The year 2020 has undoubtedly been one of surprises and the United States Department of Agriculture (USDA) delivered one of its own last week in its quarterly US Grain Stocks report.
Most in the trade were expecting quite benign numbers, but the USDA had other ideas - posting tighter than expected corn, soybean and wheat supplies.
Old crop corn stocks at the end of the 2019-20 marketing year were 50.7 million tonnes, which was down 10.2 per cent compared to the same time in 2019 and significantly lower than the average pre-USDA report trade estimate of 57 million tonnes.
On-farm corn stocks were down 8 per cent from a year ago, while off-farm stocks were down 12 per cent year-on-year.
The most likely implication is higher feed and residual usage in the fourth quarter of the marketing year, which is a bullish surprise in light of the lower corn for ethanol usage due to the COVID-19 travel restrictions.
But, despite the strong Chinese demand for US corn, the price outlook seems bearish - unless there are some yield surprises when the US harvest hits the key production states.
The September 1 soybean stocks also came in well below trade expectations at 14.2 million tonnes, which is down a staggering 42 per cent - or 10.5 million tonnes - compared to last year.
This fall in US stocks definitely tightens up the global balance sheet and places increased importance on the current state of play in South America, especially if the Beijing buying binge continues.
Soil moisture levels in some regions of Argentina and Brazil have been drier than is typically expected at this time of year, due to La Nina.
The below average rainfall levels in Brazil have growers of both first crop corn and soybeans a little concerned, as sowing will be delayed and yields could be affected.
US wheat stocks at the end of the first quarter of the 2020-21 marketing year totaled 58.8 million tonnes, which was the lowest level since 2015 and a year-on-year fall of 8 per cent.
Stocks held on-farm are estimated to be down 4 per cent from last September, and off-farm stocks are down 10 per cent from a year ago.
The lower than expected levels imply that the June to August 2020 disappearance is up 4 per cent from the same period in 2019.
The USDA also reduced its US wheat production estimate for the current harvest by slightly more than 300,000 tonnes to 49.6 million tonnes on the back of lower yield numbers from the field.
Barley stocks in all positions in the US at the start of last month totaled 3.9 million tonnes, which was down 5 per cent from September 1, 2019.
Old crop grain sorghum stored across the country at September 1 was down 54 per cent compared to a year ago at 750,000 tonnes.
All US futures bourses copped a speeding ticket as a result of the stock numbers, with corn, soybeans and wheat surging by 4, 3 and 5 per cent respectively after the release of the USDA report last Wednesday.
The funds went all in, buying an estimated 55,000 corn contracts, 30,000 soybean contracts and 25,000 wheat contracts. Collectively, this buying spree amounted to a staggering 14.5 million tones of grain in one day.
In the two trading sessions since the rally, corn and soybean futures consolidated Wednesday's price gains, but wheat gave up almost US$2 of the US$10.50/t surge.
The market reaction to the wheat numbers was a little surprising.
Stocks may be tighter, but the US is presently uncompetitive in the export arena - and the global balance sheet is quite comfortable at the moment.
Some issues are playing out in Argentina, but that has been countered by higher Russian production.
Last week, the Russian Federation Ministry of Agriculture lifted its wheat harvest estimate from 75 million tonnes to 82 million tonnes, based on better than expected harvest receivals.
The USDA is still lagging at 78 million tonnes, but that is expected to be increased when the latest World Agricultural Supply and Demand Estimates report is released on Friday.
Russian export forecasts are on the rise as a result.
Local agriculture consultancy, Sovecon, has raised its current season wheat export estimate by 1.7 million tonnes to 38.9 million tonnes, which is not far below the record of 41.4 million tonnes set in 2017-18.
It is forecasting exports at 24 million tonnes in the July-December half, and almost 15 million tonnes in the second half of the marketing year.
The extremely dry spring has taken its toll on wheat yields in Argentina, with farmers in the north of the country reporting that some paddocks are so poor it will not be worth driving the harvester through the gate.
The Buenos Aires Grain Exchange (BAFE) has reduced its 2020-21 wheat harvest estimate to 17.5 million tonnes, which is down from 21 million tonnes in August.
It is now 2 million tonnes less than the USDA's estimated number, which is expected to be revised lower later this week.
When all is said and done, the wheat price outlook remains bearish - unless the dryness currently being experienced in the Black Sea region escalates and impacts next year's winter crop output.
It is not panic stations just yet, as there is still plenty of time to plant the crop. But it is certainly the most relevant area of concern for global supply.
At the end of the day, the potential issues in the Black Sea region, La Nina in South America impacting winter and summer crop production and last week's USDA grain stocks bombshell are all great news for the Australian farmer.
The market rally is perfectly timed, as this year's domestic harvest ramps-up in coming weeks.
The biggest concern, now that the Bureau of Meteorology has officially declared a La Nina is underway, could well be the harvest weather and getting the crop in the bin with minimal rain delays and no quality issues.
