 1 Quarterly Grain Stocks Report. The stocks report will get some attention going into report day and will likely be the price-driver by the end of the day… seems like it normally plays out that way.

Another second-quarter “event” that will capture the markets attention on a nearly daily basis will be weather forecasts and La Nina updates. La Nina is currently in place and expected to remain into the first quarter of the year, but if La Nina and its influence on the weather lasts into the second quarter, this could be the dominant issue in the markets this spring and early summer.

3rd Qtr. 2018

Weather, weather and more weather. If 2017 taught us anything, it’s not to give up on a crop or judge its potential too early in the year. But, by the time we get to the end of September, we’ll have a good idea on the size of the 2018 corn and bean crops. Wait… scratch that. Again, if 2017 taught us anything… let’s wait until the early weeks of the fourth quarter of the year before getting too confident about what the crops will be.

July through September weather is what determines yields. The corn and bean crops have proven they can take punches early in the growing season only to make rebounds later in the season. This year, don’t judge the crops too soon.

Crop Progress reports and fourth-quarter marketing year weekly sales tallies will again fuel debate among traders and analysts – and I hope there’s enough uncertainty in these weekly updates to bring some volatility back into the markets to provide you with better marketing opportunities.

Crop Production and Supply & Demand Reports come on July 12, August 10 and September 12. The most important of these is the August update as it features NASS’s first survey-based yield estimates for corn and soybeans.

Sandwiched between the August and September crop updates from NASS, the 2018 Farm Journal Midwest Crop Tour will run August 19-23. This industry event is great source of on-the-ground information for the market and the object of debate – 2018 will likely be no different.

The start of September brings the end of the marketing year for corn and soybeans and the final carryover levels come in the Sept. 1 Quarterly Grain Stocks Report on September 28. We’ll also get the Annual Small Grains Summary that day, detailing final production tallies for wheat and other small grains.

4th Qtr. 2018

No need to get into the report schedule for the fourth quarter… it should still be fresh in your mind. But in the fourth quarter the markets will be confident in corn and soybean production and unsure about what the year ahead will bring on the demand side of the balance sheets. And yes… that starts the whole process we just detailed all over again.

2018 wildcards

NAFTA – Others know the likely outcome of the NAFTA renegotiations better than I do (check the outlook item from Pro Farmer’s Jim Wiesemeyer), but I do know there will be a market reaction when either President Trump pulls the trigger for the U.S. to end the agreement, or if his trade team finds a way to bring a successful conclusion to the talks. I do know this – I cannot imagine Trump managing the effort to pass the tax reform bill and sign it into law only to turnaround and enact what would amount to a huge tax increase on exporters by pulling out of NAFTA. I still have faith we’ll see a successful conclusion.

Equities – The Dow Jones Industrial Average is coming off its most spectacular year ever. Money is flowing into equities at a rate unanticipated and unprecedented. Will it continue? I see no reason that it won’t, but I do see some warning signs that it can’t. As investment money continues to flow into equities, it will be difficult to generate much investment interest in commodities. If the Dow does “suffer” a 20%, short-term downside correction, investors will likely just “buy more” in anticipation of the next rally. If that downside correction is a “slow bleed” that last months, money should start to flow into commodities and “value-buy” labels will be slapped on wheat, corn and soybeans. Soybeans are the darling of the trading funds, but if beans get the first dose of investment money, funds holding short positions in corn and wheat will lose confidence and exit those shorts and start to build long positions. Much of the rally in equities in 2017 was driven by anticipation of tax reform. Now that we’ve got it, the reform will have to start to show some payback by way of increasing wages and company earnings by May, or the rally could come to a halt.

Interest rates – The most interesting argument I heard against tax reform late last year went something like, “Why should we try to stimulate the economy now… it’s doing just fine.” The non-ag U.S. economy is doing well. Employment is strong, wages are creeping up and non-ag company earnings are good. If tax reform is the economic fuel Trump says it is, inflation should build in 2018… and that means higher interest rates. The Federal Reserve’s job to set interest rates is well known, but they also have the job of managing the money supply (which is done partially through interest rates). And the U.S. money supply is huge. If they don’t slow the demand for money in an accelerating economy at just the right moment, that money supply could spill into the economy and it will be tough to get that inflation horse back in the barn once it’s running wild. Interest rates are going up in 2018, but we can’t rule out the potential for a quicker- and further-than-anticipated increase in rates. The effort would be to contain inflation in the general economy. An unwanted side effect would be unintended pain for the slower segments of the economy – agriculture included.

Demand – The U.S. economy is good and so are the economies in the top 30 or so counties in the world. Some are better than others, but most are growing. It’s that global economic growth that could spark a recovery in agriculture by the end of 2018. Most say it will take a production shortfall in corn and soybean production either here in the U.S or in South America to start the recovery. That’s the quick answer. The longer-term, more sustainable recovery will come from the usage side of the market – and that’s in growth mode right now. It’s a big turn to make – it will take some time. But by the end of 2018, we’ll have the industry pointed back in the right direction.

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