THE UNITED States Department of Agriculture (USDA) ran a bearish shiver through agricultural commodity markets late last week when it released the August World Agricultural Supply and Demand Estimates (WASDE).
US corn, soybean and wheat futures all tumbled around 4 per cent as the market digested the higher than expected production estimates. The funds also turned seller, exacerbating the extent of the downward move. The Chicago Board of Trade (CBOT) September wheat contract is now down more than 120 cents per bushel (A$56/t), or almost 22 per cent (pc), since the high on the 5th July.
The changes to Black Sea production were the biggest surprise on the wheat front. With harvest well underway, recent wires have certainly been suggesting that Russian wheat yields were higher than last year’s record season. However, it was the extent of the production increase that took the markets by surprise, adding 5.5 million tonnes (Mt). This puts the Russian crop 5Mt above last year’s record, at 77.5Mt.
According to the USDA, the Russian winter wheat harvest is around 60pc complete and reports from the Ministry of Agriculture suggest high winter wheat yields in the southern, North Caucasus, and central districts. Additionally, satellite vegetation imagery indicates outstanding conditions and high yield potential in the Russian spring wheat regions, including the Siberian, Ural and Volga districts.
The Ukraine and Kazakhstan wheat forecasts were also reviewed upward by 2.5Mt and 1Mt respectively. This puts the Ukraine production only 1Mt below the 2015/16 record of 27.5Mt, with further increases possible if the early yields continue through to the end of harvest.
Collectively, these changes mean that total Black Sea wheat production for the 2017/18 season has increased nearly 9Mt, to 118Mt. This is an increase of almost 4Mt year-on-year for the region.
Elsewhere, the USDA took around 0.5Mt off both United States (US) and European Union (EU) wheat production, and almost 2Mt off Canadian production. Surprisingly, Australian production was left unchanged at 23.5Mt. This is certainly on the high side based on most Australian trade estimates.
The washup of all these changes takes estimated world wheat production up to 743.2Mt, only 11Mt shy of last season’s record. After the USDA made some minor changes to world consumption, the ending stocks are now forecast to rise to 264.7Mt, an increase of 6.6Mt year-on-year. The stocks-to-use ratio has also move higher to 35.9pc.
Domestically, the widespread rains over the past two weeks have certainly freshened up the winter crops across the country and added some production optimism in many areas. However, these rains have only been enough to arrest the production decline at this stage.
If Australia is to increase winter crop production from here, these rainfall events must continue on a regular basis and temperatures will have to be extremely kind right through to harvest. In many regions, the plant root zone has been limited by lack of moisture since seeding, in particular wheat and barley. These crops will be very susceptible to hot windy days as the plants move into their reproductive phase and the moisture requirements peak.
The production concerns in northern NSW and Queensland have certainly been playing out in the domestic feed market over recent weeks. The spread between the southern Queensland and Melbourne markets is drawing wheat from as far south as Wagga Wagga onto the Darling Downs and down the range into Brisbane.
With excellent new crop production prospects in Victoria, and plenty of old crop still to be priced in that state, the northern feed market drawing arc will only be reduced if the current prices entice the long holder in central and northern New South Wales decide to participate in the market and let go of some their prized old crop stocks.
Source: Nidera Australia Pty Ltd (a member of the COFCO International Group)
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