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There has been a raft of information coming from the USDA in the past week, with two key reports being released- the Stocks and Acreage report, and the WASDE, as well as the latest iteration of US crop condition data. Market reactions to US data have been exaggerated of late, while other global fundamentals seem to be quietly slipping under the radar.

The first cab off the rank was the stocks and acreage report, which provides a look at sowing intentions.  The 9% increase in US wheat area should have been a bearish signal, apart from the fact that a) it was expected and b) most of the extra acres are in drought affected areas.

The second report released earlier this week gave us more of a look at global stocks.  The WASDE (World Agricultural Supply & Demand Estimates) report challenged the market by increasing US stocks due to lower feed consumption.  However, the elephant in the room, was largely ignored.  Global wheat stocks were reduced by 2mmt from the March estimates (based on lower stocks in India, Philippines and Ukraine).

The market seems to be highly sensitive to news coming from the US. The higher carryout in the US comes at a time of poor demand due to high prices and a high Fx (foreign exchange rate) making US largely uncompetitive on global markets.  The fact that the market seemed to completely ignore the lower global stocks demonstrates how US-centric the market really is.

Looking further ahead, the US is in the grip of a drought in the HRW wheat areas. Key wheat producer Kansas is at the heart of the problems.  Recent crop condition report indicate Kansas winter wheats at 61% poor to very poor (or only 13% good to excellent). Overall US winter wheat is rated 27% good to excellent –  a record low for this time of year.  Analysts have extrapolated conditions to final yields and estimate a national crop at 15% below trend line production.  So much for the few extra bushels in carryout.

It is true that the market headlines follow the SRW (soft red winter) wheat market in Chicago (CBOT) and this crop is not facing any problems at the minute.  The HRW wheat market in Kansas (KBOT) is trading at a significant premium to Chicago reflecting the drought issues. I can’t help but think there is going to be a point when the trade look at the whole picture in relation to share of exports and find they have a problem.

The uncertainty and unpredictably we are seeing is quite common this time of year as we navigate the so called ‘weather market’ as the Northern Hemisphere comes out of dormancy.  Europe looks good generally (the exception being Spain) with most crops having escaped any winter damage. Canada, while dry, looks to get a shot of moisture ahead of seeding.  Should the weather turn wetter in the US, expect some premium to be removed from the market.

Next week

It is a tough market to try and navigate at the minute. The trend looks lower, but a production problem could make life interesting.  May 18th looms as a deadline to watch.  This marks the end of the 60 day period that Russia agreed to extend the Grain Initiative for, despite the UN, Turkey and Ukraine all signing an agreement for 120 days. 

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Data sources:  Reuters, USDA

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