Wheat rides a bean bounce

The USDA released their World Agricultural Supply & Demand Estimates (WASDE) last night, which was if anything, a little friendlier than expected. Markets had been grinding lower on the expectation that stocks would be higher across the board. While wheat stocks were higher, albeit in line with expectations, soybean stocks were unchanged and corn stocks were lower. It was the fact that soybean stocks were unchanged when the market was expecting a modest increase, that caused the strong bean rally which spilled over to corn and wheat.

Overall global wheat production was ratcheted down by 4mmt on reductions to Australia (-1.5mmt), Brazil (-0.5mmt), Kazakhstan (-2mmt) and Ethiopia (-2mmt), offsetting the increase in US production (+2mmt). Once again, the report left Russia at 85mmt whereas more than a few international analysts have the crop >90mmt. Major exporter stocks listed at 53mmt (-1mmt) or 13% stocks to use.

One of the key reasons why CBOT has been sliding in recent months has been the unrelenting export pace and cheap supplies out of the Black Sea. It is believed that Russian ports are operating at maximum capacity with an estimated 5mmt per month hitting the waves. However, as per (SovEcon) the month of October is shaping up to be relatively poor. Is Government inference to blame? The government mandated ‘floor’ price is seen as being too high, with private exporters regularly selling below this. It is creating some confusion and possibly some headwinds in terms of origination.

It begs the question, are we seeing seasonal lows? The charts show wheat futures bouncing off 540c/bushels and trying to consolidate around the 560c/bushel mark. It will be interesting to watch consumer behaviour in the coming weeks which will give a few more answers.