Australian wheat farm

The US wheat market started the week closed for the observance of the Martin Luther King Memorial public holiday. It is probably just as well that we had some a break between trading and last Friday's USDA report being digested.

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. 

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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Data sources: USDA, Reuters, Next Level Grain Marketing, Mecardo

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