Chicago Board of Trade July wheat futures hit fresh highs last Friday night, before falling sharply after the United States Department of Agriculture released grain stocks and crop acreage numbers. The initial lift in prices was supported by a reduction in the planted area of the Canadian spring wheat crop to below trade expectations.
However, the International Grains Council then lifted its estimate for the global crop by 3 million tonnes on the back of better yields for the EU, India and Ukraine, but the real downside came from the release of US crop acreage estimates and grain stocks.
In a surprise move, the USDA lowered the soybean acreage by 4.5 million acres and lifted the corn acreage by 4.7 million acres. In the case of corn, it represented a 1.8 million acre increase in USDA numbers in just two weeks. It also pushed the corn acreage to within 1 million acres of the March estimate and to 2 million acres above last year's crop area.
The trade was not expecting this, as it basically says that there has been no acreage reduction in response to the excessive rain and flooding. While that result is being questioned, it was enough to drive corn prices to a three-week low.
Wheat was dragged down as well, with wheat needing to remain competitive against corn to push tonnage into the US feed market.
In terms of grain stocks, corn, wheat and soybean stocks all came in slightly under expectations. On its own the data for wheat was not bearish, but with wheat being driven by corn, there was nowhere else for wheat to go but down.
The timing for wheat to peak and then drop away is similar to recent years, where the end of June USDA reports, or nearby, have been the turning point for wheat futures.
However, there is still more to play out on this. No one, including the USDA it seems, believes the corn numbers. The USDA will resurvey major corn production areas during July and will publish updated acreage numbers in its August Monthly Report.
By then we should also have a handle on how the US season is tracking, and what yield impact will hit late planted corn crops as we pass through the peak of the US summer.
It may well be that revised numbers will be supportive of the corn market, but by then the global wheat harvest will be very advanced and more will be known about final production in North America, Europe and the Black Sea. We will also know whether the drought in Australia has tightened its grip again.
Meanwhile here is little need for wheat to trade higher given this year's projected increase to global production and stock levels.
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