The June USDA report had little in it to support wheat prices.
Global ending stock estimates for 2017/18 were lifted by 2.9 million tonnes, and the now more-closely watched stocks number that excludes China, lifted by 2.5 million tonnes. US wheat supply estimates for the current year were also lifted, with a lift in opening stocks, and a lift in production and imports.
The lift in global wheat supplies largely came from a lift in the production estimate for Russia.
This is not good news as it will increase Russia’s export capabilities, and keep some competitive pressure on prices. Although the Russian crop will still be down on last year, the quality should be a lot better, returning Russia to the competitive Middle East markets.
The main year-on-year recovery in production is for India, where they expect a record crop of 96 million tonnes, up nine million tonnes on 2016/17. However, India is still expected to import four million tonnes as they continue to rebuild depleted wheat stocks.
The estimate for the Australian crop remains at 25 million tonnes. Despite our very dry start to the growing season, it is too early for the USDA to factor in a production decrease.
It is something to watch though, because a significant drop in our production estimate late in the year will feed straight into global numbers just as the crop for the rest of the world is being locked in, and it will deplete supplies from the list of key exporting countries.
So, the June USDA report has not provided any incentive for futures prices to rally from current levels. This leaves the market at the mercy of seasonal price moves, and weather issues. Seasonally we are seeing the US winter wheat harvest gather pace.
In July the harvest gets underway in Europe and the Black Sea. The market will focus on harvest results. We will also have the seasonality in the corn market to contend with. Once summer heat has past and its impact on pollination, corn prices also tend to come under pressure.
In the short term, we do still have weather factors that could continue to fuel a rally into the end of June. The main issue is the drought emerging in spring wheat areas of the US and Canada. This is also impacting the US corn belt.
There is still some prospect for a short rally in prices, particularly given that the US funds are heavily sold and may come under pressure to even up their portfolios.
A sustained rally in wheat prices into the end of the year will need global production and stock numbers to tighten. Australia may provide that trigger, but it won’t be much help to us if we are contending with lower production.