Today’s article was going to look at harvest progress and pricing, and we will take a brief look at that, but the big news in markets has been the latest World Agricultural Supply and Demand Estimates (WASDE) Report, released late last week. Wheat is suddenly in abundance.
Due to the Government shutdown in the US, there was no October WASDE, with all the updates dumped into the November release late last week. The USDA increased forecast wheat production by 12.5 mmt on September. While consumption was also increased, it was only by 4 mmt, meaning that the wheat picture has gone from producing a small surplus to seeing a 2.8% increase in ending stocks.
The USDA increased production forecasts in Argentina, the US, Canada, the EU, Russia, and interestingly Australia. The USDA are now forecasting wheat production here at 36 mmt. As outlined last week, this seems a bit excessive given the dry finish to the winter cropping season in some key areas.
The market was expecting upgrades to wheat production forecasts, and as such Chicago SRW fell, but it was limited to 9¢ per bushel. In our terms SRW for December 25 has gone from just above $300/t to just below, around $298/t today. Changes in local wheat prices have been similarly minimal in recent weeks (Figure 2).
Harvest continues to roll along relatively slowly on the East Coast. Victoria and South Australia have had cooler conditions, with harvest way behind last year. GrainCorp receivals on the east coast have been growing, with over 1 mmt harvested in NSW last week (Figure 3). East coast receivals for the harvest to date are still nearly 2 mmt behind last year. This can be quickly caught up if the grain is there. The USDA thinks it is.
Canola prices are a bit of a shining light for croppers, with recent rallies seeing prices move back towards $800/t on a delivered port basis. GM canola is again lagging behind this year, currently around $720/t on the east coast.
What does it mean?
Increased wheat production forecasts are likely to limit price upside going forward. Growth in world stocks is obviously bearish for prices, but the market appears to be happy around these levels. Production shocks are required to ignite wheat price upside.
Key Points
- The USDA WASDE is forecasting opposite fortunes for barley and canola stocks.
- Barley supplies are expected to remain relatively tight, while canola is forecast to improve.
- Barley prices should continue to find support, and canola will come under pressure.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: CME, USDA, ASX, Graincorp, Viterra, CBH, Bloomberg, Mecardo
