MARKET news and market actions late last week were highlighted by the release of the latest International Grains Council (IGC) market report on Thursday followed by the release of prospective plantings and grain stocks reports by the United States Department of Agriculture (USDA) on Friday.
IGC calls new-crop
The IGC report was its first complete set of supply-and-demand numbers for 2019-20 (July-June). In summary, the forecast increase in total wheat and coarse grains production will compensate for lower opening stocks, but with a substantial increase in demand expected, a further drawdown of closing stocks is forecast. Closing wheat and coarse-grain inventories are estimated to fall by 29 million tonnes (Mt) over 2019-20 season to 575Mt.
This drawdown is primarily due to corn, where opening stocks are down for the third successive season, and demand is expected to increase year on year. The small increase in estimated global production of 10Mt is not nearly enough to cover the lower opening stocks and an expected rise in consumption of around 14Mt.
Global wheat production is forecast to increase to 759Mt, a rise of 24Mt on 2018-19, but still 4Mt short of the record of 763Mt set in 2016-17. Global consumption is forecast to increase in 2019-20, but by less than production, leading to a relatively minor increase of 6Mt in ending stocks to 270Mt.
Looking at individual producers, the IGC pencilled in Australia for a modest 22.9Mt, a significant rebound on the drought-ravaged production of 17.3Mt in 2018-19. Argentinian production is forecast to fall fractionally to 19.1Mt. In North America, Canada is expected to reap 32.6Mt of wheat, up less than 1Mt on last season, and the US harvest is expected to be 50.7Mt in 2019-20, below 51.3Mt this season.
The European Union (EU) is forecast to increase wheat production by 7 per cent from 137.9Mt in 2018-19 to 149Mt next season, the Russian wheat crop is estimated at 77.1Mt compared with 71.7Mt this year, and in Black Sea, the IGC has projected Ukraine will have a 10pc increase in wheat production to 27.5Mt.
The number with the most room to move at the moment appears to be Russian production. In 2017-18, initial forecasts started below the current IGC forecast of 77.1Mt and finished up at a record 85.1Mt. Current conditions are reported to be extremely favourable for the maturing winter crop, and rumours emanating from Russia suggest the record could be in jeopardy if these conditions continue through to this year’s harvest.
International barley production is forecast to rebound by 5pc, or 7Mt, to 149Mt in 2019-20. Global barley stocks are currently forecast to end the 2018-19 marketing year at a 23-year low of around 23Mt, but the IGC expects a small turnaround in that trend, finishing the 2019-20 season up around 2Mt at just under 25Mt.
Market dumped after US crop projections
US corn futures fell 4pc on Friday, their biggest single-session drop since July 2016, after the USDA released its latest grain-stocks report, and results of its annual planting survey. Soybeans and wheat followed the downward trend, despite the USDA’s lower-thanexpected spring-wheat and soybean area projections.
The USDA forecast the corn area at 92.8 million acres across the US in the next marketing year. This is up 4pc on the current season, and is a three-year high. The forecast was 1.5 million acres higher than trade expectations. Not surprisingly, the rise in the corn area came at the expense of the soybean acreage, which fell by 5pc to 84.6 million acres. This compared with trade expectations of 86.2 million acres.
On the wheat front, the USDA estimates that US farmers will plant 12.8 million acres of spring wheat this season. This compares to the long-term average of 13.4 million acres and is 3pc lower than the 13.2 million acres planted last year. Winter-wheat plantings were estimated at 31.5 million acres, down more than 3pc from the 32.5 million acres in the 2018-19 season. This means total wheat plantings in the US are estimated at a record low of 44.3 million acres.
The grower survey was conducted in the first two weeks of March, so there is significant uncertainty around how much the planting intentions will be impacted by the floods across the Midwest in the past three weeks. The growers who completed the survey early may have done so before the flooding. Those that completed it at the back end of the survey period may well have made some adjustments to their projections as a result of the floods.
The US-China trade war, or “Don’s Party”, has obviously had a massive impact on US grain stocks. Export sales struggle to meet expectations, and negotiations continue with Beijing without any signs the impasse will be resolved any time soon. As at 1 March, the USDA pegged domestic corn supplies at 8.6 billion bushels (218.5Mt), down 3pc on the same time last year, but the third biggest on record.
US wheat stocks came in at 1.59 billion bushels (43.3Mt), the second-largest 1 March number in 31 years, and is 6pc higher than last year’s 1.5 billion bushels (40.8Mt). The most significant year-on-year increase belongs to soybeans, which posted their largest ever 1 March figure of 2.72 billion bushels (74Mt). This is a whopping 29pc increase on the same time last year.
On the whole, last week’s IGC and USDA reports were bearish, and the US futures markets reacted accordingly. In addition, the northern-hemisphere winter crop appears to be progressing well, and there are currently no red flags to raise production concerns in any of the crucial winter-crop jurisdictions.
Big wheat stocks in the US, the potential for a huge Russian wheat crop, and a general rebound to near-record global wheat production is not the recipe for an escalation in global values. The autumn break is yet to arrive in many areas of Australia, but as production certainty increases, current new-crop prices should provide growers with enough incentive to lock away some production margin before the northern hemisphere harvest commences.