By Augusto Semmelroth | Source: USDA
The latest WASDE report surprised the market by downgrading the US corn and wheat ending stocks. While results were, in theory, bullish, the market response has been fairly mixed so far. Nonetheless, wheat markets seem to have managed to maintain the positive momentum started in late January. Corn, not so much.
The USDA challenged market expectations by revising US ending stocks 1.3mmt, or 8.2%, lower to 15.2mmt. That came on the back of increased food usage and higher than expected exports, which were only partly offset by increased imports from Canada. This also reflects Canada’s logistic struggle to move grain to the ports in the pacific.
On a global level, the USDA also lowered estimates for EU-28 ending stocks by 1mmt, or 8.8%, to 10.7mmt. Partly offsetting the major US and EU reductions were the minor upward revisions in ending stocks in Argentina, Brazil and Ukraine. As such, the final result was still a 1.7mmt cut in global ending stocks for 2013/14 to 183.7mmt, which is still 4.5% higher year-on-year (figure 2). Stocks-to-use ratio fell to 26.1% and is in line with 2012/13 levels.
As with wheat, the USDA cut US corn ending stocks well above market expectations. Numbers were revised 3.8mmt, or 9%, lower from January estimates to 37.6mmt underpinned by strong export sales. That said, US ending stocks remain 80% above the drought affected 2012/13 season.
Global production was left unchanged at 966mmt with Argentinian and Russian downgrades being offset by a 3% lift in Ukrainian output to a record 30.9mmt. The ongoing low corn prices have enticed consumption in the EU-28, Canada and South Korea to see global usage increased 3.7mmt to 943.3mmt.
As a result, global ending stocks estimates drifted 2.9mmt lower from January’s forecasts to 157.3mmt, but are still a 13-year high (figure 3). The stocks-to-use ratio remains at a comfortable 16.7%, well above the average of 15.2% over the last three seasons.
Global oilseeds production was left unchanged at 506mmt, with the downward revisions of the Argentinian and Chinese soybean crop offset by an upgrade in Brazilian soybean output to a record 90mmt. Total ending stocks were lifted by 0.9mmt to 86mmt, driven by a major cut in Argentinian soybean crush and, consequently, higher ending stocks in South America’s second largest producing country.
Australian canola production was left unchanged at 3.4mmt. This is in line with ABARES forecast released yesterday and only 0.1mmt below the record crop of 2012/13.
While the previous WASDE report, released in mid-January, set a bearish tone for wheat and corn markets, this week’s release delivered somewhat the opposite. That said, it’s still too early to see if the results will be enough to maintain the recent positive momentum seen in grain markets.
So far, wheat has clearly outperformed corn after the release. Since last Friday, CME wheat Mar-14 contracts have already rebounded 13¢, or 2.3%, to 590¢/bu. CME corn Mar-14, on the other hand, fell 4¢, or 1%, to 440¢/bu during the period.
Nonetheless, both markets are already close to 7% above the lows seen in mid-January. For prices to move another considerable leg higher, we will need to see some major changes in global supply and demand fundamentals. While that’s never out of question, it seems a bit unlikely to happen in the short-term.
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