Dry field

It has been a big week for data. Following on from the fireworks of the USDA’s stocks and acreage report, the USDA released their World S&D estimates (WASDE) and offered a glimpse into row crop yields. Not wanting to be left out, this report also had a twist in its tail.

Pre-report, the market had been betting on yields being reduced due to the dry June period.  Corn did not disappoint, with yields being lowered from 182 bushels/acre to 177.5 bushels/acre. The trade had expected steeper cuts to yield, but generally speaking, the moves were in line with expectations.

Given the increased acres, total US production remained virtually unchanged.  Soybean yields were held unchanged, but overall production dropped due to reduced acres.  Wheat, in particular winter wheat, was surprised with higher production than expected.  It is assumed that enough of the increased acres this year were in areas that benefited from the late rains, enough to boost overall production.  This was enough for the market (CBOT and KBOT) to fall nearly 30c/bushel immediately after the report.

Almost missed in the US centric data, was the global situation.  Unsurprisingly, soy and corn increased stocks due largely to Brazil’s bumper harvest.  However, 23/24 global wheat stocks were cut by 4mmt courtesy of reduced production in Russia and Australia.  It took 24 hours for the market to focus on this fact, with wheat staging a small bounce last night.  It does put the spotlight on wheat production in Canada, Australia and Argentina going forward.  Production below estimates will put pressure on global stocks which should be price positive.

With an eye on Canada, the dry conditions are taking a bite out of western Canada’s cereal and canola production.  Anecdotal evidence would suggest that recent rain was ‘too little, too late’. We have seen the Canadian canola rally C$103/t in the past fortnight as conditions have declined.

Next week

It feels like the market is caught between row crop conditions and the lesser-traded wheat.  Next week’s decision on the Grain Corridor could rattle the market initially.

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Data sources: Reuters, USDA, Left Field P/L, Next Level Grain Marketing, Mecardo

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