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Thursday, March 10, 2016

No reprieve for prices in USDA data

By Andrew Whitelaw  |  Source: USDA

Key points

  • Global end stocks of wheat were reduced by 0.5%. However, stock levels will still be at record levels.
  • The USDA finally conceded that the Australian crop was not 26mmt and have now reduced to 24.5mmt
  • Corn stocks were reduced by 0.9%, as with wheat end stock levels will still be at very high levels.
  • Oilseed consumption is increasing in China, which is positive for canola prices.

2016-03-10 USDA WASDE FIG 1

2016-03-10 USDA WASDE FIG 2

The United States Department of Agriculture (USDA) has provided very little heat to the wheat market in recent months through its World Agricultural Supply and Demand Estimates (WASDE). This trend has unfortunately continued in March with a largely uneventful report. It is bad news which will drive the grains market and the current lack of news either way is keeping things quiet.

The WASDE report provided little fresh impetus for market moves in wheat, with end stocks dropping 0.5% or 1.2mmt from the February report (figure 1). This drop leaves ending stocks 10.7% higher year on year, and the highest end stocks on record. The biggest change in production came from India (2.4mmt) and Australia (1.5mmt). The decrease in Australia had already been factored in by the market since early on in harvest when it was apparent locally that the crop would not reach 26mmt, and will therefore not be a surprise to any local buyers.

The situation with corn is largely similar to that of wheat, with a month on month reduction in end stocks of 0.9% or 1.8mmt. This drop was largely attributed to a reduction in estimates of Brazilian stockpiles, and reduced production in South Africa due to drought conditions. The drought in South Africa caused by El Niño, has resulted in the country importing yellow corn from Ukraine and South America and white corn from Mexico. In South Africa white corn is favoured by consumers and anecdotally yellow corn is perceived to be for animals. However, in times of need yellow corn will be used.

The oilseed complex favoured slightly better with end stocks decreasing by 1.9% or 1.7mmt. The forecast for Chinese imports of soybeans has been increased by 1.4mmt month on month, on the basis of the increased shipping program so far this year. There was also an increased crush domestically in Argentina of 2.1mmt on the back of new government policies to remove tariffs on soybean oil & meal exports. This has encouraged local crushers to increase their processing levels.

All in all, the WASDE was a bit of a dampener with very little change to forecasts. Although the wheat and corn end stocks have dropped by 1.2mmt and 1.8mmt respectively, we are still left with very high global stock levels (figure 2) which we can’t ignore. The market is currently awaiting any bullish news from the northern hemisphere crop. However, there is very little bad news stories out there.

The old idiom goes that you should ‘hope for the best but plan for the worst’, this year it seems to be an appropriate viewpoint to take. On the 4th April, Mecardo will be joined by industry leaders in the grain trade to discuss options for developing a marketing strategy for a low priced environment. This online webinar is free of charge, and gives you the opportunity gain some additional insight into the market and ask any questions.

Register here

What does this mean?

The global wheat market has traded sideways for the past month, with no major bearish or bullish news to push the market either way this trend is likely to continue.

Growers need to prepared for prices remaining at low levels in the short to medium term, and will have to create marketing plans for the current pricing levels.

In January/February prices have benefited from a low A$. However, in recent days the A$ has appreciated to above 75c on positive expectations for iron ore. This higher A$ will impact on prices received by the Australian grower.

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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