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Tuesday, January 14, 2014

USDA report opposite surprises for wheat and corn

By Angus Brown  |  Source: USDA, ASX, CME

Key points

  • USDA reports released on Friday night surprised wheat and corn markets.
  • Increased stocks of wheat saw prices fall, while smaller corn stocks instigated a price rise.
  • Locally prices haven’t really reacted, as basis remains very strong, and prices steady.

2014-01-13 USDA Suprises Wheat And Corn FIG 1

2014-01-13 USDA Suprises Wheat And Corn FIG 2

2014-01-13 USDA Suprises Wheat And Corn FIG 3

The United States Department of Agriculture (USDA) released a number of reports on Friday night, but the ones to impact the market the most were the quarterly grain stocks and monthly World Agricultural Supply and Demand Estimates (WASDE), which send wheat lower and corn higher.

In the quarterly stocks report, the USDA cut its domestic consumption estimate, which raised its US ending stocks estimate by nearly a million tonnes. This, when combined with increases in production estimates from China and Russia, saw global ending stocks increase by 2.6mmt (figure 1).  This was despite a 0.5mmt production cut in Argentina.  The market was expecting ending stocks to be steady, and the result was a 10¢ (2%) fall in CBOT March futures, which at one stage were 30¢ lower.  Regardless, spot wheat futures are now close to 2-year lows in our terms at A$234/t, thanks in part to an improving Aussie dollar.

Driving the lower US wheat consumption was a switch to corn.  The USDA increased US corn consumption estimates by 2.5mmt, or 1%, and decreased production estimates slightly. When combined, these took US ending stocks 4mmt, or 9%, lower.  This decreased world ending stocks by 1.4%, which is small relative to the US decrease thanks largely to a 6mmt increase in Chinese production.  Analysts expected corn ending stocks to be higher than last month. As such, markets responded by gaining 20¢, but are really only back to where they were before Christmas.

Oilseeds were the only market which wasn’t surprised, with a 1% increase in global soybean production and a 2.7% increase in ending stocks already largely priced into the market.  Soybean prices reacted with a marginal gain. 

Barley ending stocks were forecast marginally higher. This will have no effect on our market, which is currently being driven by domestic demand rather than international factors.

Looking further out, the USDA estimated US acres sown to winter wheat has fallen by 3% on the 2013 level, which may alleviate some supply pressure over the coming year.  

What does this mean?

The latest estimates from the USDA will have more impact on new season (2014/15) prices than those for the recent harvest.  Figure 2 shows that, while little has changed from last year in terms of supply and demand, wheat is priced nearly 25% lower than this time last year. 

Figure 3 shows the increase in corn supplies, which has driven corn and wheat prices lower.  The market is now relatively comfortable with supply levels, and prices will continue to ease, although only slowly until we see some sort of supply shock.

For recently harvested grain, markets continue to largely ignore movements in international markets tracking sideways and improving basis premium to international prices.  The demand for feed grain in the north continues to strengthen, pulling feed barley higher. This is helping support a wheat market, which is now at premium to CBOT wheat of $55 in NSW and $48 in Victoria for APW in Track markets.  

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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