Weather bringing ‘heat’ to the market

Sun shining on wheat

The wheat market is in a tug of war between tightening old crop stocks and new season supply. The USDA released their April stocks report quietly last Friday night. Perhaps surprising the market was the drop in corn and wheat stocks more than the trade had been estimating. China is again the ‘culprit’, having switched to feeding more wheat due to the soaring cost of corn. The USDA project that China will feed 40mmt of wheat this year, more than double earlier market predictions.

Tightening corn and wheat stocks will be the rallying cry for market bulls for the foreseeable future and it is likely to be the catalyst for increased volatility.  Of the 295mmt of wheat in storage globally, 50% is held in China and another 9% held in India.  Collectively, the world’s top 8 exporters now hold approximately 80mmt between them.  Similarly, the US will be running on fumes for corn stocks.  It is estimated that US reserves have fallen 60% year on year and will be running at 9.2% stocks to use, implying only 33 days of use is available (source: Karen Braun @kannbwx).

These facts alone put huge emphasis on new crop supplies. Currently, Brazil’s safrinha (second) corn crop is looking for rain.  The issue with this year’s safrinha crop was it was planted late.  It is thought that 30% was planted after the typical cut-off date.  This means that a fair percentage of the crop will be in the key reproductive stage as the weather turns drier and colder.  Dry weather now could hurt the vegetative state that determines yield potential.

The northern US Plains are abnormally dry but could get some moisture this week.  Canadian Prairies are a case of the ‘haves and haves not’.  A winter blast intensified, dropping snow and rain totaling 20-35mm – but localised over Manitoba and SE Saskatchewan.  The majority of Saskatchewan and Alberta (key growing areas) missed out.

The week ahead….

The issue with tight stocks, is that every threat – perceived or real – will spook the market.  Might want to buckle up.  It could be a wild ride.

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Data sources: USDA, Reuters

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