By Angus Brown | Source: CME, USDA
The June World Agricultural Supply and Demand Estimates (WASDE) Report was released last week, with world grain and oilseed production estimates largely revised higher. While expected, this saw further pressure on prices. Barley was the only grain to buck the trend, with production being revised lower.
The USDA revised global wheat production slightly higher, with 1-2mmt increases in the EU, Russia and India being partially offset by a 0.5mmt fall in the US caused by dry weather in the Hard Red Wheat areas. Wheat consumption was revised higher in the same countries to largely negate production rises, with ending stocks forecast to be nearly 1.2 mmt higher than the May forecast, and 2.6mmt higher than the closing 2013-14 value (figure 1).
As suggested in our recent article ‘If the WASDE is right, where are we headed’, the increase in the stocks to use ratio to 27% over last year’s 26.5% suggests end of year prices should be lower than the $240-250/t values we saw earlier in the year. This is where prices have headed over the last month as weather has been benign and production prospects have improved.
Very little happened with the Corn estimates, with only a marginal increase in ending stocks. Corn production is expected to outstrip demand and grow supplies for the second year in a row, seeing the stocks to use ratio reach its highest level since 2004-05 (figure 1).
Barley is a small player in the world grain market, with global production just 13% the size of corn and 18% of wheat. However, it is an important player in the malt market, obviously, and the feed market. Barley production is forecast to fall nearly 10% this year thanks to lower production in major producers the EU, Canada and Australia, pushing ending stocks and stocks to use ratio to at least a 25-year low (figure 3). This is contributing to the strong premium barley currently holds over corn.
As with corn and wheat there was little change in oilseed numbers, with the recovery in stocks from last year on track to be realised as the US soybean crop has gone in without too many issues. This has been largely priced into the market, with little price change on release of the report.
When the May WASDE was released, wheat and corn prices were 17% and 12%, respectively, higher than today. Much of the risk premium that was priced into the market then has been eroded by better sowing and growing conditions, and a lack of further problems in Ukraine. However, there is some further downside when some selling pressure comes into the market once the northern hemisphere harvest ramps up.
Barley is an interesting one. There is maybe more upside in local values than previously thought in the event of lower supply this year, as Australia accounts for around 23% of world barley exports. So while barley is already at a historically strong premium to corn, there is room for it to go higher, especially for Malt barley, if further production cuts are realised.
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