The USDA poured cold water on the global wheat market this week as they increased global carryout by 5 mmt to 265 mmt due to reduced old crop demand. Stocks-to-use in the major exporters are now, based on these figures, at 17%, a slight increase from the previous year and bucking the recent trend of tightening stocks.
Improving crop conditions in the US were also a bearish factor, where despite a smaller than expected wheat area, analysts are expecting a larger crop year-on-year.
There are plenty of opinions about the numbers that the USDA used. Firstly, the trend line yields used to predict US production was at the very top of expectations. A near-perfect season will need to be realised for some of these numbers to come true. Secondly, the USDA did not change production estimates for China, Australia, Canada, or Europe. Drought areas in each of the countries mentioned here could see these forecasts viewed as a little optimistic. Time will tell.
It was interesting to note the thoughts of one analyst in the US, bemoaning the fact that the USDA has basically given the green light to fund managers to continue milking the wheat market. For the past few years, fund managers (aka speculators) have been heavily shorting the ag markets – in particular, wheat – as a means to make money. The USDA, by virtue of having a bearish outlook on prices, speculators will have the confidence to sell (short) wheat contracts to eventually buy the contract back at a lower price. The continued existence of these short sellers in the market seems to cap price and mute volatility, and their mere presence alludes to the view of continued price deterioration.
Geopolitics roared back into life this week. US trade negotiations seem to be getting some traction, with the US and UK signing off on a more mutually agreeable trade deal. Importantly, the US and China agreed to (temporarily) slash tariffs to 10% and 30%, respectively. While in theory, this would remove trade barriers and allow US grains access to China, the market seemed relatively unimpressed. There was some talk about Putin and Zelenskyy holding peace talks, although this got watered down during the week and now appears to be a case of two low-ranking delegations pushing for unrealistic demands. India and Pakistan are also talking about stepping back from the brink, but the conflict continues. At least their talking…
Next week
Next week, Outside noise will continue to shift the market. Trade deals and politics seem to be getting as much airplay as the weather at the moment. Good weather in the US and Russia is keeping the market a safe and secure space from the stories of less-than-ideal conditions in China and Northern Europe.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released its June Crop Report last week, which gives us the first look at
The past week has been dominated by geopolitics, which may have long-term ramifications for global trade. Firstly, President Trump got called out for rehashing his
You know the drought is getting serious when politicians start turning up on farms, making announcements. This drought is different from what the East Coast
Markets have chopped around either side of unchanged this week, not unexpected when con-sidering the abbreviated week from the US Memorial Day public holiday. Over
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Wheat bear is coming out of hibernation
Improving crop conditions in the US were also a bearish factor, where despite a smaller than expected wheat area, analysts are expecting a larger crop year-on-year.
There are plenty of opinions about the numbers that the USDA used. Firstly, the trend line yields used to predict US production was at the very top of expectations. A near-perfect season will need to be realised for some of these numbers to come true. Secondly, the USDA did not change production estimates for China, Australia, Canada, or Europe. Drought areas in each of the countries mentioned here could see these forecasts viewed as a little optimistic. Time will tell.
It was interesting to note the thoughts of one analyst in the US, bemoaning the fact that the USDA has basically given the green light to fund managers to continue milking the wheat market. For the past few years, fund managers (aka speculators) have been heavily shorting the ag markets – in particular, wheat – as a means to make money. The USDA, by virtue of having a bearish outlook on prices, speculators will have the confidence to sell (short) wheat contracts to eventually buy the contract back at a lower price. The continued existence of these short sellers in the market seems to cap price and mute volatility, and their mere presence alludes to the view of continued price deterioration.
Geopolitics roared back into life this week. US trade negotiations seem to be getting some traction, with the US and UK signing off on a more mutually agreeable trade deal. Importantly, the US and China agreed to (temporarily) slash tariffs to 10% and 30%, respectively. While in theory, this would remove trade barriers and allow US grains access to China, the market seemed relatively unimpressed. There was some talk about Putin and Zelenskyy holding peace talks, although this got watered down during the week and now appears to be a case of two low-ranking delegations pushing for unrealistic demands. India and Pakistan are also talking about stepping back from the brink, but the conflict continues. At least their talking…
Next week
Next week, Outside noise will continue to shift the market. Trade deals and politics seem to be getting as much airplay as the weather at the moment. Good weather in the US and Russia is keeping the market a safe and secure space from the stories of less-than-ideal conditions in China and Northern Europe.
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Data sources: SovEcon, USDA, Next Level Grain Marketing, Bloomberg, Mecardo
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Have any questions or comments?
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Markets have chopped around either side of unchanged this week, not unexpected when con-sidering the abbreviated week from the US Memorial Day public holiday. Over
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
MEET THE TEAM
Our team of market analysts are recognised as leaders in Australian Ag market analysis, providing invaluable insights to help you navigate the ever-changing commodity landscape.
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We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.