Wheat prices have remained under pressure for the week as harvest progress and improving weather continues to build expectations of an oversupply of wheat.
The fall in wheat coincided with falls in corn and soybeans as favourable weather in the US Midwest fuels optimism of bumper yields. Reuters analysts pointed out improved crop conditions in the row crops week on week as evidence that the US is eyeing off record yields.
Tepid demand is also weighing on agricultural commodities. Some of the reluctant demand signals stem from uncertain trading ties with the US, while key trading partner China cites negative feed margins for animal producers and ample domestic stocks.
The US President has had some recent ‘wins’ on trading reform as he tries to reshape the balance of trade in favour of the US. Trade deals signed recently with the EU, Japan and South Korea are lauded to be in favour of the US, although some speculate that there is little changed in the actual detail of the agreements. In other cases, Bangladesh has offered to purchase an additional 220kmt of US wheat to try and stave off impending tariff hikes.
There are a number of key trading deals that have not been signed. Canada and Mexico, which combined represent 32 per cent of US trade, are still without a mutually agreed deal and face steep tariffs. China is possibly the most important and yet arguably remains the furthest away.
Global production of wheat looks to be burdensome in the short term. All wheat production in the EU27 is expected to show a 4 per cent increase year on year to 137mmt. China’s 142mmt (if realised) is a record and will be a major barrier to a return to normal export volumes. India is also looking at a big crop (117mmt), contributing to the USDA’s total wheat estimate of 808mmt. Recent rain here in Australia has the potential to build production, with current estimates between 31 and 33mmt on top of carryout between 5 and 6mmt.
Balancing this out are trade-adjusted consumption figures showing a record 809mmt used for feed, seed and industrial uses, meaning again global supplies are shrinking year over year, to 262mmt, which is a ten-year low. Major exporter ending stocks are estimated at 65mmt, with China’s stocks building due to high domestic production and importing more than what was forecast.
As we move into the second half of the year, there will no doubt be some nuanced changes to production and consumption figures. The overriding feeling, though, is that without Chinese demand, wheat prices are unlikely to experience a major bump.
Next week
The August 1st deadline for Trump’s trade deals will pass this weekend. By Monday, we should know who the winners and losers of the tariff game are.
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Wheat is riding seasonal lows
The fall in wheat coincided with falls in corn and soybeans as favourable weather in the US Midwest fuels optimism of bumper yields. Reuters analysts pointed out improved crop conditions in the row crops week on week as evidence that the US is eyeing off record yields.
Tepid demand is also weighing on agricultural commodities. Some of the reluctant demand signals stem from uncertain trading ties with the US, while key trading partner China cites negative feed margins for animal producers and ample domestic stocks.
The US President has had some recent ‘wins’ on trading reform as he tries to reshape the balance of trade in favour of the US. Trade deals signed recently with the EU, Japan and South Korea are lauded to be in favour of the US, although some speculate that there is little changed in the actual detail of the agreements. In other cases, Bangladesh has offered to purchase an additional 220kmt of US wheat to try and stave off impending tariff hikes.
There are a number of key trading deals that have not been signed. Canada and Mexico, which combined represent 32 per cent of US trade, are still without a mutually agreed deal and face steep tariffs. China is possibly the most important and yet arguably remains the furthest away.
Global production of wheat looks to be burdensome in the short term. All wheat production in the EU27 is expected to show a 4 per cent increase year on year to 137mmt. China’s 142mmt (if realised) is a record and will be a major barrier to a return to normal export volumes. India is also looking at a big crop (117mmt), contributing to the USDA’s total wheat estimate of 808mmt. Recent rain here in Australia has the potential to build production, with current estimates between 31 and 33mmt on top of carryout between 5 and 6mmt.
Balancing this out are trade-adjusted consumption figures showing a record 809mmt used for feed, seed and industrial uses, meaning again global supplies are shrinking year over year, to 262mmt, which is a ten-year low. Major exporter ending stocks are estimated at 65mmt, with China’s stocks building due to high domestic production and importing more than what was forecast.
As we move into the second half of the year, there will no doubt be some nuanced changes to production and consumption figures. The overriding feeling, though, is that without Chinese demand, wheat prices are unlikely to experience a major bump.
Next week
The August 1st deadline for Trump’s trade deals will pass this weekend. By Monday, we should know who the winners and losers of the tariff game are.
Have any questions or comments?
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Data sources: SovEcon, Reuters, Next Level Grain Marketing, Mecardo
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
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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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