Last week’s USDA Report seemed to be supportive for wheat, with the market rallying 20 USc/bu in response, setting the market up to challenge the highs set in late May. However, the rally did not last, with prices then falling by 33 USc/bu, or A$12.69 per tonne, over the next two trading sessions. Further small losses were recorded on Friday night to close the week just under 500 USc/bu, down from the May high of 554 USc/bu.
In general terms the USDA Report appeared to be neutral for wheat with US supplies (stocks plus production) increasing a little, and global supplies falling a little. Probably the negative came from the US numbers, which showed a lift to opening stocks (driven by lower exports for the marketing year just finished), and a lift in winter wheat production.
Globally the numbers seem to be supportive with another reduction in the estimate for the Russian and German crops, pulling 3.07 mill/t from the global crop, but reduced use for feed saw global stock estimates lift by 1.83 mill/t.
Several factors combined to then cause the sharp reversal in prices. One is the normal seasonal pressure from the winter wheat harvest, even though the early harvest is in the main drought areas. In addition, we had a rising US dollar, the un-competitiveness of US wheat at the recent higher price levels, and disruption to grain markets from US trade spats with China, Canada and Mexico.
The un-competitiveness of US wheat had become quite significant, with some analysts indicating that it had pushed out to as much as US$40 per tonne in late May. A part of the problem is that even though Russian production is being wound back, along with smaller reductions for the EU crop, Russian and EU prices are not lifting at this stage.
The underlying issue continues to be large global stocks, and importantly, large stocks in Russia which will allow them to maintain high levels of export despite the problem with this year’s crop.
For wheat though, issues surrounding production remain. While parts of the Black Sea are getting rains, the dry areas remain dry, and in the case of Russia this is where a lot of export wheat is sourced from. The USDA reduced the Russian crop, but some would suggest that estimates for Ukraine and Kazakhstan are still under pressure.
ABARES has also reduced the estimate for our crop on the back of a lower acreage, as northern NSW winter cropping areas are wound back against the drought. At 21.9 mill/t it is up on last year’s crop, but well under the 24 mill/t being assumed by the USDA.
