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Wednesday, October 14, 2015

WASDE overestimates Aussie harvest

By Angus Brown  |  Source: USDA, CBOT, ASX

Key points

  • October WASDE contained some surprises that moved wheat and corn lower and oilseeds higher.
  • USDA is forecasting a 27mmt Australian wheat crop, which is likely to be an overestimate.
  • A 24mmt Australian wheat crop shouldn’t move the international wheat market too far, as the market focusses on next year.

2015-10-14 WASDE FIG 1

2015-10-14 WASDE FIG 2'

2015-10-14 WASDE FIG 3

The USDA released its monthly World Agricultural Supply and Demand Estimates (WASDE) on Friday night. It brought a surprise upgrade to world ending wheat stocks, in part driven by an upgrade to Australian production by 1mmt. Obviously, this was done on early September conditions, not early October.

There were a few surprises in the October WASDE, and while there weren’t too many major moves, as always it was the unexpected moves that caught the market by surprise. 

The WASDE further cemented the fact that this year is going to see record wheat production and a 14-year high stocks-to-use ratio of 31.9%.  Figure 1 shows the latest update from the USDA, forecasting a marginal increase in production and a 1% increase in ending stocks.

From our perspective, the most interesting estimate was a 1mmt increase in the Australian wheat crop to 27mmt. This is close to what many local analysts were forecasting back at the start of September.  However, the dry September and ordinary October forecast has many pundits hastily revising down to 24-25mmt, or less in some cases.

Taking 3mmt out of the world wheat supply will pull the stocks-to-use ratio back to 31.5%. This is still higher than the 2014/15 value of 30%, which should, theoretically, see weaker prices than last year.  The question is whether the international market has factored in a 24 or 27mmt Australian crop. We suspect it’s somewhere in between and the impact on price of the eventual Aussie crop will be negligible.

Global corn supplies are expected to be lower than last year. However, the market fell on the WASDE release as cuts to production and ending stocks were smaller than expected.  Regardless, corn prices remain 18% above this time last year, which is justified by figure 2.

Soybeans had the opposite reaction to corn, with the increase in production and stocks being smaller than expected, and prices rising despite global production and stocks being more than adequate.

What does this mean?

On the main, wheat markets have factored in a record wheat crop and very strong stocks. However, this WASDE was a timely reminder to those starting to focus on the 2016-17 wheat crop plant that there is still plenty of wheat in the world.  This has seen values decline from recent peaks, helped in our terms by a stronger Australian dollar.

Times of record supply have historically been good times to buy. As such, consumers can look at taking positons on the back of the recent price decline, for this and next season, to protect against potential international supply issues.

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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