On paper, you could argue that the February report was bearish for wheat with increased production in Australia and Russia and building end stocks. This is despite evidence that feed wheat is starting to replace corn into SE Asia feed markets. It begs the question how does corn respond? Argentina’s corn crop was cut and soon the US farmer will have to decide on what to plant. Stocks of US corn and beans are historically tight, so corn can’t afford to lose value for fear of losing acres.
Australian production estimates were increased from 36.6mmt to 38mmt, but still below the 40-42mmt range that some analysts are suggesting. The USDA reluctantly lifted Russian production estimates by 1mmt to 92mmt, still a far cry from the 104mmt that some are calling the Russian crop. It is hard to say if the inflated Russian estimate includes grain pilfered from Ukraine, but the USDA is on record for saying the 104mmt forecast in not ‘feasible’.
Argentina’s crop forecasts were cut in line with expectations. Typically, the USDA likes to adjust production incrementally, rather than taking a slash-and-burn approach. Argentina corn estimates have been trimmed from 52mmt to 47mmt and soybeans reduced from 45mmt to 41mmt. For reference, Argentina’s Buenos Aries Grain Exchange (BAGE) has production for soybeans at 38mmt.
While wheat futures have cooled on news of the large Australian and Russian harvests, the silly season is about to start up again as Spring in the Northern Hemisphere fires up. The market will be jumpy about production, especially with the spectre of an unresolved Black Sea conflict. India has started the rumour mill with speculation of an export freeze to enable them to rebuild stocks. The Indian Government has continually had to dip into domestic stocks to try to curb food prices.
Russia is also starting to voice its displeasure about the Grain Corridor not functioning as it should. Russia made these sorts of vague threats the last time the corridor was up for negotiation. The next 39 days (until the expiry of the current agreement) could be interesting.
Spring silly season
Next week
Weather and geopolitics will remain the key drivers of prices in the coming months. Keep an eye on the US Hard Red Winter (HRW) wheat-growing areas. The key state of Kansas remains dry and lacks meaningful snow cover. Spring will need to be kind
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Data sources: Reuters, USDA, Refinitiv, Mecardo,
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