ACTION on most of the major global futures bourses over the past week has revolved around the United States Department of Agriculture (USDA) ‘Prospective Plantings’ and quarterly ‘Grain Stocks’ reports that were released last Friday (early Saturday morning Australian time).
Leading into the reports, grain stocks in the US were already at historically high levels and summer crop production in South America was at record levels, with estimates increasing almost daily.
Nevertheless, the figures released on Friday are extremely important from a fundamental perspective and will set the tone of the market as the northern hemisphere winter crop matures and the US summer crop gets planted.
The US grain stocks estimates for wheat, corn and soybeans were all above market expectations coming in at 45 million metric tonnes (MMT), 219MMT and 47MMT respectively.
It seems that demand for each commodity was less than the market had anticipated for the December to February quarter, leading to the bearish increase in stocks.
However, it was the planting intentions of the US farmer that really grabbed the spotlight on Friday.
The US corn planted area is estimated at 90 million acres (32.40 million hectares), one million acres below the average market estimate.
This was also down four per cent, or four million acres, from last year, with 38 of the 48 estimating states reporting lower or unchanged intentions.
A wet spring could lead to a further decrease in corn area, but the large old crop stock pile will certainly provide a market buffer if that does eventuate.
The soybean planted area in the US is estimated at a record 89.5 million acres (36.22 million hectares).
This was up six million acres, or seven per cent, on last year and a whopping 1.3 million acres above the average trade estimate.
Compared to 2016, 27 of the 31 estimating states reported higher or unchanged intentions.
Wheat area down
The USDA estimated the 2017 ‘all wheat’ planted area at 46.1 million acres (18.66 million hectares).
This is down 4.1 million acres, or eight per cent, from 2016 and is the lowest total planted area in the US since records began in 1919.
The winter wheat area estimate was down nine per cent on last year at 32.7 million acres (13.23 million hectares), which puts it slightly higher than the 12.6 million hectares planted to winter wheat in Australia last year.
The Southern Plains region of the US has received some very timely and favourable rainfall over the past month and this is likely to push yield estimates for the US wheat crop above the five-year average.
Whilst this will still mean that US ending stock will decrease for the first time in four years, the very high old crop stocks in the US, and the record global stocks, will cushion any market volatility.
The US winter wheat conditions are reported at 51pc good to excellent, down from 56pc at the same time last year, but the second best early April conditions in the past five years.
Mixed reaction on Chicago Exchange
The reaction of futures on the Chicago Mercantile Exchange (CME) following the release of the reports was mixed. The corn contract for May closed up 6¾ cents per bushel (c/bu), or approximately AUD3.25/mt. The May soybean contract fell 17c/bu (≈AUD8.22) to close at 946c/bu, a five-month low for the nearby contract. The US planting intentions and the huge South American crop were the primary influences.
Wheat found some technical (rather than fundamental) support as the low planted area had already been factored into the market. The May contract closed at 426½ c/bu, up 5½ c/bu, approximately AUD2.66/mt.
In reality, old crop wheat stocks in the US, and across the globe, remain heavy and any bullish story from here hinges primarily, on less than favourable northern hemisphere spring weather conditions and its manifestation in lower winter crop yields and/or poor summer crop establishment. If favourable conditions persist, the bearish tone most likely continues.
Source: Nidera Australia Weekly Market report: Peter McMeekin is Nidera Australia’s origination manager.