The headline screamed ‘bullish wheat’ because the report stated that
the US winter wheat area had been cut below what the trade had estimated. But
the wheat market is a multi-faceted beast and the subsequent price action suggested that the market is
looking at stocks today, not down the track.
Firstly, the US built carry-out corn and bean stocks, on the basis of higher (record) final yields
from last year’s harvest, but also a slow export pace. The subsequent increase in old crop stocks
was extremely bearish for both row crops and ultimately weighed on wheat. Even more bearish was that global stocks of wheat, corn, and beans were also ratcheted up.
Another concern for the commodity market was reports that Chinese purchases of corn and beans
may not be as robust as initially expected after Chinese corn production was
increased well beyond what was thought possible after last year’s harvest storms.
Global wheat production and ending stocks were both increased by around
2mmt due to higher production in both Russia and Ukraine.
The initial response was to see both corn and beans down 2.5% and wheat
a more modest 1.4% after the report. The bleeding may have continued if not for
the weekend and public holiday. I
suspect that the market will again turn its attention to winter crop conditions
ahead of Northern Hemisphere Spring (NH) and the potential for trade disruptions in the Red Sea.
The upshot of all this is that global grain stocks are a little more
comfortable than they were this time last week. Wheat is possibly the exception with
global stocks-to-use still at the lower end of comfort.
Commodities yanked lower by USDA
Next week
After the surprisingly bearish twist in the USDA report, the importers are starting to circle overhead. Egypt bought one cargo (60kmt) of French wheat in this week’s tender which is an encouraging sign that other origins (non-Black Sea) are now priced competitively.
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Click on graph to expand
Data sources: USDA, Reuters, Next Level Grain Marketing, Mecardo
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