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Thursday, November 10, 2016

Surprise, Surprise, Supplies

By Andrew Whitelaw  |  Source: USDA, Trade

Key points

  • The Australian wheat crop remains at 28.3mmt
  • Global corn end stocks are at record levels of 218mmt
  • Global wheat end stocks are at record levels of 249mmt

2016-11-10 Grain Fig 1

2016-11-10 Grain Fig 2

The main news story doing the rounds is obviously the election of Donald Trump to the White House, yet in an example of great timing the USDA released their World Agricultural Supply and Demand estimates overnight. In this article, we will look at the numbers released.

The markets experienced a high degree of volatility yesterday after the surprise victory of Trump, however the wheat market was also impacted by the WASDE release with all CBOT contracts from Dec-16 through Mar-18 down 7-8.6c/bu.

To read our update on potential impacts of the Trump presidency on agriculture click here

Wheat

Throughout this year, we have been commenting that wheat stocks are at record levels, and that this is not going to change anytime soon. The November report carried this view through, with wheat ending stocks rising by 866kmt to reach a record of 249.23mmt (fig 1).

There have been increases in wheat feed usage, but a reduction in usage for human food has offset much of that. At this point of the year we would expect that from a supply and demand point of view not much can change between now and the early to mid-2017 when we get more insight into the new crop in the northern hemisphere.

Although there have been downgrades to the wheat crop in WA, there was no change to the USDA projections for Australia which is still pegged at 28.3mmt. There is generally a 2-month lag between events in Australia impacting on the USDA forecasts.

Corn

Although there is next to no corn grown in Australia, it is an important feed stock and impacts upon our feed barley pricing. The USDA projected that usage is increasing at a slower rate than supply, which has resulted in a 1.3mmt increase to global ending stocks to a record 218mmt.

The large corn stocks are likely to keep feed barley prices depressed for quite some time on the export market. 

What does this mean?

The agricultural markets like all others is based on supply and demand, and unfortunately the world has more supply than demand for grains.

The global market is unlikely to rally anytime soon. We have been calling since February for growers to ensure that they have a strategy to work through a low pricing environment, this is extremely important. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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