This week saw the release of the USDA’s November WASDE report. While some cuts to production and ending stocks were inevitable, the size of the move caught the market largely off guard. Corn and beans both saw cuts to their yield estimates but also saw steep drawdowns of ending stocks. In the case of corn, stocks were revised lower by 21% from the October estimate and exports increased by 14%.
Soybeans had a similar fate. Cuts to production in both the US and Ukraine have dramatically tightened available stocks. Stocks to Use in the US is now only 4% and as the residual supplier of beans, the US now faces the need to ration demand.
Wheat was a relative non-event. Small, incremental cuts to production were noted. Argentina down another 1mmt to 16mmt from an earlier estimate of 21mmt. Russia increased by 0.5mmt to 85.5mmt. Australia was left at 28.5mmt which raised some eyebrows. Global ending stocks are comfortable on paper. But when you remove China, stocks in the major exporters are around 62mmt, or 15% stock to use. Recent estimates have Aussie production pushing 30-32mmt so there is potential for major exporter ending stocks to increase a little.
Earlier this week, Saudi Arabia’s state grain buyer SAGO confirmed it had bought 860kmt of wheat at its latest international purchasing tender. Both Australian and European wheat will form large chunks of the business, confirming Aussie wheat’s pronounced competitiveness at current pricing. The 12.5% protein wheat was purchased at an average price of US$277.53/t cost and freight Saudi Arabia for Feb/March delivery which works back to about $310 port East Coast.
The Saudi tender was extremely well-timed after news that China was considering ‘widening’ its punitive attack on Australia by barring wheat. This when the trade had been factoring in increased wheat demand from China. This most recent tender will hopefully see the dust settle quickly and see our wheat find new homes.
Another week of good rains through key Russian ag areas has the crop improving ahead of winter. There are a couple of areas that remain drier than they’d like, but overall, the crop is in reasonable shape. Reports are suggesting this year’s winter wheat area is a record, casting a few questions on why the market traded higher on dry planting weather in the first place!
The cuts to corn and soybean supplies should make it hard for wheat to break lower. One would of caution, however. Continued demand for wheat will need to be observed to maintain current prices.