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Thursday, February 11, 2016

The grain bear is digging its claws in.

By Andrew Whitelaw  |  Source: USDA, ABARES, Trade

Key points

  • Global ending stocks of wheat were increased by 2.94%
  • USDA maintain the 2015/16 wheat crop at 26mmt, above estimates from the trade of 23.5mmt and ABARES AT 24.2mmt.
  • Corn end stocks are at records levels of 208mmt, which will pressure feed markets.

2016-02-11 Wasde Fig 1

2016-02-11 Wasde Fig 2

2016-02-11 Wasde Fig 3

The United States Department of Agriculture (USDA) released its February World Agricultural Supply and Demand Estimates (WASDE) and unfortunately it hasn’t provided any positive encouragement resulting in futures prices falling.

In a largely unexpected move, global wheat end stocks were increased by 2.9% or 6.8mmt.  This was caused by a large increase in the forecasted production in Argentina, and decreased consumption in China (3.39%) and India (3.09%). The increase in end stocks is 25% above average end stocks since the turn of the century.

Improving weather conditions in South America led to increases in corn production in Brazil of 3.1% or 2.5mmt and in Argentina of 5.5% or 1.4mmt. However these production increases were largely negated by increased consumption in China leaving ending stocks largely unchanged. The corn ending stocks are currently at their highest levels since USDA estimates began, which will place pressure on feed market prices.

The oilseed crop painted another bleak picture with end stocks increased to 91.21mmt, the highest since the start of the century for the major oilseeds. The forecasted production of oilseeds in Argentina was increased by 1.4mmt, which with the removal of currency controls at the beginning of the year is likely to place a dampener on oilseed prices.

The reports provided by the USDA are extremely important, as they are used around the world as the primary source of information on global agricultural supply figures, and the results often sway the market. However, there are a number of glaring anomalies in the USDA reporting, including a large disparity between the estimates of ABARES and the USDA of 1.8mmt in wheat production for 2015/16.

In last week’s grain commentary, ‘A grain of hope’ a number of potential bullish factors were identified for monitoring over the coming weeks and months. In this week’s market commentary, we will highlight the bearish factors on the horizon.

A visual representation in the change in production levels year on year (2014/15 vs 2015/16) is available below:

What does this mean?

The February report puts a dampener on prices rises in the short term, and a sizable crop production issue elsewhere is required to provide support for prices. Our current advice is to utilise opportunities for achieving cash flow whilst having exposure to the northern hemisphere harvest.

The local prices available have largely been held up by a weaker A$, and weakening prospects in the resources sector could see further falls to A$ in coming months to the mid 60’s.

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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